The Economics of Climate Change


In his recent inaugural address, president Obama promised to tackle the problem of climate change, saying “We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms.” He noted that preserving the environment and forging a path to a clean energy future will allow us to “maintain our economic vitality and our national treasure – our forests and waterways; our croplands and snowcapped peaks.”While in previous months climate change concerns have taken a backseat to economic ones, two new reports reveal just how critical environmental health is to a healthy economy. The first is the World Economic Forum’s Global Risk Report which notes that stress on the global economic system combined with stress on the Earth’s environment could combine to trigger the “’perfect global storm,’ with potentially insurmountable consequences.”

Meanwhile, the draft of the third National Climate Assessment Report was released that indicates that human-induced climate change is already having major impacts and will continue to drive increased storms, sea level rise, Arctic ice melt, wildfires and more with devastating economic consequences.

Weather catastrophes, driven by global warming, have become the norm, and are costing the economy billions per year. Hurricane Katrina cost the most of any weather-related disaster in the nation’s history, with $63.3 billion in insured losses, according to a Bloomberg article citing a report by Munich Re, the largest reinsurer in the world. And North America leads the world in natural catastrophes, with a fivefold increase in such disasters, spurred by climate change, over the past three decades. Altogether, weather-related catastrophes between 1980 and 2011, have led to $510 billion of insured losses—69% of the global total, according to Munich Re.

Of particular challenge, notes the Global Risk Report, is increasing urbanization. With more people concentrated in cities, the potential for devastating environmental impacts is greater. The Climate Assessment Report, citing the pressing danger of sea-level rise, notes that nearly 5 million Americans live within four feet of the local high tide level. “The logic of risk management prescribes that countries should invest today to safeguard critical infrastructure and centers of economic activity against future climate-related losses that could be of much greater magnitude,” explains the Global Risk Report. “And there is an even more compelling political logic to do this in order to generate new employment and to revive economic growth as soon as possible. But investment in strategic infrastructure is more easily said than done, despite the short- and long-term benefits.”

What else could such investment begin to stave off? The Climate Assessment Report details an unsettling list of environmental changes underway that will all wreak havoc on the economy, including disruption of the water supply, a rise in new diseases, adverse impacts to crops and livestock, increases in air and water pollution, a rapid decline of species and ocean acidification—which will disrupt the entire marine food web. While the report notes that adaptation and mitigation efforts are increasing, it says that “the level of current efforts in insufficient to avoid increasingly serious impacts of climate change that have large social, environmental and economic consequences.”

Still, the president’s very direct address of climate change and its consequences left environmental groups hopeful that this terms would lead to real action.

“Over the next four years, we are counting on President Obama to set tough limits on carbon pollution from power plants, continue investing in the development of clean, renewable energy sources, including wind and solar power, and to implement dramatic energy efficiency improvements that will cut dangerous pollution and protect our environment and our families,” said Margie Alt, executive director of Environment America, in a statement.