November 19, 2015 Categories: Clean Energy Climate Change

True Cost Accounting for a Climate Changed Economy

Last week, NextGen Climate America released an economic analysis by ICF International showing that meeting our national carbon emissions reduction goals will grow our economy, create millions of jobs, increase household disposable incomes, and lower energy bills. As positive as these results are, they understate the benefits of transitioning to clean energy. In assessments of the economic impacts of transitioning to a clean energy economy, the imputed costs of climate-related damages are often left out. Even so, some key findings from the ICF report are that a clean energy economy will:

  • Create more than 1 million additional jobs by 2030 and up to 2 million jobs in 2050 nationally, including 1.2 million additional jobs in the construction sector;
  • Increase household disposable income by $350-$400 in 2030 and by as much as $650 in 2050;
  • Save families $5.3 billion on energy bills in 2030 and $41 billion in 2050;
  • Increase United States GDP by $145 billion, or 0.6%, in 2030 and by $290 billion, or 0.9%, in 2050 compared to the reference case.

This is good and welcome evidence in the face of the false narrative that we have to choose between a healthy environment and a strong economy. These arguments—that we can’t afford to address climate change—are patently false. The fact of the matter is, we can’t afford not to. The size and scope of climate change’s negative impacts to our economy if we continue on our present emissions trajectory is enormous—and our leaders must take these costs into account.

The ICF International report did not take into account in its model the costs of unfettered climate change impacts, and so it actually understates the economic benefits of transitioning to clean energy. Quantifying these negative impacts can be complicated, because projections must capture the complex interplay of global meteorological, physical, economic, and human systems. Nevertheless, cost projections are important for policy makers because they help us determine how and where to apply limited resources to address problems.

Leading researchers from UC Berkeley and Stanford tackle the question of economy-wide impacts of rising global temperatures in the latest edition of Nature, and the results are astounding:

“Unmitigated warming is expected to reshape the global economy by reducing average global incomes roughly 23% by 2100 and widening global income inequality, relative to scenarios without climate change.”

The principle that moderate temperatures would promote a strong economy has always made intuitive sense; professors Marshall Burke, Sol Hsiang, and Ted Miguel have now confirmed and quantified this intuition with scientific evidence. They plotted the temperatures and annual growth in GDP per capita of 166 countries for every year 1960-2010. This effort established a nonlinear relationship between temperature and economic output. Economic performance peaks at an average annual temperature of 55F (13C), while increases in the average temperature above the optimum are correlated with steep declines in annual growth of GDP per capita.

historical(Burke, Hsiang, Miguel, “Understanding the historical response of economic output to temperature,” Nature via http://web.stanford.edu/~mburke/climate/index.html, 10/21/15)

Next, these researchers applied the established relationship between temperature and growth to internationally accepted estimates of future temperatures. They compared estimates of economic growth for a world with uncontrolled climate change to projections of growth without any shifts in temperature.[1]

Study authors have made the resulting data available for the public to access, allowing people to explore their own questions using this information. For example, using this data we can calculate the climate change-induced costs to the economy that were not accounted for in the Reference Case of the ICF International report.

In 2050, climate change is projected to reduce U.S. per capita GDP by 5.3 percent compared to a world without climate change. As the climate continues to heat, and the economy continues to grow, the impact of climate change grows too. At the end of the century, due to unmitigated climate change the U.S. GDP is projected to be 36 percent lower than it would be with a stable climate. For context, the 5.3 percent decline is one percent more than the 4.1 percent decline in GDP during the Great Recession of 2007-2009. In other words, the costs projected in this study are devastating.

NGCA-Blog-reduction-gdp-chart-1119-2015(NextGen Climate America graphic via Burke, Hsiang, Miguel, “Replication data,” http://web.stanford.edu/~mburke/climate/data.html, 10/21/15)

Furthermore, the Nature study does not look at additional costs the economy will bear as a result of sea level rise, droughts, flooding and other known impacts of unhindered greenhouse gas emissions. Professor Hsiang’s puts “the present discounted value” of expected losses due to enhanced cyclone activity at $9.7 trillion; the Risky Business project found that on our current trajectory, by 2050 up to $106 billion worth of existing coastal property will likely be below sea level nationwide, with up to $507 billion worth of property below sea level by 2100.

The science underlying temperature, sea level, and precipitation models is very complex, and the relationships between these changes and effects on human and natural systems are equally complicated. But the question is no longer whether climate change will have negative impacts on health, national security, and national economies; it is how bad will these impacts be. It is high time for local, federal, and global leaders to take action to avert these impacts and put forward the climate change solutions Americans deserve.

[1] The Reference Case, or “business as usual” scenario, is built on estimates generated by Intergovernmental Panel on Climate Change’s (IPCC) Representative Concentration Pathways 8.5 (RCP8.5) scenario, which corresponds to the highest rate of greenhouse gas (GHG) emissions. The economic effects of this no-mitigation scenario were then compared to estimates of economic performance based on population growth and GDP per capita without any shifts in average temperature.

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