Climate Change

Is Fighting Climate Change Profitable?

Could green energy be a good investment?

Rohan Upadhyay
Jul 13, 2020 · 9 min read

This article can be found in my “Policy Opinions” section.

Many people logically fear that taking actions against climate change could disrupt the current energy industry and increase the government’s debt (as the government would increase spending on green technology). In other words, it could disrupt the economy.

But let’s consider that climate change itself could disrupt the economy and lead to billions of dollars in economic losses. Let’s run down the specifics.

Money Lost from Climate Change

Money spent on climate-related disasters

According to the Government Accountability Office (GAO), as of 2017:

“Over the last decade, the federal government has incurred direct costs of more than $350 billion because of extreme weather and fire events, including $205 billion for domestic disaster response and relief; $90 billion for crop and flood insurance; $34 billion for wildland fire management; and $28 billion for maintenance and repairs to federal facilities and federally managed lands, infrastructure, and waterways.”

Due to climate-related disasters and damages, the government has had to pay $350 billion over 10 years. That’s $35 billion per year. It’s possible that climate change could cause more natural disasters and droughts in the future, meaning that disaster relief costs could rise. Here are some reports on that:

  1. The Natural Resources Defense Council stated that by 2025, the climate-related costs could reach $411 billion per year (in 2008 dollars). We’d have to pay for hurricane damages, real-estate losses, higher energy prices (the oil supply may shrink, increasing prices), and drought alleviation.
  2. The Stanford Institute of Economic Policy Research gave a more long-term estimate, stating that if nothing is done by 2080, yearly losses could reach up to 5% of the American GDP.
  3. An article in Science Journal (a peer-reviewed journal) also made a long-term projection, stating that for every 1 degree Celsius increase in global temperature, economic damages (due to climate-related disasters like hurricanes) could rise by 1.2% of GDP.

Sure, these projections go very far ahead. Maybe we could find points of contention in their methodologies if we read them closely. It’s possible that the reality of the situation is not quite as severe as what these reports suggest. But these reports together give a general idea that we’re going to pay more for climate change the longer we wait to take action. We’re already paying tens of billions of dollars a year — that number could reach the hundreds.

Climate-related health costs

A key reason for fighting climate change is the potential consequences for human health and safety. Well, there’s an economic cost to this. When people are hospitalized for illnesses attributed to climate change, there’s a cost to treat these people — another cost of climate change. Here are a few sources with their estimates on the matter:

  1. The Natural Resource Defense Council (with the University of California, San Francisco) studied 10 “climate-sensitive events” in 2012. These included Hurricane Sandy, 2 wildfires, outbreaks of Lyme Disease, and other events. The costs of hospital and ER visits totaled $10 billion.
  2. A report in the Health Affairs journal (peer-reviewed) examined 6 climate-related events between 2000–2009. It looked at the effects of (1) air pollution, (2) hurricanes, (3) wildfires, (4) disease outbreaks, (5) floods, and (6) heatwaves. It found that health costs totaled $14 billion (in 2008 dollars).
  3. A study from the US Global Change Research Program looked at 58 climate-related events between 2004–2013. They found damages of $392 billion from hurricanes, $78 billion from heat waves and droughts, and $76 billion from tornados, storms, and floods. That’s a total of $546 billion.

So it seems like climate change can be costly in terms of public health. But you might be wondering, “can we really connect natural disasters to global warming?” It’s a reasonable question, and the US Global Change study answers it with the following infographic.

The US Global Change Research Program explains how climate change can increase the likelihood of several natural events, which in turn can adversely affect human health. For example, rising sea levels (from glaciers melting) can cause more flooding, which can cause contamination of the water supply, along with damage to infrastructure, not to mention the possibility of people drowning.

Above, we can see hypothetical explanations of how climate change leads to certain climate-related events (like floods and heatwaves) which in turn can hurt human health. However, these are just hypotheses. Is there evidence that climate change is increasing the likelihood of natural disasters?

According to Scientific American, there might be. While natural disasters can’t solely be attributed to climate change, the article cites multiple studies showing that there is some correlation. For example, it’s possible that, while global warming may not make heatwaves more severe, they could increase the frequency of such heatwaves.

Again, maybe these studies could be picked apart, or maybe they’re overstating the situation. The point is that, while there’s plenty of research that still needs to be conducted, it’s possible that climate change could play a hand in future casualties (and thus health-related costs) from natural disasters and other climate-related events. This makes sense — the whole point of addressing climate change is to save future generations from being in danger. If people are in danger, then there must be an economic cost associated with that.

Oil Prices Are Unstable

It’s no secret that the price of crude oil fluctuates a lot, as you can see below.

Historical prices of crude oil. See source here.

Why do oil prices bounce around like this?

Oil is controlled by OPEC

The oil supply is largely controlled by the Organization of Petroleum Exporting Countries (OPEC) — an alliance of 14 countries in the Middle East, Africa, and South America which possesses about 75% of the global oil supply. OPEC also produces 42% of commercial oil.

OPEC takes advantage of this control by artificially limiting the supply of oil in the market. Less available oil makes the existing oil more valuable, so the price goes up and OPEC members get more money. When it can, OPEC likes to keep the price consistently high to benefit its members.

However, OPEC can force prices to fluctuate and become unpredictable, leading to economic instability. A noteworthy example was the 1973 oil embargo. In short, the Arab countries of OPEC cut off oil supply lines to countries that they believed were supporting Israel during the Yom Kippur War. The result was a global recession — shortages of gasoline and other petroleum products caused prices to skyrocket, leading to mass inflation.

Prices of oil can be shaped by geopolitics — leading to economic instability — precisely because certain countries have more access to oil than other countries (since oil is found in reserves in specific areas).

Why Renewable Energy Could Be Different

We probably wouldn’t need to worry about this stuff with green energy.

Consider solar energy. Everyone has access to the sun (for our purposes, sunlight is limitless), and no one country can limit another country’s access to the sun. Seriously, imagine if the US or China tried to put a continent-wide sunshade over the other to prevent their solar panels from working — it sounds like a Dr. Evil plan.

Anyway, the point is that the “supply” of solar energy can’t be limited. However, oil is found more in specific countries, giving certain states control over the oil supply. This allows certain countries (i.e. OPEC countries) to influence the supply of oil when they want, meaning that oil prices are subject to geopolitics. That contributes to economic uncertainty.

You might argue, “well, the solar panels would be limited.” But solar panels are the equivalent of oil refineries, not the oil reserves. Right now, more advanced countries obviously have more refineries and thus greater influence over the energy market. That would be the same with green energy. However, going from limited oil reserves to limitless renewables (remember that things like wind and water are also virtually limitless) would definitely help more countries gain access to energy sources.

Patents on Renewable Energy

If the US makes bold investments in new green technology now, then maybe our companies can take the lead on that technology. Our companies could acquire patents on such technology before foreign competitors do so. Our country could produce this technology and export it to other countries, which would help grow our economy and support more jobs. We can profit from this technology, and we’d be in the driver’s seat to push innovation.

However, if America stalls on climate change, then other countries may beat us to those patents, so we may not reap as many benefits from such technology as quickly. The US would have to import green technology from other countries (importing reduces economic growth). This would also mean that we wouldn’t support as many green energy jobs.

If we want to put “America first,” then we need to lead the way rather than fall behind.

Here’s one parallel. During the 1950s and 60s, the US and the USSR were engaging in the “space race” to develop rockets. Both countries wanted to beat the other in sending people into space because each country wanted to dominate the aerospace industry (and have the pride of saying that they’re dominating the industry). It’s the same idea here — we should try to beat other countries in the “green energy race,” you could say.

What does the “green energy race” look like right now, though?

The percentage of green technology patents and developments in each country. Source: Organisation for Economic Co-operation and Development.

As you can see, the US has plenty of patents, but we’re behind Japan and China, and we could continue to fall behind. On the other hand, in actual development, the US is beating China and Japan by considerable margins. But the US is falling behind the European Union considerably and is virtually tied with South Korea.

The US can certainly take the lead in green technology innovation, but we’re also in a position to fall behind other countries, meaning that we may not reap as many benefits from this technology. It all depends on how we act in the next few years.

Something that could be done is that the US government could fund more research into green energy, and it could incentivize private companies to do the same. For example, maybe companies that work on this technology (and companies that go green in general) are prioritized with government contracts. Or maybe there are certain tax incentives for companies that attempt this kind of work. I’m just spitballing examples to give you an idea of what I mean, but I hope that clarifies my position.

Other Arguments

There are certainly more arguments that I could have discussed. For example, some would argue that climate change could affect the agricultural yield of crops and hurt farmers’ productivity. That has an economic cost as the economy wouldn’t be operating efficiently.

Others have pointed out that rising sea levels have caused many people to be displaced (“climate refugees,” if you will). A study from the World Bank (as one example), claimed that 143 million people in Latin America, Africa, and Asia could be displaced by 2050. Of course, that alone would be a humanitarian crisis. There’s also the fact that when we house refugees, we incur economic costs.

The implication is that there could be many hidden costs to climate change that stem from the potential damage to our infrastructure.

I’m simply pointing out that these arguments exist. Keep in mind that I only gave one source for each point. There’s definitely more literature on these topics, and these arguments should be discussed in their own time.

Conclusion

It seems possible that fighting climate change could save considerable sums of money (maybe even hundreds of billions per year). It could also provide economic opportunities.

But given all that, we should still try to make a green energy transition cost-efficient. We want the government to invest strategically, to leverage the private market where possible (so that private companies spend money rather than the government), and incentivize “going green” through certain regulations or rewards, for example. I’ll post my thoughts on that subject soon.

Remember to Stay Cynical, I guess.

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Rohan Upadhyay

Written by

A daily dose of skepticism is wise. Editor of “The Cynical Report.” Contributor for “Dialogue and Discourse.”

The Cynical Report

Your guide to dissecting the deception and BS in current events and politics.

Rohan Upadhyay

Written by

A daily dose of skepticism is wise. Editor of “The Cynical Report.” Contributor for “Dialogue and Discourse.”

The Cynical Report

Your guide to dissecting the deception and BS in current events and politics.

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