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Summary of Recent Reports on the Costs of Climate Action/Inaction

September 04, 2015 Add Comment Edit

Reports are coming in that make it hard to ignore the economic benefits of action on climate change. This includes recent reports from Citi the world's third largest bank and the London School of Economics, one of the most prestigious and respected schools in the world.

In April 2015 the World Health Organization (WHO) and the US Department of Energy published reports that demonstrate just how high the costs of inaction could be.

According to a study by the WHO, the financial costs of air pollution in Europe alone amounts to $1. trillion each year from death and disease. This is one tenth of Europe's gross national product. The economic costs of deaths alone represent $1.4 trillion.

As reported by Bloomberg, a US Energy Department report indicates that in the US, extreme weather costs about $33 billion each year.

According to a Tufts University report commissioned by the NRDC, the costs of climate inaction to the US economy is equivalent to more than $3.8 trillion annually or 3.6 percent of the nation's GDP by 2100. Hurricane damage, real estate losses, increased energy costs and water costs add up to a price tag of 1.8 percent of U.S. GDP, or almost $1.9 trillion annually (in today’s dollars) by 2100. Hurricane damages: $422 billion Real estate losses: $360 billion Increased energy costs: $141 billion Water costs: $950 billion.

The NRDC report indicates that if left unchecked global warming will cause drastic changes to the planet’s climate, with average temperature increases of 13 degrees Fahrenheit in most of the United States and 18 degrees Fahrenheit in Alaska over the next 100 years.

As reported in skeptical science, peer-reviewed projections indicate that the costs of inaction on climate change outweigh the costs of addressing the problem by trillions of dollars.

"The benefits of reducing greenhouse gas emissions outweigh the costs by trillions of dollars. Combining the results of the report by the German Institute of Economic Research and Watkiss et al. (2005) studies, we find that the total cost of climate action (cost plus damages) by 2100 is approximately $12 trillion, while the cost of inaction (just damages) is approximately $20 trillion."

Image Credit: Skeptical Science

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An LSE Cost Benefit Analysis Supports Climate Action

September 03, 2015 Add Comment Edit

Research from the London School of Economics (LSE) makes the economic case for acting on climate change. This study along with many others (see related posts below) make the point that the costs of inaction on global warming are far greater than the costs of acting. This is in addition to the costs directly related to the damage caused by climate change.

Much has been said about the costs of combating global warming but a slew of independent research indicates that the benefits of climate action far outweigh the costs. This was also the conclusion of Citibank study published in August.

Two research institutes at the London School of Economics found that there are significant economic gains from limiting emissions. The LSE study published in July says that improved air quality, energy efficiency and energy security combine with falling renewable energy prices to make climate action the more economically compelling option.

The employment and health benefits alone outweigh the costs of climate mitigation even if we do not factor the liabilities associated with the damaging impacts of climate change. In the simplest terms climate action has massive economic benefits while inaction will augur massive costs.

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Acting on Climate Change Makes Good Economic Sense According to Citibank
Action on Climate Change a Cost Benefit Analysis
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Climate Change: Frequency, Costs and Mortality (World Meteorological Organization)
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Businesses Feel the Heat from Declining Labor Productivity
Economic Benefits of Combating Climate Change (IIED)
Economic Costs of Combating Climate Change (IPCC)
Reducing Fossil Fuel Use: The Longer We Wait the More it will Cost
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The Financial Costs of Biodiversity Loss
Extreme Weather and the Costs of Climate Change
The Costs of Global Warming
The Costs of Climate Change Related Flooding

Acting on Climate Change Makes Good Economic Sense According to Citibank

September 03, 2015 Add Comment Edit

A recent Citibank report showed that if we act to slow climate change we could save as much as $50 trillion. This finding is significant because cost is one of the most common reasons put forth to avoid acting on climate change. The Citi report is but the most recent study to soundly refute the contention that acting on climate change is too expensive. Research shows that climate action offers excellent ROI not to mention saving trillions of dollars of additional costs associated with the damaging affects of a warmer world.

In a report entitled, "Energy Darwinism II: Why a Low Carbon Future Doesn’t Have to Cost the Earth," Citi Global Perspectives & Solutions (GPS), conducted a cost benefit analysis of a low carbon energy economy. The research explored the costs of inaction (business as usual) versus the costs of acting (transitioning to a low-carbon energy economy).

The research shows that the action scenario actually costs less than inaction. Over the next 25 years the cost of a low carbon energy economy would be about $190 trillion while doing nothing would cost around $192 trillion. These figures do not include the $30 - $50 trillion in costs associated with the damage caused by climate change.

Using these numbers Citi concluded that acting on climate change offers excellent ROI (estimated to be around 10 percent by 2035). The Citi report also reiterates the findings of other research which suggest that a carbon tax would be beneficial for the economy.

In addition to avoiding a string of liabilities, acting on climate change also affords massive improvements in people's health and quality of life. Even if we attempt to divorce ourselves from the human toll of climate change, a purely financial assessment reveals that acting on climate change makes good economic sense.

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Climate Change: Frequency, Costs and Mortality (World Meteorological Organisation)
Graphics - Cost of Delaying Action to Stem Climate Change
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Economic Benefits of Combating Climate Change (IIED)
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Market Based Green Growth: Natural Capital and Sustainable Economic Growth (Videos)

June 27, 2015 Add Comment Edit

Green growth that factors natural capital can drive competitiveness and power innovation for generations. Resource productivity alone is a $3 trillion opportunity. We must start with the understanding that the choice between the economy and the environment is a false choice. As demonstrated by countries like Germany, we can increase our productivity while decreasing our emissions. To green our economies we must determine the true economic value of our resources which means we must ensure that markets factor the environmental costs of a product or service.

Factoring the actual costs allows us to decouple environmental impacts from economic growth. Countries that use scarce resources more productively are more resilient and they can also export this knowledge globally.

Natural capital is what nature provides to us for free. In the face of the global, local, and national destruction of biodiversity and ecosystems, economist Dieter Helm here offers a crucial set of strategies for establishing natural capital policy that is balanced, economically sustainable, and politically viable. Helm shows why the commonly held view that environmental protection poses obstacles to economic progress is false, and he explains why the environment must be at the very core of economic planning. He presents the first real attempt to calibrate, measure, and value natural capital from an economic perspective and goes on to outline a stable new framework for sustainable growth. Read more at www.naturalcapital.wix.com/dieterhelm

Researchers at the Arizona State and Yale are working to calculate the dollar value of nature in an effort to promote sustainability. Last June they published a landmark study that assigns monetary value to natural capital. The report was published in the Journal of the Association of Environmental and Resource Economists. The paper argues for the creation of asset markets for natural capital.

In theory natural capital valuation would increase conservation efforts. The idea is that what goes unmeasured often gets undervalued. For example, reef fish in the Gulf of Mexico were valued at around $3 a pound in 2004, but after policy makers implemented reforms that incentivize conservation the price jumped to $9 a pound. Elephants are another example as explained in an MNN article they are worth 76 times more alive than it is dead.

While the goal is to make human behavior less destructive to the environment, the actual outcome may be at odds with what is being sought. This dangers of turning nature into a commodity is reviewed in perspective in an article titled, "Rhino Horn Economics."

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Graphics - Cost of Delaying Action to Stem Climate Change

August 05, 2014 Add Comment Edit

The Cost of Delaying Action to Stem Climate Change

August 05, 2014 Add Comment Edit

In July, the White House released a report that quantifies the cost of inaction on climate change. The 33-page report titled "The Cost of Delaying Action to Stem Climate Change," was produced by The Council of Economic Advisers. It makes the point that failure to act on climate change comes with a huge price tag for the American economy (at least $150 billion per year).

Increasing temperatures and rising sea levels demand that we act now if we are to minimize the huge expense associated with a warming world. As the White House explains in the introduction to the report:

"The scientific consensus is that these changes, and many others, are largely consequences of anthropogenic emissions of greenhouse gases that have led to a warming of the atmosphere and oceans."

If we continue with business as usual we are on track to exceed the internationally agreed upon upper threshold limit increase of 2 degrees Celsius. Allowing warming to reach 3 degrees Celsius could cause damage amounting to 0.9 percent of global economic output each year. These costs come from deleterious impacts on public health and biodiversity, as well as physical impacts from rising seas and more severe storms, droughts and wildfires.

If the world warms by 4 degrees Celsius the costs will escalate to 1.2 percent of global output. The warmer we get the greater the costs.

Here are four key points contained in the report:

1. Immediate action substantially reduces the cost of achieving climate targets. Taking meaningful steps now sends a signal to the market that reduces long-run costs of meeting the target. Such action will reduce investments in high-carbon infrastructure that is expensive to replace and will spur development of new low- and zero-emissions technologies. For both reasons, the least-cost mitigation path to achieve a given climate target typically starts with a relatively low price of carbon to send these signals to the market, and subsequently increases as new low-carbon technologies are developed and deployed. An analysis of research on the cost of delay for hitting a specified climate target suggests that net mitigation costs increase, on average, by approximately 40 percent for each decade of delay.

2. Climate change stemming from delayed action creates large estimated economic damages. If delayed action causes the mean global temperature increase to stabilize at 3° Celsius above preindustrial levels, instead of 2°, that delay will induce annual additional damages of 0.9 percent of global output. To put this percentage in perspective, 0.9 percent of estimated 2014 U.S. GDP is approximately $150 billion. The next degree increase, from 3° to 4°, would incur greater additional annual costs of 1.2 percent of global output. These costs are not one-time: they are incurred year after year because of the permanent damage caused by additional climate change resulting from the delay.

3. The possibility of abrupt, large-scale, catastrophic changes in our climate increases the need to act. These large-scale events include the melting of the West Antarctic ice sheets and other ice sheets – which would cause large degrees of sea level rise – as well as the release of additional methane through thawing of permafrost, which would accelerate global warming. These and other potential large-scale changes are irreversible on relevant time scales – if an ice sheet melts, it cannot be reconstituted on any societally relevant timescale – and they could potentially have massive global consequences and costs. For many of these events, there is thought to be a “tipping point,” for example a temperature threshold, beyond which the transition to the new state becomes inevitable, but the values or locations of these tipping points are typically unknown.

4. Enacting meaningful change in climate policy is analogous to purchasing climate insurance. Much like other insurance purchased by individuals and businesses, paying mitigation costs now reduces the odds of a large-scale catastrophic change in climate. And, unlike conventional insurance policies, climate policy that serves as climate insurance is an investment that also leads to cleaner air, energy security, and benefits that are difficult to monetize like biological diversity.

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