by Yvan Guillemette, OECD.
Last week the OECD released the latest update of its long-term scenarios, which are designed to quantify some of the most important long-term macroeconomic trends and policy challenges facing the global economy. One central challenge is the need to accelerate the transition toward renewable energy sources to reduce greenhouse gas emissions and attenuate the impacts of climate change. How this might impact future output trajectories is the focus of this update.
The analysis considers two “business-as-usual” scenarios in which decarbonisation of the energy mix and improvements in energy efficiency continue along recent trends. The first is based on a median climate damage curve and the second on a high climate damage curve within the wide range found in the scientific literature. In the scenario with a median climate damage curve (scenario BAU1), global annual potential output growth is projected to moderate gradually from around 2.9% today to 2.7% in the first part of the 2030s, 2.1% in the early 2040s and remain at around 1.3% in the second half of the century. This moderation reflects declining working-age population growth and slowing trend labour efficiency growth in the emerging-market economies as their productivity levels get gradually closer to the frontier. China remains the world’s largest economy until the mid-2060s when it is surpassed by India.
Global annual potential output per capita growth slows by less than overall output, but still declines from about 2% today to 1¼ per cent by 2050, remaining broadly stable thereafter.
Insufficiently rapid progress on reducing greenhouse gas emissions implies continued global warming. The global average surface temperature anomaly – the increase in the global average temperature since pre-industrial times – continues to increase throughout the projection period and reaches 2½ °C in 2100. The reduction in global output associated with climate change, estimated to be approximately 1¾ per cent of global GDP today, rises to nearly 9% by 2100. With a steeper climate damage curve, at the high end of recent estimates, projected climate damages reduce global output by 36% by 2100 (scenario BAU2).
An illustration of the potential impacts of an accelerated energy transition on future output must consider two main impact channels. The first is faster carbon mitigation. This is a negative supply shock in the short to medium run (relative to a business-as-usual scenario), with the size varying across countries according to their current energy mixes and ease of substitutability. The second is the avoidance of climate-related damages, a positive supply shock in the medium to long run (again, relative to a business-as-usual scenario) that is also country specific. To highlight the uncertainty surrounding these channels, four energy transition scenarios are considered with differing assumptions about the pace at which carbon mitigation costs might decline over time and the steepness of the global climate damage curve.
- With a median climate damage curve and a slow decline in mitigation costs (scenario ET1), global output remains lower in 2100 than in the corresponding business-as-usual scenario.
- With a median climate damage curve and a quick decline in mitigation costs (scenario ET2), the energy transition becomes a net positive for global output around 2085.
- With a high-damage curve and a slow decline in mitigation costs (scenario ET3), the energy transition becomes a net positive for global output in the mid-2050s.
- With a high-damage curve and a quick decline in mitigation costs (scenario ET4), the energy transition becomes a net positive for global output in the mid-2040s. All 139 countries modelled individually are net beneficiaries by 2080.
The new long-term scenarios also incorporate several key improvements to the underlying projection framework: 1) the geographical coverage is now global, including 139 countries modelled individually; 2) the projection horizon has been extended from 2060 to 2100; 3) the approach for long-run productivity convergence across countries has been revised; and 4) the framework now allows for the impact of climate damages on output via a global climate damage curve and country-specific climate sensitivities that can be altered to consider different assumptions and scenarios.
Selected series for the scenarios are available on the OECD Data Explorer and additional data visualizations are available on this web page.
Additional readings:
OECD (2025), “OECD global long-run economic scenarios: 2025 update”, OECD Economic Policy Papers, No. 36, OECD Publishing, Paris, https://doi.org/10.1787/00353678-en.