The Economical Paradox of Climate Change
Climate change poses an increasing threat to our nation and arguably the “biggest threat modern humans have ever faced” (United Nations 2021). Climate change will have profound and long-lasting effects on Earth’s physical and biological systems as sea levels and global emissions continue to rise. It has the ability to become a “crisis multiplier,” and the economy is not immune (Nunn et al. 2020). The risks to the United States economy include substantial losses in GDP due to the accumulation of impacts and increased expenses, which will exacerbate the US deficit. However, initiatives to combat climate change incite new economic opportunities and job creation. In turn, these offset the costs of climate change while implementing new measures to combat climate change, making industries more efficient and profitable.
Climate change will affect many sectors of the economy through damages to coastal property and infrastructure, changes to agricultural production and energy demands, and the impacts of higher temperature on labor productivity (Bloomberg et al. 2014). The amount of loss is contingent on the rate of climate change. Still, worst-case scenarios predicted GDP losses at over 10% at the end of the century, roughly equivalent to $2 trillion (Bloomberg et al. 2014). The impacts of climate change are substantial; slight variations in the predicted rate of change yield significant differences in the economic losses.
Farming and Agriculture sectors are seemingly at the most risk and most susceptible to such changes. This is due to the increasing frequency of extreme rainstorms, the extreme temperatures putting people and crops at risk, the subsequent drying of land, and sparse access to water. Midwest and Southern counties could see a decline in yields over 10% (Berwyn 2020). In the next 5 to 25 years, some estimates predict a 20% decrease in average annual production in corn, wheat, soy, and cotton in an industry contributing over $1 trillion annually to the United States GDP (Bloomberg et al., 2014). Other states in the Southeast, Lower Great Plains, and Midwest could see losses in crop production in the range of 50% to 70% (Bloomberg et al. 2014). Labor productivity of workers in fields such as agriculture, utility maintenance, landscaping, and construction can decrease by over 35% (Bloomberg et al. 2014). Consequently, changes in these sectors will undoubtedly adversely impact global trade.
Energy production and power infrastructure are also threatened. There are significant foreseeable losses here, if industries relying on natural resources are the most vulnerable, and predictions of increased energy demands go beyond what is currently available (Berwyn 2020). For example, power plants will not be able to function if the water supply is reduced, and there is not sufficient water to cool the plants. After Hurricane Harvey, oil refining capacities, a sector with annual revenue over $600 billion, were decreased by almost 11% (Berwyn 2020). Large increases in demand and decreases in supply will occur, resulting in inflation (Wade & Jennings 2016, 2). However, 63% of the damages associated with supply and demand changes can be avoided with deductions in the rate of climate change. The losses extend beyond these sectors and impact the economy as a whole. Weather-related outages cost the United States economy an average of $18 billion to $33 billion annually (United States Department of Energy 2013, 3). In years with storms or other major weather events, this figure is close to $100 billion.
The impact extends to all, and many industries and sectors are interconnected. The losses or reduced productivity can have a domino effect. The consequences extend to labor, transportation, infrastructure, factories, supply change, and global trading, arguably impacting all sectors (Kjellstrom 2014). With large decreases in the productivity of some industries, others relying on such sectors are undoubtedly also going to see declines, inciting a recurring effect.
Not only will GDP losses result, but costs to the United States will increase. Already at a deficit of close to $3 trillion, this is detrimental (Cox 2021). Impacts on coastal property and infrastructure would afflict the United States with high costs (Bloomberg et al. 2014). This is due to changes in ocean acidification, flooding from rising sea levels, and tropical storms (Berwyn 2020). Coastal and infrastructure would see an increase of $2 to $3.5 billion, with hurricane activity predictors increasing this figure by $7 billion, raising the total cost of this to $35 billion (Bloomberg et al. 2014). In the long term, by 2050, this figure would increase to $66 billion and $106 billion, and $238 billion to $507 billion by 2100. There is a 1 in 20 chance that the rising sea levels could cost over $700 billion in damages to the economy by the end of the century, and rising hurricane predictions could increase this figure significantly (Bloomberg et al. 2014). The costs are high and could seemingly be much higher than what has been predicted. In 2017, Hurricane Harvey alone cost the United States over $71 billion in infrastructure damages (Berwyn, 2020). In the past 5 years, the US has spent over $600 billion on damages (Newburger 2021). In addition, at the current rate of Climate Change, extreme temperature mortality is expected to cost the government $141 billion, labor is expected to cost $155 billion, air quality measures $26 billion, road repairs $20 billion, among many other expenses (Berwyn 2020).
While the impacts are glooming, there is an alluring economic incentive to tackle climate change. Not only can tackling such issues reduce the effects of the above phenomena but the approaches to doing so can generate and stimulate economic activity themselves. Estimates have shown that climate change could generate over $2.1 trillion in new business prospects (Ellsmoor 2019).
For example, there is a large incentive within power initiatives. The United States is planning to set aside $73 billion alone for improvements to the electricity grid (Freidman 2021). There is increased opportunity for private investment and jobs created. Greenhouse gas-driven changes will result in the need to construct over 95 gigawatts of new power generation capacity, which provides an opportunity of over $12 billion in revenue generation (Bloomberg et al. 2014). Wind and solar power incentives, among other forms of low-carbon energy, are emerging fields that can significantly reduce the effects of climate change and stimulate activity within their development. Pursuing this could allow $26 trillion to be generated, and over 65 million jobs to be created (Black, 2021). In the United Kingdom, 35GW of onshore wind by 2035 has been predicted to reduce electrical costs by close to 10%, create over 30,000 jobs, and generate over $360 million in export industries (Black, 2021). Incentives from the government could also help make this more desirable and help offset the costs businesses would endure.
There is also a benefit to forming environmentally efficient solutions to transportation, water systems, infrastructure, and other daily activities. For example, Tesla and other environmental car manufacturers stimulated major economic growth and created profitable fields. Every $1 million invested in renewable infrastructure generates between 7 and 8 full-time jobs (Black 2021). Ford exemplifies this and their development of a new alternative energy vehicle has led to increased development and manufacturing of a battery for such vehicles (Braun 2021). Businesses would increase efficiency and lower their production costs as a result (Grantham Institute 2021). It is, therefore, beneficial for all businesses to go “green” and reduce their contribution to climate change while developing strategies to improve their business model.
Climate change has large short-term and long-term impacts on the economy, and the scale is unpredictable and subject to change based on the level of action taken to combat climate change. Climate change will disrupt many sectors, lower productivity, and result in an overall large decrease in the United States GDP. Among other consequences of climate change, destruction to infrastructure will cost the United States trillions of dollars near the end of the century. Combating this by creating new forms of renewable energy and businesses going “green” will stimulate the economy and provide new job opportunities.
References
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