ECONOMIC EFFECTS OF CLIMATE
CHANGE
Bias among environmental advocates will tend
to concentrate on the negative effects of global warming and climate
change. The economic effects of climate change is one area where
there appear to be both positive and negative consequences. Unfortunately
the negative consequences tend to fall on the developing countries;
those least able to absorb these consequences economically.
The economics of global warming relates to the
size and distribution of the economic costs and benefits of global
warming and of a variety of actions aimed at the mitigation of global
warming. Estimates come from a variety of sources, including integrated
assessment models, which seek to combine socio-economic and biophysical
assessments of climate change.
McKibbin and Wilcoxen (2002) cite the United Nations
IPCC as concluding with 33 to 67 percent confidence that the aggregate
market sector effect of a small increase in global temperatures
could be “plus or minus a few percent of world GDP”. Developed countries
are more likely to experience positive effects and developing countries
are more likely to experience negative effects. Larger temperature
rises would be more adverse across the board.
Benefits and costs dependent on latitude and temperature
Recent studies imply that impacts depend heavily
upon initial temperatures, or latitude. Countries in the polar region
are likely to receive large benefits from warming, countries in
the mid-latitudes will at first benefit and only begin to be harmed
if temperatures rise above 2.5C (Mendelsohn et al 2000).
Only countries in the tropical and subtropical
regions are likely to be harmed immediately by warming and be subject
to the magnitudes of impacts first thought likely (Mendelsohn et
al 2000). Summing these regional impacts across the globe implies
that warming benefits and damages will likely offset each other
until warming passes 2.5C and even then it will be far smaller on
net than originally thought (Mendelsohn and Williams 2004).”
In an October 29, 2006, Stern Review by the former Chief Economist
and Senior Vice-President of the World Bank Nicholas Stern, he states
that climate change could affect growth which could be cut by one-fifth
unless drastic action is taken
ECONOMIC EFFECT ON agriculture FROM CLIMATE CHANGE
For some time it was hoped that a positive effect
of global warming would be increased agricultural yields, because
of the role of carbon dioxide in photosynthesis, especially in preventing
photorespiration, which is responsible for significant destruction
of several crops. In Iceland, rising temperatures have made possible
the widespread sowing of barley, which was untenable twenty years
ago. Some of the warming is due to a local (possibly temporary)
effect via ocean currents from the Caribbean, which has also affected
fish stocks.
While local benefits may be felt in some regions
(such as Siberia), recent evidence is that global yields will be
negatively affected. “Rising atmospheric temperatures, longer droughts
and side-effects of both, such as higher levels of ground-level
ozone gas, are likely to bring about a substantial reduction in
crop yields in the coming decades, large-scale experiments have
shown” (The Independent, April 27, 2005, “Climate change poses threat
to food supply, scientists say”).
Moreover, the region likely to be worst affected
is Africa, both because its geography makes it particularly vulnerable,
and because seventy per cent of the population rely on rain-fed
agriculture for their livelihoods. Tanzania’s official report on
climate change suggests that the areas that usually get two rainfalls
in the year will probably get more, and those that get only one
rainy season will get far less. The net result is expected to be
that 33% less maize — the country’s staple crop — will be grown.
ECONOMIC EFFECT ON INSURANCE
An industry very directly affected by the risks
of global warming is the insurance industry; the number of major
natural disasters has trebled since the 1960s, and insured losses
increased fifteen-fold in real terms (adjusted for inflation). According
to one study, 35–40% of the worst catastrophes have been climate
change-related (ERM, 2002). Over the past three decades, the proportion
of the global population affected by weather-related disasters has
doubled in linear trend, rising from roughly 2% in 1975 to 4% in
2001 (ERM, 2002).
A June 2004 report by the Association of British
Insurers declared “Climate change is not a remote issue for future
generations to deal with. It is, in various forms, here already,
impacting on insurers’ businesses now”. It noted that weather risks
for households and property were already increasing by 2 to 4 %
per year due to changing weather, and that claims for storm and
flood damages in the UK had doubled to over £6 billion over the
period 1998–2003, compared to the previous five years. The results
are rising insurance premiums, and the risk that in some areas flood
risk insurance will become unaffordable for some.
In the United States, insurance losses have also
greatly increased, and according to one study those increases are
mostly attributed to increased population and property values in
vulnerable coastal areas, though there was also an increase in frequency
of weather-related events like heavy rainfalls since the 1950s (Science,
284, 1943-1947).
other ECONOMIC EFFECTs from climate change
Roads, airport runways, railway lines and pipelines,
(including oil pipelines, sewers, water mains etc) may require increased
maintenance and renewal as they become subject to greater temperature
variation, and, in areas with permafrost, subject to subsidence.
Flood defense
For historical reasons to do with trade, many
of the world’s largest and most prosperous cities are on the coast,
and the cost of building better coastal defenses (due to the rising
sea level) is likely to be considerable. Some countries will be
more affected than others - low-lying countries such as Bangladesh
and the Netherlands would be worst hit by any sea level rise, in
terms of floods or the cost of preventing them.
In developing countries, the poorest often live
on flood plains, because it is the only available space, or fertile
agricultural land. These settlements often lack infrastructure such
as dykes and early warning systems. Poorer communities also tend
to lack the insurance, savings or access to credit needed to recover
from disasters.
Migration
Some Pacific Ocean island nations, such as Tuvalu,
are concerned about the possibility of an eventual evacuation, as
flood defense may become economically unviable for them. Tuvalu
already has an ad hoc agreement with New Zealand to allow phased
relocation.
In the 1990s a variety of estimates placed the
number of environmental refugees at around 25 million. (Environmental
refugees are not included in the official definition of refugees,
which only includes migrants fleeing persecution.) The Intergovernmental
Panel on Climate Change (IPCC), which advises the world’s governments
under the auspices of the UN, estimated that 150 million environmental
refugees will exist in the year 2050, due mainly to the effects
of coastal flooding, shoreline erosion and agricultural disruption
(150 million means 1.5% of 2050’s predicted 10 billion world population).
Northwest Passage
Melting Arctic ice may open the Northwest Passage
in summer, which would cut 5,000 nautical miles (9,000 km) from
shipping routes between Europe and Asia. This would be of particular
relevance for supertankers which are too big to fit through the
Panama Canal and currently have to go around the tip of South America.
According the Canadian Ice Service, the amount of ice in Canada’s
eastern Arctic Archipelago decreased by 15% between 1969 and 2004.
While the reduction of summer ice in the Arctic
may be a boon to shipping, this same phenomenon threatens the Arctic
ecosystem, most notably polar bears which depend on ice floes. Subsistence
hunters such as the Inuit peoples will find their livelihoods and
cultures increasingly threatened as the ecosystem changes due to
global warming.
Development
The combined effects of global warming may impact
particularly harshly on people and countries without the resources
to mitigate those effects. This may slow economic development and
poverty reduction, and make it harder to achieve the Millennium
Development Goals.
In October 2004 the Working Group on Climate Change
and Development, a coalition of development and environment NGOs,
issued a report Up in Smoke on the effects of climate change on
development. This report, and the July 2005 report Africa - Up in
Smoke? predicted increased hunger and disease due to decreased rainfall
and severe weather events, particularly in Africa. These are likely
to have severe impacts on development for those affected.
Economic mitigation of climate change effects
According to the Association of British Insurers,
limiting carbon emissions could avoid 80% of the projected additional
annual cost of tropical cyclones by the 2080s. According to Choi
and Fisher (2003) each 1% increase in annual precipitation could
enlarge catastrophe loss by as much as 2.8%.
Nicholas Stern in the Stern Review has warned
that one percent of global GDP is required to be invested in order
to mitigate the effects of climate change, and that failure to do
so could risk a recession worth up to twenty percent of global GDP.
Stern’s report suggests that climate change threatens
to be the greatest and widest-ranging market failure ever seen.
The report has had significant political effects: Australia reported
two days after the report was released that they would allot AU$60
million to projects to help cut greenhouse gas emission]. Tony Blair
said the Stern Review showed that scientific evidence of global
warming was “overwhelming” and its consequences “disastrous].
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