Why Care About Climate Change In An Economic Crisis

January 20, 2009 by Galina

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Why care about climate change in an economic crisis
By: Galina Varchena and Meera Fickling.

Environmentalism is not just a liberal ploy to make everyone ride a bike to work and eat tofurkey on Thanksgiving. Despite the current economic crisis, and despite the potential sticker shock of sound environmental policies, keeping climate change at the forefront of this administration’s agenda will save not only the polar bears, but also your stock portfolio, according to prominent economists.

In 2006, British economist Nicholas Stern, Chief Economist and Senior Vice President of the World Bank from 2000 to 2003, reported that losses due to climate change would reach between five and twenty percent of global wealth, “now and forever” – depression-scale losses. \Concern about fluffy endangered animals and rare beetles aside, climate change will adversely affect both the domestic and global economy. And this study doesn’t take into account a new U.S. Geological Survey Report that argues that climate change is happening even faster than was previously thought (“Abrupt Climate Change: Final Report, Synthesis and Assessment Product 3.4”). Even the lowest ranges of possible temperature increase will have serious consequences, especially for the developing countries. One should also keep in mind that the non-economic costs of climate change, like health effects and environmental degradation will not be limited to the poor.

But take heart: while many people assume that stabilization of carbon levels will require a return to an eighteenth century lifestyle, the reality is much more optimistic. The same Stern Report predicts that stabilization will cost a relatively cheap 1% per year of global wealth, and could actually produce an economic benefit through greater efficiency of production. A second study published in October 2008 by David Roland-Holst of UC Berkeley concluded that California energy efficiency measures had benefited the economy, creating 1.5 million jobs since 1977, and that California’s Global Warming Solutions Act will increase gross state product by $76 billion and household income by up to $48 billion.

Granted, all of the above admit some uncertainty inherent in economic and environmental projections. However, this uncertainty about specific ranges should not be mistaken for ambiguity about general trends, and uncertainty is nothing new. Take insurance for instance. The cost of insuring your house against robbery, fire or flood accumulates over time, and if nothing happens until you die or sell your house you will have wasted on average of $764 per year in unnecessary costs (national average home insurance rate - 2007 National Association of Insurance Commissioners (NAIC) report ). But if your house is burgled, you are better off with insurance than without. The costs of environmental protection are environmental insurance, except that in the case of the environment you can be more certain that your investment will not go to waste. Even if we don’t experience all the possible side-effects of climate change, those that do occur will affect everybody, unlike robbery or fire which affect only a fractions of the insured population.

The difference between action and inaction is a difference in the amount we are willing to spend now as opposed to later. The more you delay on paying back credit, the higher the cost of eventual repayment, and the higher your interest rate. Likewise reducing emissions in the far future will cost much more than reducing them now; as will the mitigation costs to cope with climate change caused by adopting a business as usual approach.

Fortunately, the upcoming Obama Administration has indicated its plan to reducing emissions to 1990 levels by 2020. The US Climate Action Partnership, a coalition of NGOs and businesses including General Motors, Duke Energy, and Dow Chemical, recently endorsed a similar commitment. And the newest Congressional committee appointments indicate that climate change will be a major legislative priority in 2009. Nevertheless, the financial crisis has led some to question the wisdom of limiting emissions in the next few years, and the passage of an upcoming Copenhagen treaty is uncertain. Climate change action thus needs broad-based public support in order to ensure passage. And it needs support now. Scientists have said that we must start making reductions in the next couple of years in order to avert the worst effects of global warming. After all, if the environmentalists are wrong and it’s not all as bad as it seems – then you still will have helped the polar bear, and that’s something.

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