THE ECONOMIC IMPLICATIONS OF CLIMATE CHANGE

Introduction

Rising temperatures, sea levels, and extreme weather conditions such as flooding, hurricanes, heavy storms, and heat waves can lead to catastrophic consequences. These events cause extensive infrastructure damage, destroy livelihoods, and even result in the loss of human lives. Additionally, they harm agriculture, biodiversity, and tourism, contributing to a deteriorating economic landscape.

Annually, climate-related disasters result in substantial economic and environmental harm. Between 2010 to 2020, these events caused direct damages amounting to approximately $1.3 trillion.[1] Although the economic impacts of climate change are already evident, the slow pace of action suggests that the situation will only worsen.

According to a United Nations report, the global population is projected to increase to 8.6 billion by 2030, 9.8 billion by 2050, and 11.2 billion by 2100.[2] ?Manufacturing activity worldwide is anticipated to at least triple while energy consumption is predicted to nearly triple.[3] ?This means that without sufficient climate action, human activities will continue to drive climate change, causing even greater damage to the global economy.

This article considers how climate change directly and indirectly affects the economy. We discuss the impact of climate change on different economic sectors, we highlight the benefits of climate action and the economic opportunities embedded in climate action.

The Stern Review.

The Stern Review, released in 2007 by Her Majesty’s Treasury of the UK Government, is regarded as the most comprehensive assessment of the economic impact of climate change.[4] ?It examined a wide range of evidence and employed various techniques to evaluate the effects of climate change on the economy. The main findings of the Stern Review included the following:

a.????? There is still time to avoid the worst impacts of climate change if we take strong action now.

b.????? Climate change could have very serious impacts on growth and development.

c.????? The costs of stabilizing the climate are significant but manageable; delay would be dangerous and much more costly.

d.????? Action on climate change is required across all countries, and it need not limit the aspirations for growth of rich or poor countries.

e.????? A range of options exists to cut emissions, but strong and deliberate policy action is needed to encourage their adoption, and

f.??????? Climate change demands an international response, based on a shared understanding of long-term goals and agreement on frameworks for action.

The Stern Report is now 17 years old. ?During these years, carbon emissions have continued to rise, and adverse weather conditions have severely affected various aspects of the planet, including the economy. ?

Impact of Climate Change on Different Sectors of the Economy

Climate change has a significant negative impact on various sectors of the economy.

a.????? Agriculture and food production: According to a 2011 report by the National Academy of Sciences, an increase of one degree Celsius in global temperatures could lead to a reduction in overall crop production by 5 to 15 percent.[5] Many crops such as corn, soybean, wheat, rice, cotton, and oats do not grow well above certain temperature thresholds.

Climate change also affects aquatic life by altering water temperatures, affecting species' metabolic rates, growth, reproduction, and survival. Drought, for instance, leads to reduced agricultural productivity, driving up food prices and causing economic losses in farming-dependent communities. It also strains water resources, increases costs for water-intensive industries, and can lead to job losses, lower GDP, and heightened economic instability.

b.????? The Energy sector: Extreme weather events are expected to cause greater disruptions and shutdowns in the oil and gas industry, affecting operations at both offshore and onshore sites.[6] Rising temperatures, a growing global population, and economic growth will lead to an increase in energy demand.

The shift towards renewable energy will increase the demand for renewable sources of power while the demand for fossil-based energy will reduce. These are significant areas through which climate change can impact the energy sector.

c.????? Tourism: Harsh weather conditions make destinations that draw tourists less inviting and appealing. Coastal resorts and other tourist infrastructure are facing the risk of being blown away by extreme weather conditions. The gradual shift in when summer or spring occurs, and the unhealthy nature of the environment are ways whereby climate change hurts the environment. These factors have huge financial implications on the income of tourist attractions globally.

d.????? Insurance and financial markets: Insurers are incurring higher costs due to the increasing frequency and severity of natural disasters, such as hurricanes, floods, and wildfires.[7] These events lead to larger claims payouts, which in turn raise premiums for policyholders.

Moreover, climate change brings new risks and uncertainties, making risk assessment and pricing more complex. This can lead to financial instability for insurance companies, requiring them to adjust their business models and investment strategies to remain profitable and solvent.

Economic Benefits in Climate Action

There are compelling arguments that instead of spending on climate action, resources should be channeled into more pressing needs like poverty, health care, etc. While this is a well-intentioned argument, it is important to consider sustainability while engaging in economic development. ?Investment in climate action has several benefits for national and global economies:

a.????? Creation of job opportunities: As the world is planning to move from fossil fuel energy to renewable energy, new job opportunities are emanating in the renewable energy sector. The transition to a green economy will also birth innovations and new industries that can be of enormous economic value.[8]

b.????? Disaster reduction and control: Climate action reduces the devastating effects of climate change and the loss that comes with it. By taking necessary action to combat climate change, economic structures, means of livelihood, agricultural productivity, coastal tourist attractions, etc, are being preserved.

c.????? Investment opportunities: Sustainable investment instruments like green bonds have witnessed a huge interest. This ensures that there is enough finance for the funding of sustainable and climate-friendly projects[9]. The private sector will also be eager to invest in renewable energy and this drives economic growth.

d.????? Reduction in energy cost: Climate action calls for energy efficiency measures to be implemented. With this in place, there will be a reduction in energy consumption, and this will reduce the energy bills paid by households and businesses. The wide acceptability of renewable energy technologies like wind and solar energy will further reduce the cost of these forms of energy. This reduces the cost of energy and also makes power to be more available in regions with epileptic power issues; another indicator that can drive economic growth.

e.????? Health benefits: Climate action ensures a safe atmosphere. Reduction in emission levels in the atmosphere leads to a cleaner, healthier environment and reduces the rate of respiratory diseases. Also, there will be a reduction in mortality and sickness rates. This allows more manpower to actively power the economy while there is a reduction in the expenses incurred in the treatment of sickness and injuries.

Emerging Jobs in Climate Action

Climate action will open up a new set of job roles that would be necessary for running the climate-friendly society that we are looking forward to. The sustainable world will need expertise in various roles that can further contribute to economic growth. Below are upcoming roles and expertise that is being birthed as climate solutions are being implemented:

a.????? Renewable energy Roles: Professionals will be required for the installation and maintenance of solar panels, technical roles for fixing and maintenance of wind turbines, engineering competence in designing solar, wind, hydro, and geothermal technologies, etc[10]. these are job roles that will be in demand as the world embraces renewable energy in a bid a combat climate change.

b.????? Lawyers, Policy & Regulatory Experts: The services of Lawyers focused on environmental justice will be required. Thought leaders who will develop environmental policies necessary for the regulation of a climate-friendly society will also emerge. The field of study and research on the effect of climate change, mitigation measures, and how to improve climate change awareness across the world will require more hands.

c.????? Green investment and financing: There will be a demand for analysts and experts who will provide financial services focusing on funding renewable energy and sustainability projects. The carbon market will also require experts to work on trading schemes as efforts to cut emissions heighten. Financial expertise will also be required in the insurance sector to navigate the new risks and uncertainties that are being occasioned by climate change.

d.????? Natural Resources Management: There will be a demand for conservational scientists to manage the land quality of parks, forests, etc., specialists to plant and nurture trees planted in urban regions, sustainable agricultural specialists to promote best practices in farming that do not contribute to Greenhouse emissions, etc.

e.????? Sustainable Transportation: The evolution of electric vehicles means that specialists will be needed for the maintenance and repair of these vehicles. There will be a need for charging station installers. Public transportation planners will also be needed as the options of transportation through bicycles and walking are also being initiated.

f.??????? Green Architecture: Several countries have already implemented sustainable building practices as a requirement in construction processes. Architects skilled in designing sustainable buildings and building materials will be in demand[11]. Leadership in Energy and Environmental Design (LEED) certification consultants and designers who create sustainable and low-impact landscaping solutions will experience high demand for their services.

What is the projected impact of climate change on the economy?

The future economic impact of climate change will largely depend on the urgency and effectiveness of today's climate actions and policy development. In the UK, for instance, in a scenario where current policies remain unchanged, global temperatures are expected to rise by 3.9°C above pre-industrial levels by 2100, factoring in potential tipping points.

By that same year, global temperatures are projected to increase by 3.2°C compared to the 1995–2005 period, while the UK could see a 2.9°C rise. As a result, the economic costs of climate change are anticipated to grow significantly, from 1.1% of GDP today to 3.3% by 2050, and further to 7.4% by 2100.[12]

The impact of climate change on the economy is wide and difficult to adequately quantify. In the long run, it leads to reduced growth rate, shift of investment focus to climate change, etc. Climate change is expected to create widening income gaps between individuals, sectors, and regions. It will also disrupt energy markets, increase fluctuations in inflation, strain financial markets, spur greater innovation, drive higher levels of migration, and escalate public debt.[13] Curbing future economic hazards will depend on the action taken today to manage climate change

Conclusion

Climate change has a huge impact on the economic dynamics of nations, and it affects many sectors like energy, agriculture, insurance, real estate, etc. The rising frequency and intensity of extreme weather events disrupt production, supply chains, and infrastructure, causing substantial financial losses. Additionally, the uncertainty and risks associated with climate change complicate investment and planning decisions. This requires policies aimed at adaptation. Tackling these challenges demands a coordinated global effort to mitigate climate change, invest in resilient infrastructure, and create innovative financial instruments. We can protect livelihoods, sustain economic growth, and secure a more stable and resilient future by managing the risks of climate change.

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[1] International Monetary Fund, Climate and the Economy, accessed on 31 May 2024,? https://www.imf.org/en/Topics/climate-change/climate-and-the-economy#:~:text=Every%20year%2C%20climatic%20disasters%20cause,on%20average%2C%20per%20year).

[2] United Nations Department of Economic and Social Affairs, United Nations, World population projected to reach 9.8 billion in 2050, and 11.2 billion in 2100, accessed on 19 August 2024, https://www.un.org/en/desa/world-population-projected-reach-98-billion-2050-and-112-billion-2100

[3] Peter Akadiri, Ezekiel Chinyio, Paul Olomolaiye, 2020, Design of A Sustainable Building: A Conceptual Framework for Implementing Sustainability in the Building Sector, accessed on 2 June 2024,

https://www.mdpi.com/2075-5309/2/2/126#B9-buildings-02-00126

[4] The London School of Economics and Political Science, October 2006, The Economics of Climate Change: The Stern Review, accessed on 11 June 2024, https://www.lse.ac.uk/granthaminstitute/publication/the-economics-of-climate-change-the-stern-review/

[5] Columbia Climate School, July 2018, accessed on 11 June 2024, https://news.climate.columbia.edu/2018/07/25/climate-change-food-agriculture/

[6] The Intergovernmental Panel on Climate Change (IPCC), June 2014, Fifth Assessment Report, Climate Change: Implications for the Energy Sector, https://www.worldenergy.org/assets/images/imported/2014/06/Climate-Change-Implications-for-the-Energy-Sector-Summary-from-IPCC-AR5-2014-Full-report

[7] Alliant Insurance Services, ?The Impact of Natural Disasters on the Insurance Industry, accessed on 8 June 2024 https://alliantprivateclient.com/articles/the-impact-of-natural-disasters-on-the-insurance-industry/

[8] World Economic Forum, March 2022, how many jobs could the clean energy transition create? Accessed on 12 July 2024, https://www.weforum.org/agenda/2022/03/the-clean-energy-employment-shift-by-2030/

[9] Muhammad Alamgir, Ming-Chang Cheng, 2023, Do Green Bonds Play a Role in Achieving Sustainability? MDPI, accessed on 12 June 2024 https://www.mdpi.com/2071-1050/15/13/10177

[10] MoldStud, January 2024, The role of Engineering Technicians in Renewable Energy Industries, accessed on 11 June 2024 https://moldstud.com/articles/p-the-role-of-engineering-technicians-in-renewable-energy-industries

[11] Juby John, April 2022, Novatr, accessed on 10 June 2024 https://www.novatr.com/blog/sustainable-architecture-scope-and-careers

[12] The Grantham Research Institute on Climate Change and the Environment, 2022, What will climate change cost the UK? A study of climate risks, impacts and mitigation for the net-zero transition, Accessed on 20 August 2024, https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2022/05/What-will-climate-change-cost-the-UK-risks-impacts-mitigation.pdf

[13]Johannes Breckenfelder, Bartosz Mackowiak, David Marques, Conny Olovsson, Alexander Popov, Davide Porcellacchia, Glenn Schepens, March 2023, The climate and the economy, European Central Bank, accessed on 20 August 2024, https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2793~7969efec4f.en.pdf