Obstacle or Opportunity: The Cost of Climate
Climate change is the most profound threat to the world as we currently know it. Disastrous weather incidents and temperatures are increasing every year, as if following the line of a predetermined graph, one that’s dictating the future, one that has been shown to the public several times back when the pinprick of the present was only beginning its journey down the axis. Climate change is worrisome in these global ways; darker headlines, economic consequences, and endless political negotiations on the issue yield a tired public, a public who just wants the deafening buzz to come to a halt. Perhaps climate change is felt so deeply as a concept because of its underlying simplicity — it will, inevitably, affect every individuals’ livelihood in some form. Socioeconomic status, geographic location, citizenship, health, age, and a plethora of other variables are intrinsic to the equation that determines these effects.
Unlike any other threat of the modern era, it is one that will affect the global economy, governance, healthcare…no sector is shielded. These widely and deeply penetrating ramifications are difficult to manage because they are so sprawling. A solution requires cooperation, global and industrial, individual and collective, on an immense scale. A demand for Western style living, and the norms that many in wealthier countries have grown accustomed to, seem to consistently overshadow the need for climate action in those states. Though it affects all sectors in terms of consequences, climate change is tightly coupled with economics in its solution. Rapidly, a problem deemed so complex becomes incredibly simple. As a society, we must address the questions that are critically ever-present: do we value money over the natural world, short term amenities over long term livelihood, and a fear of change over the peril of inaction?
Scholars and policymakers remain in widespread agreement that climate change threatens economic stability, though some may disagree on the scope and severity thereof. Agricultural productivity and energy consumption will be altered by resource availability, mass migrations, and inhabitable land. Current critical infrastructure is vulnerable and will likely require reinvestment and revamping. Overall human health will exist in the balance of access to food, exposure to severe weather, and overpopulation. These facts are largely undisputed both inside and outside the field of climate science and climate policy circles. Though the degree of extremity and alarm varies across political spectrums and socioeconomic spectrums, particularly, the majority of global citizens view these statements as likely true.
Such variation among opinion is logical — some groups will, empirically speaking, be disproportionately affected by climate change. A Science study published in 2017 stimulated the potential costs of climate change across different regions of the United States and different weather patterns throughout any given year. Researchers found that climate change will only increase socioeconomic inequality: particularly, communities in the Southeast and Midwest U.S. will “transfer wealth” to coastal cities, especially those in the Northeast. Because drastic temperature increases are one of the most prevalent effects of climate change, states that are already prone to intense heat will become unbearable. The report states that much of the southern half of the United States could face costs that “could impose the equivalent of a 20-percent tax on county level income,” due to decreased crop viability (by more than 50%), increased energy costs (by up to 20%), and the health consequences of heatwaves. Not only is such data relevant to concerns regarding socioeconomic disparities; it also illuminates the sprawling and impactful ways that climate change will continue to affect different economic sectors. Further, such impact has a tangible effect on individual people.
Most debates surrounding climate change, excluding that which rejects the prevalence of climate change, are centered around how best to approach mitigating the effects of the threat. Some view the solution as an economy-driven one, in which policy that addresses climate head-on has positive, uncoupled effects. These include increased jobs, robust global trade, and a re-solidification of the value of tangible goods. Further, the period of ideal climate will increase for regions in the Pacific Northwest, New England, and the northern half of the U.S. in between the two. Winters could become less deadly, yielding longer growing seasons and even increased economic productivity. In many ways, climate policy is an opportunity for many countries (and states) to spark economic progression, as new necessary industries will have voids to fill.
In contrast, some view climate policy as potentially detrimental to the current economic system. There is a subsect of scholars and policymakers who certainly recognize the devastating effects of climate change, present and future. However, they oppose swift action, such as a methodical transition to renewable energy, because of the extreme short term economic costs. In short, this group of thinkers considers the monetary, quantifiable costs of climate change as more pressing than the “social cost” of climate change — despite these social costs amounting to trillions of metaphorical dollars.
This phenomenon is especially apparent when considering the clean energy transition. The coal, fossil fuel, and natural gas industries are all in peril as the push to shift to clean energy (such as hydro, wind, and solar) begins. Suddenly, workers don’t have the necessary skills to succeed in the energy industry — they are phased out, their lifelong careers lost, and forced to move to another industry or obtain the required training. Climate action affects such individuals directly, and accordingly, many politicians have hesitated to act swiftly — Joe Manchin, for example, fears that his West Virginia constituents will lose much of their livelihood if the Biden administration’s proposed (and rapid) energy transition takes place.
In such political spaces, those who once rejected the threat of climate change have transitioned from denial to negligence, and now assert that the price of addressing climate change is too much to spend, and too significant of a transformation for the global economy to sustain. In fact, the International Energy Agency estimates that investment in clean energy would only need to increase by 2% of the annual global GDP in order to reach a net-zero carbon economy. For reference, “humankind already spends 1% of annual global GDP on clean energy,” so while it is an intentional increase in spending, it is not as drastic of a change as many politicians threaten.
Notably, such an increase is not simply a blank check in which the benefits disappear after the money is spent. Instead, it is an investment in new industries, technologies, and infrastructure. Initial spending is a necessity, certainly; but the economic opportunity, the potential for profit, and the reduction of future costs are undeniable. The UN’s Climate Action report in 2020 modeled that an investment of $1 USD will, on average, “yield $4 USD in future benefits.” Even President Biden’s climate agenda centers around investment in infrastructure. The multi-trillion dollar plan, which has yet to pass in Congress due to total cost negotiations, is only partially centered around clean energy and other climate-related initiatives. However, climate action is intrinsic to investment in infrastructure. The latter not only promises sustainable economic growth, but also ensures that existing infrastructure is resilient, such that inevitable climate disasters will not carry such a hefty price tag down the line.
Further, models predict that the growth in annual global GDP will decisively surpass the initial investment — “green investments” are not only necessary for the survival of humankind, they are also a massive opportunity to spur the growth of economies worldwide, both developing and developed. Historian and author Yuval Noah Harari aptly analyzes this data: “…we don’t need to completely derail the economy or abandon the achievements of modern civilization. We just need to get our priorities right.” Further, he notes that “politicians [shift] 2% of resources from here to there all of the time.” In other words, if there is a societal will, there is a political way — governments spent 14% of the global GDP in 2020 on stimulus and other responses to the COVID-19 pandemic. Harari added that 7% of annual global GDP is pooled to subsidize the ecologically damaging fossil fuel and agricultural industries; 10% is “hidden by the wealthy in tax havens.” Put simply, the money needed for climate action already exists, but is irresponsibly funneled towards industries that either enable or directly exacerbate climate change.
Some models estimate that climate change will have a negligible effect on the global economy’s rate of growth — this is especially apparent in models of the early 2000s. However, more current research has disputed this, and suggests that state and global economies will “increasingly struggle to fully recover from persistent and worsening climate damages.” Specifically, countries in Africa, South Asia, and Latin America will bear such weights most heavily, due to unique climate catastrophes, still developing economies, and a lack of secure public infrastructure. This pool of economic researchers view climate change as an exclusive threat to global economic growth and stability. Swiss Re, one of the world’s largest reinsurance providers, conducted economic analyses and determined that climate change will reduce global economic output by 11–14% by 2050, in comparison to growth models that considered a future without climate change. This reduction would amount to nearly $23 trillion — and as previously discussed, such a loss would be unevenly distributed across countries and regions. Countries in the global south, particularly those with already struggling economies, would face such economic losses disproportionately. In the United States’ context, Swiss Re estimated that the economy would decrease by at least 7%, and other wealthy Western countries would grapple with similar losses. If the 2015 Paris Agreement benchmarks are upheld, they predicted that “economic losses by midcentury would be marginal.” Swiss Re has a monetary stake in these projections: as a reinsurance company, they insure companies that provide specifically targeted insurance to consumers. For example, an increase in wildfires in the Western U.S. due to climate change makes Swiss Re hesitant to invest resources in home insurance companies that operate in those regions. Their models certainly project effects that are contrary to more opportunistic economists. However, as a company with profit in mind, it’s fair to assume that Swiss Re would prefer a more opportunistic model if they believed such a model to be credible.
The accumulation of this research illuminates a key question when considering the unique intersections of economics and climate change — how do we, as a society, truly define the “costs” of climate change? Are these costs simply a sum of necessary investments and inevitable damages? Perhaps, we must also consider the more qualitative costs in economic models as well: the loss of human life, the toll on societal livelihood, and the ever-compounding reduction in the viability of the natural world. Models demonstrate that the all-encompassing costs of climate change surpass the costs of attempting to mitigate climate change. When such costs are factored into economic models, the urgency of climate action only increases. If addressed effectively, opportunity for economic prosperity comes in tandem.
Works Cited
Flavelle, Christopher. “Climate Change Could Cut World Economy by $23 Trillion in 2050, Insurance Giant Warns.” The New York Times. The New York Times, April 22, 2021. https://www.nytimes.com/2021/04/22/climate/climate-change-economy.html.
Harari, Yuval Noah. “The Low Price Tag to Prevent Climate Disaster.” Time. Time, January 18, 2022. https://time.com/6132395/two-percent-climate-solution/.
Kamarck, Elaine. “The Challenging Politics of Climate Change.” Brookings. Brookings, September 23, 2019. https://www.brookings.edu/research/the-challenging-politics-of-climate-change/.
Meyer, Robinson. “Biden’s Amazing, Disappointing Climate Triumph.” The Atlantic. Atlantic Media Company, October 29, 2021. https://www.theatlantic.com/science/archive/2021/10/whats-actually-joe-bidens-new-climate-proposal/620543/.
Meyer, Robinson. “The American South Will Bear the Worst of Climate Change’s Costs.” The Atlantic. Atlantic Media Company, June 29, 2017. https://www.theatlantic.com/science/archive/2017/06/global-warming-american-south/532200/.
Nuccitelli, Dana. “Can the Economy Afford Not to Fight Climate Change? “ Yale Climate Connections.” Yale Climate Connections, September 17, 2021. https://yaleclimateconnections.org/2021/09/can-the-economy-afford-not-to-fight-climate-change/.
“Climate Finance.” United Nations. United Nations. Accessed February 29, 2022. https://www.un.org/en/climatechange/raising-ambition/climate-finance.
