Invest Now or Face Higher Costs Later: How Climate Uncertainty Is Inflating Green Transition Expenses

In a significant collaboration between the University of Illinois Urbana-Champaign and the World Bank Group, researchers Adam Michael Bauer, Florent McIsaac, and Stéphane Hallegatte have explored a complex aspect of climate action. In their 2025 paper, "Decarbonization Investment Strategies in an Uncertain Climate," they argue that achieving the Paris Agreement’s goal of limiting global warming is more challenging than we might think.

One of their key findings? The uncertainty around climate change raises the costs of taking action. Economic factors such as limited skilled labor and production constraints already make it costly to transition to greener technology. When we add uncertainty about how much carbon we can still emit, the price of action skyrockets. Policymakers often face a dilemma: prepare for worst-case scenarios, even if they might not happen, simply because they cannot predict when harmful thresholds will be crossed.

The researchers compare two models. One includes real-world adjustment costs and is better at capturing the challenges of transitioning across multiple sectors. The second model assumes a smooth transition and doesn’t factor in these costs. While both perform similarly under stable conditions, the first model reveals that when uncertainty is included, the required investment shifts towards immediate action, making early intervention imperative.

Bauer and his team emphasize that we need to increase climate investments now to mitigate risks. For instance, if we aim for a 1.7°C target, but the carbon budget drops to 300 gigatons, we might exhaust that budget in just under eight years if we don’t act promptly. This urgency is especially critical for hard-to-decarbonize sectors like agriculture and heavy industry, which are slower to adapt and need substantial investment.

Another important aspect of their study is the carbon pricing model. Climate uncertainty causes the average cost of carbon pricing to rise. If policymakers delay learning about the carbon budget, they will likely need to impose much higher prices in the future. The research shows that learning crucial information earlier – even just a year – could save billions in policy costs.

The authors also reveal that failing to consider adjustment costs can give a misleading sense of ease regarding the transition to net-zero emissions. These costs can complicate efforts and make rapid shifts much harder to manage. Thus, early action becomes not just a good idea, but an economic necessity.

While the researchers acknowledge potential technological advancements, like carbon capture, they stress these cannot substitute for the need for immediate action, particularly in sectors that can change rapidly. Their work serves as a crucial reminder. In the face of growing climate challenges, starting investments now in a well-planned manner is more than a strategy; it’s an urgent need.

To support these insights, a recent survey by the United Nations indicates that 65% of young people worldwide are concerned about climate change, showcasing a growing urgency among the younger generation for immediate action.

For more details on the importance of climate investment and strategies, see the UN’s findings on climate sentiment among youth here.

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World Bank, low-carbon future, climate action, decarbonization, fossil-fuel infrastructure, net-zero emissions