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When it comes to Climate: Inaction costs, Action benefits

June 24th, 2014 · No Comments

Simply put, the economic analysis related to climate change issues in public debates has systematically gotten things wrong.  The very nature of the analytical process fosters an exaggerated projection of costs and an understatement of benefits from climate mitigation and adaptation investments.  This fosters a discussion of the “costs” of action, rather than a more honest and meaningful discussion of the extent and nature of the “climate mitigation return on investment”.  Fully-burdened cost-benefit analysis would highlight the huge return to be secured from sensible climate investments.

When it comes to cost-benefit analysis, two just released reports shed important perspective on this issue:

  • Risky Businessdocuments the costs the United States is already accruing due to climate change impacts and projects these costs through the century.  Costs could include over $500 billion of coastal property below sea level by 2100, outdoor labor productivity declines of over three percent, agricultural production losses that could — in some regions — exceed 50 percent, etc … Writ large, $trillions at risk in the US economy from unchecked climate change.
  • The World Bank’s Climate-Smart Development: Adding Up the Benefits of Actions that Help Build Prosperity, End Poverty and Combat Climate Change examined six nations and the European Union through the lens of what would be smart choices for climate mitigation / adaptation and what would the economic impact be from these?  The answer:  a potential $2.6 trillion, per year, improvement to the global economy.

These reports, together, provide window on a simple truth:

When it comes to climate change,

Inaction costs (a lot) …

Action benefits (a lot)

Risky Business key findings:

key findings underscore the reality that if we stay on our current emissions path, our climate risks will multiply and accumulate as the decades tick by. These risks include:

Large-scale losses of coastal property and infrastructure

  • If we continue on our current path, by 2050 between $66 billion and $106 billion worth of existing coastal property will likely be below sea level nationwide, with $238 billion to $507 billion worth of property below sea level by 2100.
  • There is a 1-in-20 chance—about the same chance as an American developing colon cancer; twice as likely as an American developing melanoma2—that by the end of this century, more than $701 billion worth of existing coastal property will be below mean sea levels, with more than $730 billion of additional property at risk during high tide. By the same measure of probability, average annual losses from hurricanes and other coastal storms along the Eastern Seaboard and the Gulf of Mexico will grow by more than $42 billion due to sea level rise alone. Potential changes in hurricane activity could raise this figure to $108 billion.
  • Property losses from sea level rise are concentrated in specific regions of the U.S., especially on the Southeast and Atlantic coasts, where the rise is higher and the losses far greater than the national average.

Extreme heat across the nation—especially in the Southwest, Southeast, and Upper Midwest—threatening labor productivity, human health, and energy systems

  • By the middle of this century, the average American will likely see 27 to 50 days over 95°F each year—two to more than three times the average annual number of 95°F days we’ve seen over the past 30 years. By the end of this century, this number will likely reach 45 to 96 days over 95°F each year on average.
  • As with sea level rise, these national averages mask regional extremes, especially in the Southwest, Southeast, and upper Midwest, which will likely see several months of 95°F days each year.
  • Labor productivity of outdoor workers, such as those working in construction, utility maintenance, landscaping, and agriculture, could be reduced by as much as 3%, particularly in the Southeast. For context, labor productivity across the entire U.S. labor force declined about 1.5% during the famous “productivity slowdown” in the 1970s.3
  • Over the longer term, during portions of the year, extreme heat could surpass the threshold at which the human body can no longer maintain a normal core temperature without air conditioning, which we measure using a “Humid Heat Stroke Index” (HHSI). During these periods, anyone whose job requires them to work outdoors, as well as anyone lacking  access to air conditioning, will face severe health risks and potential death.
  • Demand for electricity for air conditioning will surge in those parts of the country facing the most extreme temperature increases, straining regional generation and transmission capacity and driving up costs for consumers.

Shifting agricultural patterns and crop yields, with likely gains for Northern farmers offset by losses in the Midwest and South

  • As extreme heat spreads across the middle of the country by the end of the century, some states in the Southeast, lower Great Plains, and Midwest risk up to a 50% to 70% loss in average annual crop yields (corn, soy, cotton, and wheat), absent agricultural adaptation.
  • At the same time, warmer temperatures and carbon fertilization may improve agricultural productivity and crop yields in the upper Great Plains and other northern states.
  • Food systems are resilient at a national and global level, and agricultural producers have proven themselves extremely able to adapt to changing climate conditions. These shifts, however, still carry risks for the individual farming communities most vulnerable to projected climatic changes.

World Bank

sector policies include regulations, taxes, and incentives to stimulate a shift to clean transportation, improved industrial energy efficiency, and more energy efficient buildings and appliances.

By 2030, the benefits of these three sets of sector policies would include 94,000 premature deaths avoided annually and GDP growth of $1.8 trillion-$2.6 trillion per year. The policies would avoid 8.5 gigatons of CO2-equivalent and almost 16 billion kilowatt-hours of energy saved, roughly equivalent to taking 2 billion cars off the road. Together, these implementing these policies could represent about 30 percent of the total reduction needed in 2030 to limit global warming to 2 degrees Celsius.

The four simulated project case studies analyzed local development interventions scaled up to a national level in one country.

For example, in the Brazil landfill scenario, the report uses results from existing World Bank-supported projects in Brazil that are implementing a variety of integrated solid waste management options, including biodigesters, composting, and landfill technology that captures methane to produce electricity. If the same technologies were scaled up nationwide, over 20 years, the study estimates the changes could create more than 44,000 jobs, increase GDP by more than $13 billion, and reduce emissions by 158 million tons of CO2-equivalent.

The other three project case studies examine expanding bus rapid transit in India, the use of clean cookstoves in rural China, and the use of solar panels and biodigesters to produce electricity from agriculture waste in Mexico.

Together, the aggregate benefits over 20 years of those four projects scaled up to the national level are estimated to include more than 1 million lives saved and about 1 million-1.5 million tons of crop losses avoided. These projects could reduce CO2-equivalent, emissions roughly equivalent to shutting down 100-150 coal-fired power plants. For just three of these projects – in India, Brazil, and Mexico – the benefits equate to about $100 billion-$134 billion in additional value.

Tags: climate change · economics · world bank