Global Climate Adaptation Costs Could Reach $4.1 Trillion Annually, Report Warns

A new international report has warned that the cost of adapting to climate change could rise to as much as $4.1 trillion per year, as global temperatures continue to climb and extreme weather events and sea-level rise intensify, placing growing pressure on public finances and economic productivity worldwide.

The McKinsey Global Institute said in its February report, titled “Accelerating Adaptation: Mapping the Costs of Cooling and Coastal Protection,” that the financial burden of climate adaptation is set to increase sharply over the coming decades, particularly in low-income countries and regions most exposed to climate risks.

According to the report, cooling-related expenses alone could account for around 40 percent of total global adaptation costs.

McKinsey estimates that the world currently spends about $190 billion annually on climate-related damages.

However, this figure could surge to approximately $4.12 trillion per year if global temperature rise exceeds 2 degrees Celsius above pre-industrial levels.

The report noted that in 2025, global temperatures surpassed the Paris Agreement’s 1.5-degree target throughout the entire year. 

Models from the Intergovernmental Panel on Climate Change (IPCC) suggest that the 2-degree threshold could be reached as early as 2030, two decades earlier than previously expected, amid forecasts of a strong El Niño event in the coming months.

McKinsey warned that if current trends continue, average global warming could reach between 2.7 and 3.1 degrees Celsius by 2050, making extreme heatwaves a regular occurrence and rendering large parts of the world increasingly uninhabitable.

Economic losses are already becoming evident, the report said. 

Extreme heat could reduce effective working hours by up to 20 percent in some regions by mid-century, with low-income workers and those in outdoor occupations bearing the greatest impact.

Without sufficient investment in adaptation, productivity losses could exceed 2 percent of gross domestic product in the most affected regions, particularly in South and Southeast Asia, sub-Saharan Africa, and the Middle East.

The report also projected a sharp rise in demand for cooling, with residential and commercial cooling potentially accounting for up to 40 percent of electricity consumption in fast-growing, hot-climate countries by mid-century. 

It warned of a significant gap in access to cooling solutions, posing both humanitarian and economic risks.

On sea-level rise, McKinsey estimated that between $1.7 trillion and $2.4 trillion in global GDP per year could be at risk by 2050 without protective measures, especially in low-lying coastal cities in Asia. 

The report emphasized that relatively modest investments in coastal defenses could significantly reduce these risks.

McKinsey stressed that the global adaptation finance gap remains wide. United Nations estimates suggest the annual gap could range between $194 billion and $366 billion by 2030, far exceeding current levels of available funding.

The report concluded that while the cost of climate adaptation will be high, the cost of inaction would be far greater economically, socially, and environmentally, underscoring that the challenge extends beyond financing to include governance, coordination, and fair implementation mechanisms.