Analysis and News

The economic cost of Global Warming

BY ARMCORE VPI's COO: Kezia Bridgewater

According to NASA, the most concise definition of global warming is, “the unusually rapid increase in Earth’s average surface temperature over the past century primarily due to the greenhouse gases released by people burning fossil fuels.”

Global warming affects jobs, food security, human health, water resources and ecosystems. Reducing greenhouse gas emissions will limit the impacts and costs associated with climate change; achieving the 2°C target of the Paris Agreement could limit losses in annual growth to up to 1.6 percent. 

Coral reefs for example, cover merely 1 percent of the ocean floor, however, they support more than 25 percent of marine biodiversity and fuels the global fishing industries. It accounts for an estimated 2.7 trillion USD annually in goods and services, inclusive of tourism. 

Global warming damages to GDP growth rates reflect a permanent reduction in output. Hence, even minute changes in the growth rate can significantly affect future output and productivity. Total factor productivity is affected when the environment changes in which technologies were designed to operate. Resources then get diverted away to mitigating climate impacts as opposed towards research and development.  

According to the Swiss Re Institute, major economies run the risk of a decrease in GDP of up to 10 percent in just 30 years if the global temperature continues to rise. In a severe scenario of a 3.2°C temperature increase, China stands to lose almost one quarter of its GDP (24%) by mid-century. The US, Canada and the UK would all see around a 10% loss. Europe would suffer slightly more (11%), while economies such as Finland or Switzerland are less exposed (6%) than France or Greece (13%).

Climate change weather-related natural disasters (droughts, floods, hurricanes, heat waves, cyclones etc.) can lead to substantial income and productivity losses over time. Rising sea levels has resulted in the loss of land that could have otherwise been used productively. Heat stress can lead to crop failures threatening food security and the livelihood of farmers. Nearly half the world's human population relies directly on nature to live. Animal and plant species are going extinct at a rate not seen in 10 million years. The most severely affected area is emerging economies in equatorial regions.

The DICE model (Dynamic Integrated model of Climate and the Economy) is a simplified analytical and empirical model that represents the economics, policy, and scientific aspects of climate change. Nobel winning economist William Nordhaus developed this model and uses it to provide cost-benefit analyses of alternative policy decisions. Professor Nordhaus has analysed the costs of environmental damage and estimates that a 3 percent tariff penalty would be the optimal charge that the world economies would accept while shouldering the internal costs necessary to reduce greenhouse gas emissions. Those committed to reducing their emissions would be exempt from paying this tariff while free riders would bear the cost. 

To limit the loss from climate change, deforestation, pollution, overfishing and urban development, the United Nations has urged countries to commit to conserving 30 percent of their land – almost double the area now under some form of protection.

Nature ‘’sustains our entire society and economy,” said environmental lawyer Elizabeth Mrema, executive secretary of the U.N. Convention for Biodiversity. Losing nature “reduces the ability of the planet to provide all these benefits to society.”


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