Strong climate action and economic growth not mutually exclusive, OECD finds

Climate efforts are not keeping pace with rising risks, the OECD has warned in a new joint report with the United Nations Development Program (UNDP).

Its modelling found that robust international climate action would underpin stronger global GDP growth and minimise climate-related economic risks over the long run.

“The evidence shows that countries can support growth, development, and resilience while raising climate ambition,” OECD Secretary-General Mathias Cormann said.

“With the right policies in place, ambitious climate targets can help align public and private investment with a low-emissions future, reduce poverty, and promote energy security. The economic case for more ambitious, investable, and implementable climate strategies is clear.”

Aligning climate policies with economic and social priorities could lead to higher global GDP and boost energy security over the long-term, the report found.

Modelling a scenario of strong climate action among policymakers in the OECD, the report projected that GDP would grow by 60 per cent between 2022–40, and would be 0.2 per cent higher in the high-climate-ambition scenario than under business-as-usual conditions.

The OECD argued that its modelling showed that setting ambitious climate targets did not require economic sacrifice, indicating that, over the long term, climate action had positive impacts on economic growth.

Minimising climate risks would deliver additional benefits to economic growth, it added.

The OECD estimated that global GDP would be 3 per cent higher by 2050 and 13 per cent higher by 2100 in a high-climate-ambition scenario after factoring in the prevention of climate-related economic losses.

“The economic case for climate ambition becomes even stronger in the long run when considering avoided economic losses if the risks of climate-induced events are reduced,” the OECD said.

Natural disasters have already come at a cost to Australia’s economy and budget bottom line.

A paper by the Centre for Policy Development (CPD) found that the Australian government has spent an average of $1.6 billion a year on disaster recovery, but only budgets for $215 million. This has created a funding gap of $6 billion over the forward estimates.

Following ex-Tropical Cyclone Alfred, Treasury budgeted for an additional $1.2 billion in the contingency reserve fund – a budget line designed to cover unexpected costs – to account for climate disasters.

Data from the Australian Bureau of Statistics (ABS) also showed that Australia’s March quarter GDP growth was dampened by extreme weather events, while Treasury figures estimated that natural disasters had cost Australia over $2.2 billion in lost economic activity in the first half of 2025.

The OECD warned that competing priorities policymakers were facing, including an increasingly unstable geopolitical environment, threatened to undermine global climate ambition.

“Current efforts are not keeping pace with rising risks. The world remains on an upwards emissions trajectory, and climate action is losing momentum as countries face a range of competing geopolitical, financial and economic challenges that slow its pace and scale,” the OECD said.

“Without further action climate risks will intensify, and rising disasters, economic instability and financial system vulnerabilities will threaten long-term growth and development.”

The OECD report urged governments to impose robust, actionable and ambitious climate targets and stressed that economic growth and climate action were not mutually exclusive.

“Enhanced [climate policy], if well-designed and supported by strong implementation frameworks, can simultaneously accelerate inclusive economic growth and reduce emissions.”