How Climate Change is Already Changing Our Economics

CY Tan
PERL.eco
Published in
3 min readJul 13, 2023

This week in the United States, Farmers Insurance announced its decision to pull out of Florida property, auto, and umbrella insurance entirely. Farmers Insurance has now joined Bankers, Centrui, and Lexington (as a subsidiary of AIG) in abandoning the Florida market. This follows a number of insurers pulling out of the California markets in recent weeks all as a result of the impact of climate change.

Human-made climate change has pushed sea temperatures in the seas around Florida to unprecedented high levels. These increased water temperatures are the fuel for hurricanes and storms that already plague the region with increased ferocity. If water and wind are making the East Coast uninsurable, it is wind and fire that means no insurer can bear the actuarial risk of insuring property on the West Coast thanks to the California wildfires.

Household insurance is a prerequisite for securing a mortgage under the policies from America’s two big lenders Fannie Mae and Freddie Mac and therefore these business decisions, which are directly related to economic risk for insurers flowing from climate change, threaten to have a stalling effect on the housing market.

This is just one example of how climate change is influencing our economics today, not in twenty or thirty years, but this very week. These trends are likely to continue and metastasize into other business sectors. Where insurers are willing to offer policies, premiums will undoubtedly increase and these costs will be passed onto consumers through higher prices. Climate change is already driving inflation, according to a report from the European Central Bank. According to this report, our purchasing power will be reduced by 1% a year, each and every year until 2035 thanks to climate change. Governments respond to inflation through manipulating the money supply by raising interest rates, making the cost of borrowing higher, and unfortunately suppressing economic growth.

The economics of climate change in this respect are not good. Rational economic responses to rising temperatures, and more extreme weather that is taking place today, not in some distant future, threaten to trap millions in worthless properties that they cannot sell and cannot protect against a more likely risk of total loss, pushes up consumer prices for everyone that prompt governmental responses to pushes down economic activity. These economic models leave everyone worse off at best and leave some people facing a total wipeout.

Another feature of climate change economics is that sustainable and renewable energy is where job growth is the future economic driver. Employment in renewable energy already outpaces that in fossil fuels. Finding and implementing solutions to human-made climate change promises more economic growth than persisting in the ways that have created this mess in which we find ourselves.

All these simple economic facts are not a 2030 or 2050 prediction, nor are issues for some future generations. These are the economic realities that we face today as a result of climate change. Yet we persist in being slow to change and adapt.

Most worryingly, we continue to allow companies to get away with acts of ecocide and fail to vote with our purchasing power and therefore show these companies any adverse consequences for their actions. There are three big sources of greenhouse gas emissions: burning fossil fuels; cutting down forests; and farming livestock. Within each of these areas, there are a small number of very large companies that make a lot of money, while supporting an economic system that is clearly not going to work for the benefit of the majority of people in the world. It is this small number of firms that spend the big lobbying dollars, employ the spin doctors and PR firms to spread climate disinformation, and are generally being successful in preserving a status quo that serves them well, despite the negative consequences for everyone else.

Perhaps that is the real economics of climate change, for a handful of 19th and early 20th-century industries to persist, everyone else on the planet needs to be worse off.

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