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Climate Legislation is Bad For Business?

2013/02/09

Both in Canada and in the USA, we often hear (mostly from those of conservative leanings) that any kind of legislation to tackle climate change would be bad for business.  It is, for example, the standard argument of the Conservative Party that a carbon tax would be “terrible for the Canadian economy”.

Unfortunately, such an opinion ignores the cost of inaction.  According to a report released by DARA, climate change is already costing us 1.6% of global GDP or 1.2 trillion dollars per year with developing nations taking the brunt of those loses.  By 2030, the cost will be up to 3.2% of global GDP.  In addition, it is believed that 5 million people die each year from our global carbon economy.  Of that number, 400,000 die of starvation and disease made worse by climate change, while the other 4.5 million are mostly victims of air pollution.

As part of the DARA report, former president of Costa Rica, José Maria Figueres said:

The prospect of economic losses that rise with every decade could destabilize the world economy far before the worst impacts of climate change set in. Governments and international policy makers must act decisively to combat the spiralling costs to national and global GDP resulting from inaction on climate change. The Monitor shows how failure to do so has already caused unprecedented damage to the world economy and threatens human life across the globe. With the investment required to solve climate change already far below the estimated costs of inaction, no doubt remains as to the path worth taking.

(My emphasis)

With all of this in mind, here is a very relevant cartoon from the Climate Progress blog.

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12 Comments leave one →
  1. 2013/02/10 9:00 pm

    We have to be a little careful here as to whether we are talking about stocks or flows. The 3.2% number appears to be a stock. So are we talking about what size the economy would reach with or without climate change? A climate skeptic “lite’ such as Matt Ridley would argue the following: If the economy grows by 30% to 2030 and climate change means that the economy is 3.2% smaller, then this is a great trade off. Personally, I believe that there will come a time when the drag from climate change will overcome the growth from productivity (I have no idea when). But to have any idea of where we will arrive, we must understand the difference between stock and flows.

    • 2013/02/11 5:14 am

      Thank you for your comment. It is a very interesting question that I had not considered (stock vs flow). And if I understand the definitions and understand the financial losses from climate change correctly, I believe the numbers are “flows” since we are looking at loses to the economy from things like droughts that reduce crop yield or floods that destroy homes and businesses. Or am I off the mark?

      • 2013/02/11 2:52 pm

        I’ve gone over the report once, and you are right that they are talking about an annual cost. It is partly a reduction in GDP and partly a reduction in wealth (so you are reducing the flow of new wealth and reducing the stock of existing wealth). Although they have a section on methodology in the report, the assumptions they base their numbers on are rather opaque. I need to do some more work on the report and will try to blog on it because it is such an important topic.

        Currently, the dominant economic philosophy toward the environment is what I call “get rich and clean up”. With respect to climate change, that means using fossil fuel to expand the economy and get richer, and then go ex-carbon decades down the road using up a little bit of that wealth. That is the philosophy behind the William Nordhaus’ DICE model of climate change and the economy, which is probably the most famous and influential model out there. I blogged on it a while back:

        http://therationalpessimist.com/2012/05/17/climate-change-a-question-of-caves-and-mansions-1/

        http://therationalpessimist.com/2012/05/24/climate-change-a-question-of-caves-and-mansions-2/

        Where I agree with the DARA folk is that the damage function underpinning models such as DICE grossly underplays the costs. It’s just so difficult attaching numbers to this since climate change is talking us into a brand new world where we have so little empirical evidence on the economic side. Modelling the science side of climate change looks comparatively easy compared with modelling the economic costs.

      • 2013/02/11 5:03 pm

        “Get rich and clean up”. I like that expression. It applies to so many irresponsible practices. Hydraulic fracturing and the Alberta Tar Sands come to mind.

        I find the idea of putting a dollar value on the impacts of climate change incredibly important (although I completely agree that being accurate is so difficult considering all the unknowns). We always hear the argument that it is “too expensive” to invest in renewables, that getting off of fossil fuels will harm the economy. And those arguments are only valid if a) climate change isn’t real, or b) its impacts will be miniscule. Unfortunately, we know neither is true, and we have some idea of what the monetary impact already is.

        Having said that, seeing how scientists have been underestimating the impacts of climate change, odds are we are already underestimating the costs in the near future.

  2. 2013/02/11 6:48 pm

    The cost of inaction is nothing, because without civilisation, there is no money. QED.

    • 2013/02/11 10:44 pm

      In that case, could you argue that the cost of inaction in “infinite” because it would cause the collapse of vilification?

  3. Florian permalink
    2013/02/12 8:34 pm

    Very interesting points and discussion. There surely is no one way to measure the impact of climate change action or non-action on businesses. First, climate change works out differently in different geographical areas, which in turn differ in terms of money, knowledge and resources available to adapt. Then, in a globally connected world, some might stop buying otherwise highly regarded products from a specific country because of its (in)action or stance on climate change, or some country or city being particularly affected by it might result in the emigration of its skilled and wealthy citizens to other countries with the benefits for their economies. Discourse and perception easily trump rational economic prognosis or outlooks.

    • 2013/02/13 7:09 am

      Excellent points. Hopefully, “we” (as a global society) will eventually all come to the agreement that no matter how you analyze or calculate its impacts, unabated climate change is an unacceptable outcome.
      I am particularly troubled by the fact that the first and worse hit will be developing nations. The best thing you can say about that is that it is incredibly ironic…

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