Highlight 15/2023 – Economic impact of Climate Change and how to mitigate and adapt to them
Alex Guerrero, 5 May 2023
There is a close link between economic development and climate. Changes in the production model and in economic growth influence the level of carbon emissions, which ultimately affects temperature trends. The constant increase in temperatures, a consequence of climate change, is due to human activity. Moreover, more than 50% of annual emissions are caused by the five most industrialized countries. China, the US, India, Russia, and Japan. Yet, countries such as the Pacific islands, whose GHG emissions are less than 0.03%, suffer most of the effects of climate change. In 2008, the FAO announced that coastal flooding, salinisation and erosion because of rising sea levels and human activities would lead to a reduction in the size of productive agricultural land, threatening land security. Thus, islands like Tuvalu are destined to disappear in the next 20 to 30 years, consequently. In 2008, the global temperature was at 0.55°C, but in 2022 it was recorded as rising to 1.15°C, and by 2023, it is expected to be an average of 1.20°C. In the Southwest Pacific region, since the 1970’s, climate change has caused 1,500 disasters, with around 65,000 deaths and estimated economic losses rising to $163.7 billion.
This situation is not an isolated example, but the first glimpse of the reality that awaits the entire planet if the situation continues as it is.
Economic impacts and possible mitigation and adaptation policies
According to the IPCC Third Assessment Report, adaptation to climate change is the process of minimizing losses and maximizing economic benefits by addressing the risks arising from climate change.
At a private level, the energy transition will generate transitional costs for many sectors that face the risk of being left behind if they do not adapt to an economy with lower GHG emissions.
In 2018, an article estimated that, in a scenario where current mitigation and adaptation policies continue to be applied, there would be a reduction in global GDP of between 15% and 25% in 2100. Yet, if no policies were applied the reduction would be more than 25%. In addition, they estimate that moving from a 2°C to a 1.5°C scenario would benefit 90% of the global population in 2100 and save more than $18 trillion – a quarter of the global GDP -.
Moreover, possible adequate adaptation policies for developing states whose economy depends exclusively on the primary sector, would be to improve their resilience to droughts, by closely monitoring crop water use, and better managing water resources.
In the event of a significant economic loss due to the deterioration of crops, a productive adaptation of the crops should be considered. Furthermore, in countries with more developed economies, one adaptation proposal could be to build infrastructure that is more resilient to extreme weather conditions. An example is the Confederation Bridge in Canada, which was built to adapt to rising sea levels. Another proposal would be to build infrastructure capable of absorbing and storing large amounts of thermal energy, with natural ventilation to prevent damages, to produce new sources of energy. In other words, retrofitting existing infrastructure to better adapt to the effects of climate change.
Furthermore, in mitigating climate change, if we take a country like Spain as an example, we can suggest as a mitigation strategy to combat GHGs, to invest in energy efficient buildings, using renewable energy sources such as solar and wind power, and in more efficient modes of transport through the development of biofuels, and a greater implementation of electric vehicles. Besides, as a regional example, the EU launched the EU Adaptation Strategy 2021, which calls for preventing floods with urban adaptation strategies, i.e., preserving energy and reducing emissions through green strategies like the widespread installation of solar panels.
Finally, it is worth noting that the impact of climate change not only affects the economy, but life itself. Greenstone reported that climate change would be responsible for 85 deaths per 100,000 inhabitants in 2100. Moreover, the World Bank estimates that by 2050, more than 140 million people will be forced to migrate because of climate change.
Thus, policies to date have failed, with economics prevailing over people and the sustainability of the planet. The IMF states that this lack of adequate policies is due to a lack of knowledge of the consequences of climate change, to be able to foresee the economic costs involved, and whether the cost/benefit ratio is beneficial for states or can affect a country’s net worth, especially in highly industrialized countries. Yet, adaptation and mitigation policies may not always be cost-effective in the first instance. However, the long-term risk is much higher than the investment made. Ignorance may affect decision-making, but governments should not limit themselves to considering only the short-term economic impacts, but also the possible future losses. Climate change exists; it is palpable. States must act, as any policy that contributes to reducing GHGEs or reducing the hazards of climate change is more than welcome.
Alex Guerrero, Highlight 15/2023 – Economic Impact of Climate Change and how to mitigate and adapt to them, 5 May 2023, available at www.meig.ch
The views expressed in the MEIG Highlights are personal to the authors and neither reflect the positions of the MEIG Programme nor those of the University of Geneva.