May 25, 2017

The economic cost of climate change

Industrialists who continue to lobby governments to prevent them from taking the necessary action to combat climate change try to persuade themselves that inaction is in the best interests of their businesses and the economy itself. Given the enormous financial costs climate change will inflict, such an attitude is short-sighted in the extreme.

Co-written with Caspar Henderson – a writer and analyst based in Oxford, UK.

Published in The Ecologist Vol. 29 No. 2, March–April 1999.


The first and most obvious way in which climate change will affect the economy is by the predicted sea-level rises. These, as the reader will have noted, can increase from a mere 200mm to several metres, depending on the effect of global warning on the Arctic and Antarctic ice-sheets. According to the Organisation for Economic Co-operation and Development (OECD), [1] economic damages and losses arising from climatic destabilisation could cost the global economy up to $970 billion – on the basis of the present models, which, as we have seen, tend to be optimistic.

The opponents of appropriate preventative action must realise that a one-metre rise will be sufficient to flood most of New York City, including the entire subway system and all three major airports. New York, like many of the world’s largest cities, is situated along the coast. The population densities of china’s eleven coastal provinces average more than 600 people per square kilometre of a coastline and more and more people are moving to coastal areas which are being increasingly degraded.

Let us not forget too, that the biggest industry of the world today is tourism. Most of it is in coastal areas and bring in billions of dollars in revenues every year. [2] It would be foolish to suppose that tourism would not be affected by the consequent flooding of most of the beaches bordering tourist resorts or by drastic heatwaves, water shortages and recurrent storms of greater and greater intensity, not to mention the effect on winter sports of retreating glaciers and ever thinner snow at ski resorts.

It would be equally foolish to suppose that the growing hordes of refugees will not affect the economy. It is only a question of time before state services are overwhelmed by a vast population of destitute people in the cities. The corresponding increase in crime and social disorder is very likely to interfere with commercial activities.

The insurance industry is particularly vulnerable of course, and is becoming seriously concerned about what the future holds out for them. As Jeremy Leggett, who made a special study of this issue when he was Science Director of Greenpeace, notes,

“given only a slight increase in the scope for windstorms, drought-related wildfires and floods, the $2 trillion insurance industry would be in danger of global collapse, with knock-on economic consequences which are completely ignored in most analyses of climate change.” [3]

Property-catastrophe losses have already been enormous in recent years. 1992 was, at the time, the worst year ever, with global climatic natural catastrophe losses of over $22 billion, up 87 percent on 1991, even allowing for inflation. 1993 was also a very bad year for disasters, especially flooding. In 1995, weather extremes caused $100 billion worth of damage, the highest figure ever, in 1996 the figures stood at $60 billion [4] and in 1998, costs to insurance companies rose to $90 billion [5] and it can only get worse. As Dr Gerhard Barz, head of Geoscience Research at Munich Re, the world’s largest reinsurer, says:

“Comparing figures for the 1960s and the last 10 years, we have established that the number of great natural catastrophes is 3 times larger. The cost to the world’s economies after adjusting for inflation is 9 times higher, and for the insurance industry 3 times as much.”

According to research by Munich Re, there were more than 700 so-called ‘large loss events’ around the globe in 1998. These accounted for 85 percent of economic losses and killed around 50,000 people. The most frequent natural catastrophe were windstorms, of which there were 240 significant ones and floods, or which there were 170. In 1995, the previous most calamitous year, there were 100 fewer large loss events. In Britain, the losses from flood damagwe for 1998 may top £1 billion – “the worst floods anyone can remember, and happening twice within one year”, says one observer.

Munich Re clearly fingers global warming as the culprit for the extreme weather that has caused these mounting losses. Dr. Gerhard Barz argues that a

“further advance in man-made climate change will almost inevitably bring us increasingly extreme natural evens and consequently increasingly large catastrophe losses.”

Julian Sale, a disaster assessment expert at the Loss Prevention Council, says,

“the reinsurance pool contains between $200 billion and £300 billion. A couple of big storms in the wrong place – major cities on the US mainland, for example – could pretty much wipe that out.”

At the very least, he says, this would cause major dislocations to the world economy as insurers, facing heavy losses, pulled in their horns. Insurance companies are major investors in pension funds that contribute around a third of the capital in world financial markets. If they were to collapse then the effects on the economic system would be devastating.

The insurance industry’s dire prospects clearly augur ill for every sector of the economy, including the manufacturing industry. Industrialists who still insist on opposing and preventing any action from being taken, on the grounds that it would cost too much, should enter the real world and wake up to the fact that the costs inflicted upon them through inaction will be enormous. If greenhouse gas emissions are allowed to continue to rise and global warming run its course, we will be facing by far and away the greatest catastrophe that our species has ever faced.

Whatever may happen to the economy, what is absolutely certain is that we cannot live without a relatively stable climate and in particular, one to which we, and all the other forms of life with which we share this planet, have been adapted by their co-evolution. To continue, therefore, to destabilise climate in order to satisfy what are referred to as economic requirements (but which in effect, are those particular economic requirements needed to satisfy the immediate interests of the large transnational corporations that have come to dominate the economy), is at once an absurdity and a crime.

Those who control these corporations, the governments, and the public at large, must recreate an economy that can function satisfactorily without disrupting our climate and indeed, without continuing to pillage the natural world on whose integrity a stable climate ultimately depends.

References

1. Anne Platt McGinn, in Lester Brown et al, The State of the World 1998 Worldwatch, Washington DC 1998.
2. Anne Platt McGinn, The State of the World 1991, p.78. Worldwatch, Washington DC 1991.
3. Jeremy Leggett (ed), Climate Change and the Financial Sector, p.42. Munich 1996.
4. Ibid.
5. Source: “Munich Re – the world’s largest re-insurers”. The Guardian, 30/12/1998.
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