The True Cost Of Climate Change Is Coming For Those Who Caused It
Our economic models are wrong. The mother of all crashes is coming.
We have all heard of the devastation climate change will ravage on our planet. From catastrophic sea level rises, extensive crop failures, persistent deadly heatwaves, calamitous droughts, regular recurring potent extreme weather and even more frequent pandemics. And that is even with our current climate legislation in place, if we slow down our progress even slightly, it could be even worse. But there is one effect of climate change that is never discussed, yet it is central to our future. Its effect on the global economy. Recent studies have looked into this, and overturned our old understandings and unearthed grim new findings. But there is one silver lining: it will directly affect those who have profiteered and caused our climate catastrophe.
COP28 starts this week, and to prepare for this momentous summit, economists are painstakingly updating their estimates of how drastically climate change will affect the world’s economy. However, for the most part, these economists are using old or unsuitable models that give far too optimistic of an outlook.
For example, several economic forecasts have found that global warming will cause less global financial harm by the end of the century than COVID-19 ever did. These aren’t fringe academics either; they are highly respected. Take Nobel-winning U.S. economist William Nordhaus, whose 2018 study found that balancing the costs and benefits of climate action would result in global warming of more than 3C by 2100. In other words, to reduce global warming by any more than this would be detrimental, as it would cost our economy more than the damage we would mitigate.
Needless to say, such studies are heavily criticised. They don’t consider the rapidly dropping costs of renewables, the economic benefits of renewables, lives lost to extreme weather and hampered livelihoods. Moreover, they routinely ignore robust climate models that include climate tipping points and predictable damages from climate change. For example, 3 degrees of climate change would cause eight of the world’s largest cities to sink beneath the waves thanks to sea level rise, which would cost the global economy trillions! London alone has a GDP valuation of over a trillion dollars, and it could be with the fishes by the end of the century.
In comparison, COVID-19 created $8.5 trillion in global economic damage. So, only the direct property and industry damage of only one aspect of climate change is enough to match the economic losses of COVID-19 (8 times a trillion dollars). So, straight away, we can see how weak these economic predictions are.
Critics have repeatedly stated that these overly optimistic economic forecasts are the product of economic models that are not fit to capture the full extent of climate damage. But, they aren’t a result of ineptitude; after all, these academics know the science and have all the resources they need to draw far more accurate conclusions. Instead, they might be the result of economists’ bias towards those profiteering from environmental destruction, such as oil companies, as they are still one of the most prominent players in our current economy. In other words, these are people who are used to protecting oil companies to bolster the economy. But, this approach is doomed to massively backfire, as these studies can provide an alibi for policy inaction, the fallout of which will be devastating.
This isn’t conjecture, as it has already happened. Trump used such broken economic models to justify his pulling out of the Paris Agreement. In a speech after pulling out, he said, “By 2040, compliance with the commitments put into place by the previous administration would cut production for the following sectors: paper down 12 percent; cement down 23 percent; iron and steel down 38 percent; coal — and I happen to love the coal miners — down 86 percent; natural gas down 31 percent. The cost to the economy at this time would be close to $3 trillion in lost GDP and 6.5 million industrial jobs, while households would have $7,000 less income and, in many cases, much worse than that. — Not only does this deal subject our citizens to harsh economic restrictions, it fails to live up to our environmental ideals. As someone who cares deeply about the environment, which I do, I cannot in good conscience support a deal that punishes the United States — which is what it does -– the world’s leader in environmental protection, while imposing no meaningful obligations on the world’s leading polluters.”
Trump failed to talk about how renewables are now more profitable than coal, how renewables bolster the economy more than fossil fuel energy, how renewables make more (and better paying) jobs than fossil fuels, how the US is one of the world’s top polluters per capita, and how climate change will cost the US, or that by 2100 climate change is predicted cost the US economy $2 trillion per year in economic damages.
These models and the dubious policies they enable are a massive worry as we approach COP28.
COP28 is the last chance saloon for international politics to create global cohesion on the phase-out of fossil fuels. The science is clear that if we delay any longer, we will lock in disastrous levels of global warming. However, the summit is being held in Dubai, a country whose economy almost entirely revolves around oil. Moreover, many figureheads of the summit are big names in the oil world, and they have even been caught stating that they will use COP28 to broker oil deals. So, these doggy and broken economic models are likely to be pushed by many at COP28 to stifle climate action and protect their assets.
However, the tide is shifting against these economic studies.
Many are starting to notice these model’s flawed nature. These models are known as “integrated assessment models” (IAMs). They aim to use the theory of how demand, supply and prices interact throughout an economy to find a new balance after a shock. When talking about IAMs, Thierry Philipponnat, author of a report by Finance Watch, a Brussels-based public interest NGO on financial issues, said that “climate change is fundamentally different to other shocks because once it has hit, it doesn’t go away,” in other words, no new equilibrium can be reached, as the economy is battered again and again knocking it out of balance, which IAMs can’t account for. We can see this in history, as recessions such as the Great Depression and the 2008 Credit Crunch had single trigger points that were quickly ratified. Then, over a few years, the economy rebalanced and started to grow again. Such quick correction can’t happen with climate change, as it will affect the economy for a prolonged time and from multiple and often misunderstood directions, such as reduced productivity to heat stress, extreme weather damage, reduced crop yields, tightened international tensions from resource shifting, debt issues and property and industry loss to sea level rise. As such, Thierry Philipponnat went on to say about IAMs that “if the fundamental assumption is flawed, all the rest makes little sense — if any.”
IAMs also have a maths problem, as they involve using a quadratic function to predict long-term GDP. This is relatively accurate for short-term modelling, but it is recognised as being woeful at long-term predictions, as the actual economy can follow an exponential pattern. As such, IAMs can massively play down the long-term impact of economic damages.
The European Central Bank (ECB), which is responsible for managing the Eurozone (economies that use the Euro), is one of the significant policymakers starting to turn its back on these models. Isabel Schnabel, an ECB executive board member, recently recognised that these models can understate the impact of climate change. It’s not surprising the ECB has started to change its tune this way. Earlier this year, an ECB report found that 75% of European bank loans depend on a healthy ecosystem. For example, the farming and fishing industries have a lot of debt to banks. This means that should the European ecosystem falter, it could cause widespread loan defaulting and a catastrophically huge financial crisis. This was a massive shock to the oil-funding bank, which has used investments in fossil fuels to bolster the European economy for decades. As such, they are winding back these policies, reducing fossil fuel funding, and trying to protect the Eurozone from climate damage.
However, some economists are determined to create better climate change economic damage predictions that consider more robust climate models and a more diverse use of economic models to hone in on an accurate figure.
One such study, which has been widely praised, found that by 2100, global GDP could be 37% lower than it would be without the impacts of global warming (assuming 3 degrees of climate change, which we are currently on track for). This study made no bones about how uncertain such a figure was, as the models it used couldn’t account for how society would adapt to reduce damages or reduce global warming. 37% was just the average number they came up with; others they sued found that the damage to global GDP could be up to 51%!
One of the significant results of this study was the value they calculated for the social cost of carbon (SCCO2). SCCO2 is an estimate, in dollars, of the economic damages that would result from emitting one additional ton of carbon dioxide. This figure is not only a crucial cornerstone for many of the IAMs, but also for determining climate policy at national and international levels. Currently, the US government has an SCCO2 price of $51 per tonne, while the EU has it at €61 ($66.71). This study, however, set it at $3,000 per tonne of CO2!
Why the disparity? Well, unlike the US and EU figures, this study used far more detailed, robust, and up-to-date climate models. As such, this figure alone shows just how catastrophically policymakers have underestimated the damages of climate change through inappropriate data and ineffective models.
But all of this is just numbers. Let’s per some perspective on this. The largest recession ever was the Great Depression. It mainly hit the US economy and then spread around the world. I don’t need to tell you how horrific this crash was, as pop culture has accurately depicted the squalid conditions this slump induced worldwide. Yet, the US GDP only fell by 30% at most during the Great Depression and fully recovered in only ten years. This study found that global GDP would drop 7% lower, bearing in mind this is an average, so many economies, including those of developed nations, will suffer more than this, and this damage could last for well over a century.
What’s more, the US is pumping out 6.3 billion tonnes of carbon dioxide each year. So, according to this study, The US is causing $18.9 trillion in economic damages each year! Of course, this cost is spread out over a long time, but that doesn’t reduce the impact of such losses.
So, what about the title of this article, “The True Cost Of Climate Change Is Coming For Those Who Caused It”?
Well, such economic damage does impact all of us. But, as we have seen with the Great Depression and the 2008 Credit Crunch, those who caused the damage are affected more. Stockbrokers in the Great Depression lost everything, and the banking industry after 2008 was in utter turmoil, with many who profited off the dodgy loan industry having to file for bankruptcy. These new studies and economic models show that those who profiteered off the destruction of our planet by selling polluting fossil fuels and actively undermining any attempt to hold their climate crimes accountable will have to eventually pay the bill. Either the economic damages they cause will trigger an unfathomably long economic downturn, reducing their once prosperous business to ruin, or policymakers and the democratic public will turn against them and force them to pay for what they have created to avoid financial oblivion.
What’s ridiculous is that alternative technologies have shown themselves to be economically sound. Green energy has already proven to be cheaper and boost the economy more than fossil fuels, so we can make the switch without throwing our economies on the bonfire.
Hopefully, this tide of more robust economic studies with far sounder data and logic will prevail at COP28. The world is waking up to the catastrophic impact climate change will have on us all. But the fact studies are starting to show that the rich, powerful and politically influential will also be dramatically kneecapped as the economies they depend on stall and collapse, means that far swifter action can happen as those who previously stalled climate legislation start to realise the self-harming error of their ways. Who knows, maybe these studies can usher in a far more equitable and prosperous global economy in which we can all thrive. It might be a long shot, but we can but hope.
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