In the chilly and rarefied air of Davos, recent days saw yet another surge in the temperature of the world’s debate on climate change. While Greta Thunberg led pleas to political leaders at the World Economic Forum for urgent action to avert climate catastrophe, Donald Trump used the same platform to denounce “prophets of doom.” The virtual confrontation between Trump and Thunberg came just weeks after a UN climate change summit in Madrid ended in a stalemate.
The near-apocalyptic spectacle of still-smoldering Australian bushfires, and another year of record temperatures and extreme weather, might seem like enough to jolt the world out of its paralysis. Yet a worldwide consensus for more radical action on climate change remains elusive. Why?
One plausible reason is that policymakers don’t have economic incentives to act. Putting hard numbers on the cost of climate change is challenging, and until recently economists lacked the right tools to do the job. As a result, global warming is too rarely included in the standard economic forecasts that shape policy making. That encourages leaders to act as if climate change is cost-free.
But now we know better. In recent years, economists have developed new methods of forecasting the effects of climate change that take into account extreme temperatures, heavier rainfall, drought, flooding, storms, rising sea levels and ocean acidification. And as their estimates have grown more precise, they’ve also grown more pessimistic. Damage estimates from 1998 to 2008 were in the range of a few percent of world GDP; recent credible estimates are an order of magnitude higher. Unconstrained emissions would strip 30 percent off the world economy by 2100, according to largest plausible economic estimates.
More immediately, in a recent Oxford Economics analysis I found that the 2 degrees Celsius of warming expected by 2050 in a high-emissions scenario would imply costs of between 2.5 and 7.5 percent of global GDP. This pain will be spread unevenly across countries and economies, too, with India, Africa and Central America being hit hardest.
The perception that the risks are smaller than they really are hinders urgent efforts to address climate change. Just as dangerous is the belief common in some government, policy and business circles that rising investment aimed at adapting to climate change in the short to medium term will offset its economic fallout. This investment is essentially unproductive, since it goes to replace existing capital stock. So, on top of the direct damages caused by climate change, economic growth will be further cut as investments in adaptation efforts reduce potential growth rates.
The toll looks graver still if one that factors in the potential economic value of items normally excluded from market-based estimates of GDP such as natural capital that faces depletion from environmental degradation and the costs in terms of human mortality.
The difficulty of putting hard numbers on the increasingly hard reality of climate change looks to have stood in the way of a serious policy response to the threat. But, as with climate science, the economic case for action now looks incontestable. And it’s turning up the heat on policy makers who can no longer afford a cool detachment over the costs about to be felt.- Bloomberg