Economic Assessments Overwhelmingly Support Climate Action

Conservatives commonly argue that acting on climate change is too costly, however, this is contradicted by a slew of economic assessments. When we look at the data it becomes clear that conservatives use economic insecurity to obscure the facts and control the narrative. There are a number of studies that show global warming undermines economic growth, but the most compelling data comes from cost benefit assessments.

Myriad reports reveal both financial incentives for climate action and disincentives for inaction. Studies reveal that there is a multi-trillion dollar opportunity associated with transitioning to a low carbon economy. Recent research from the Global Commission on the Economy and Climate finds that climate action could deliver a $26 Trillion opportunity through 2030.

Although economic arguments are commonly used to oppose climate action, cost/benefit analyses (comparison of the costs of inaction versus the benefits of action) reveal powerfully persuasive math.

The medical costs alone justify climate action. A recent WHO report concludes that the health gains from meeting the terms laid out in the Paris Agreement would more than make up for the financial costs. The Lancet report points to the costs of inaction. “About 712 climate-related extreme events were responsible for US$326 billion of losses in 2017, almost triple the losses of 2016,” the report says.

While it is hard to assign an economic value to suffering it is fair to say that it gets dramatically worse as the planet warms. Although estimates vary widely, economic costs are a bit easier to quantify. By 2060 the annual cost of climate change are estimated to be between $1.5 trillion and $20 trillion.

In 2005 the German Institute of Economic Research and Watkiss et al. suggested that by 2100 the cost of inaction (just damages) is approximately $12 trillion while the total cost of climate action (cost plus damages) is approximately $20 trillion. Some scientists have pegged the damage from climate change at $54 trillion while others say the costs of a high-emissions scenario would be between $89 and $535 trillion by the end of this century. Still others report that the cost of climate impacts could exceed $600 trillion. To put these numbers into perspective the total amount of wealth in the world today is $280 trillion, according to a Credit Suisse report.

An even more costly estimate is contained in a study titled, “Assessing the costs of adaptation to climate change: a review of the UNFCCC and other recent estimates “. The report indicates that if we do not invest in climate-resilient infrastructure the cost of climate change could be as high as $1,240 trillion. The same report claims we can preempt the problem by investing a cumulative total of $890 trillion in the green economy.

Not only are the costs of climate impacts exorbitant, the costs of climate action are frequently overstated. In a February 2019 Guardian article Erwin Jackson, director of policy at Investor Group on Climate Change, suggests that economic models predicting that climate action will augur an economic apocalypse are all wrong. Jackson explains that economic models have consistently underestimated
clean energy, overestimated the cost of environmental regulations and exaggerated the impact on jobs.

He cautions us to “beware of economic doomsayers” and he points to apocalyptic Australian newspaper headlines which he says are “designed to scare people into not acting on climate change by making them feel insecure in their lives.”

He draws on the economic climate policy models of Brian Fisher that suggest that even under dramatic emissions reduction scenario we will see economic growth (GDP, jobs, income etc), albeit at a slightly slower pace.

He references graphs posted on twitter by Michael Liebreich, the founder of Bloomberg New Energy Finance. Liebreich points out that economists have consistently underestimated the speed at which clean energy is decreasing in price and the scale at which it is being deployed.

Economic support for climate action holds true in both microeconomics and macroeconomics. Many corporations have amassed data that shows sustainability benefits their bottom lines. A January 2019 paper from Brookings titled Global Economic and Environmental Outcomes of the Paris Agreement shows that broader macroeconomic trends also have a significant impact on economic outcomes.

The Brookings paper concludes that countries that unilaterally withdraw from the Paris Agreement are worse off than those who stay in. Although there are gross costs associated with participating in emissions reductions this is offset by net benefits.

Almost all economists agree that climate change will hurt the economy. This view was presented in a 2018 article in the Bulletin of Atomic Scientists, titled, Benefits of curbing climate change far outweigh costs, by Dana Nuccitelli.

Carbon can be cut cheaply, Nuccitelli says and she points to a study by Regional Economic Models, Inc. and Synapse Energy Economics, Inc. which explored the merits of carbon pricing. Nuccitelli found that growth would only be marginally affected by transitioning to a low carbon economy and she summarized the findings as follows:

“[A] steadily-rising carbon tax whose revenues were all returned equally to American households would grow the economy, with a net GDP increase of $1.3 trillion over 20 years. Among economists with expertise in climate, there’s also a 95 percent consensus that the US government should commit to cutting carbon pollution, with 81 percent favoring a market-based solution like a carbon tax. And the Intergovernmental Panel on Climate Change 2014 report found that meeting the Paris targets would only slow annual economic growth by 0.06 percent—in other words, rather than increasing by say 2.3 percent per year, global GDP would increase by 2.24 percent per year.”

Here are three examples of papers that conclude global warming undermines economic growth. The first is a 2012 paper in the American Economic Journal and the second is a 2015 study by Stanford scientists published in Nature Climate Change and the third is 2015 research also published in Nature.

In a letter, published in Nature, Marshall Burke and a team of scientists quantified economic costs of higher temperatures. Jackson summarized the research as follows:

“limiting global warming to 1.5 degrees Celsius would likely save the global economy more than $20 trillion by the year 2100 as compared to 2 degrees Celsius warming—at a cost of about $300 billion. That means the benefits of curbing climate change would exceed the costs by about 70-to-1. The study also only accounts for temperature effects on GDP and not other damaging factors like sea level rise, and is thus likely a conservative estimate….global warming of 3 degrees Celsius above pre-industrial temperatures in 2100 would reduce global GDP by about 10 percent as compared to 2 degrees Celsius global warming. A temperature of 4-to-5 degrees Celsius would make us 10 percent poorer yet, as compared to 3 degrees Celsius. Those would be massive economic losses that could exceed $100 trillion. And it wouldn’t just impact poor countries—a working paper recently published by the Federal Reserve Bank of Richmond found that global warming could significantly hamper economic growth in the United States as well, especially in the hotter Southern states. The paper found that if we meet the 2 degrees Celsius Paris climate target, US economic growth will only slow by about 5-to-10 percent, but global warming of 3-to-3.5 degrees Celsius would dampen the American economy by twice as much—10-to-20 percent.”

Although the values people assign to environmental variables vary, the overwhelming logic of emissions reduction is beyond reproach. Most of the data points to a net savings associated with climate action. No matter how you look at the problem the costs of inaction are far greater than the costs of action. The benefits of reducing greenhouse gas emissions outweigh the costs of runaway climate change.

With benefits outweighing costs by as much as 70-1, cost benefit analyses make a powerful economic case that is hard to refute with facts. The IPCC, PwC, Citibank and many others have put forward economic assessments that support climate action. In the final analysis our economy and the survival of life on Earth is dependent on the health of the planet.

“Acting on climate change will have costs but the costs of not acting will be far, far larger. Better
that we come together and manage a fair and effective transition than continuing to delay and pay a much, much greater bill later,” Jackson says and he points out that explaining the costs of acting will be less than many expect because, “people and markets can innovate faster than they often
expect”.

There is no doubt that change is difficult, there will be costs and there will be losers. However, if reason prevails the overwhelming logic of climate action will supersede those with suicidal tendencies who argue that we can’t afford to act.

“It will take an immense effort to meet the Paris targets, but not a terribly costly one, relatively speaking. In fact, the opposite is true—failing to curb climate change would cripple the global economy. That’s why the benefits of climate policies far outweigh their costs,” Jackson said.

If responding to an existential threat and contributing to the survival of myriad species is not sufficient justification, there are also relative material benefits that may encourage the recalcitrant to embrace climate action.