Economic impacts of climate change
There is some new research about the drag on the economy of climate change. The new research questions the validity of previous studies which seemed to not attempt to model the direct effect of increased temperatures. This one looks at those in conjunction with temperature, extreme heat, extreme precipitation, and extreme wind effects on the economy.
The new study was put out by the National Bureau of Economic Research, a private economic research institute that has become central to the USA's non-partisan (read pure orthodoxy) economic analysis. It is, however, one of the leading data collectors on business.
Their analysis points to:
- A 1°C increase in global temperature leads to a 12% decline in world GDP.
- A Social Cost of Carbon of $1,056 per ton of carbon dioxide.
- A business-as-usual warming scenario leads to a present value welfare loss of 31%.
What does that mean?
It means that at 1°C (we are already there), we have given up growth that could have paid for the transition to alternatives. The gradual decline in GDP over six years and comes from comparing the impact of climate change to already seen environmental fluctuations like El Niño-La Niña.
The Social Cost of Carbon is significantly above the actual pseudo-market price of carbon by an amount that makes the market price laughably low.
Present value welfare is an attempt to measure social wealth of investments in public projects. For example, when a public transit system is built, you do not just raise economic growth from buying stuff which leads to making stuff and employing people, there is also a general benefit in reduced traffic noise, pollution, speed to get around, fewer deaths, etc. The impact of climate change is like ripping-up all the public transit and putting people into large spiky trucks blindfolded running down a road next to a school. 31% reduction in welfare is an absurdly negative impact on society and one could say we will be nearly a third poorer. And, they are talking 2024.
Below the headline, they estimate present value welfare to decrease 52% by 2100
These magnitudes are comparable to the economic damage caused by fighting a war domestically and permanently.
The study is based on shocks to capital profits from large shifts in weather. This is a decent enough measure to think that their predictions are grounded in what classical economists would look at, even if their measures are extremely conservative.
The models' measures might be conservative, but like with most things around climate change, the impacts are so large it is very difficult for humans to conceptualize.
