Economics and The Environment Part 1: The Cost of Climate Change

in #economics6 years ago (edited)

I'm going to start this series off with a pretty direct thesis: Our current system economically incentivizes civilization to cause much, if not most, of the environmental damage it does to our planet, and that in order to mitigate or heal that damage, we're going to need to address the underlying economic causes directly. We're going to start this series off with the biggest (and, in some ways, one of the easier) environmental crises to examine on an economic basis: climate change.

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*A graph of the number of weather and climate disasters costing more than a billion dollars in damages. The bars representing the number of such disasters are a little more useful in directly observing the increased costs of climate change than the line representing the damage costs- the latter are more reliant upon the human investments in the damaged regions. Note the highest damage cost was in 2005, the year of Hurricane Katrina, but it was far from the year with the most major weather catastrophes. Also, if this chart were to be extended even farther backwards in time, the numbers would remain low (or lower)- somewhere around the 80s, we seem to have passed some sort of major climate change related threshold that led to more pronounced consequences. [Image source]

The reason why climate change is so much more easily discussed than some other environmental issues on an economic basis? That's simple- it's because there's an easy, direct, and quantifiable variable to be observed- greenhouse gas concentrations in our atmosphere. Being able to easily observe said levels means that we have something to pin costs to very easily- and, once we've established the amount of damage that has been done by climate change, we can use to calculate and predict the damage done per ton of carbon dioxide (or other greenhouse gas) emitted. Global temperatures are another measurable variable that can have economic costs assigned to them, of course, but since greenhouse gas levels determine global temperatures, it's better to stick with them.

Not only is climate change much, much easier to discuss economically than, say, the ongoing mass extinction event, said discussion is actually going on. Massive amounts of data have been analyzed, pored over, and debated in trying to establish the economic costs of climate change, and some pretty solid conclusions have been arrived at. First of all, and most importantly- early and bold action on climate change will be disproportionately more effective than action taken later on, even if said later investments are much, much larger. It's somewhat akin to compound interest- a small investment early on is more important than a large investment later. The faster we can take action, the more effective it will be in the long run.

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Atmospheric carbon dioxide concentrations measured at Mauna Loa, Hawaii. The red line represents seasonal fluctuations, while the blue line represents the smoothed trend. The fluctuation throughout the year is caused by the majority of the world's forests being clustered in the Northern Hemisphere, resulting in much more CO2 being absorbed in the Northern Hemisphere summer. [Image source]

The next conclusion of the research? Increased emissions are firmly and strongly controlled by economic growth. The better the economy is, the more greenhouse gas emissions you can expect. In fact, during the 2008 economic recession, greenhouse gas emission rates actually dropped significantly. This can be understood in great part as people having more money to travel, buy goods, new homes, etc, etc- all leading towards greater emissions. When times are bad, people stay in and don't buy a lot of stuff, leading towards lower emissions.

The next set of important findings have to do with the relationship between the economic status of nations and the damages they face from climate change. In a nutshell: the poorer a country is, the harder climate change is going to hit them. Wealthier countries can simply afford to prepare for and recover from climate change related issues better. Even more depressingly, many of the poorest countries are also located in regions that are simply more predisposed towards climate change related damage.

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A map of the projected impact of climate change on crop yields. Note that there is a depressing correlation between poverty and the probability of reduced crop yields. Many of the wealthier, more northerly nations, who tend to be already strongly food secure, actually benefit to varying degrees in this regard. These nations also tend to be some of the heaviest emitters of greenhouse gases- the worst offenders here aren't the ones paying for their own mistakes. [Image source]

There are far, far more other findings than we can cover here, but those work for our purposes right now. So how, exactly, does our civilization incentivize greenhouse gas emission? Well, in a few ways. First of all, it's simply cheaper to run a high greenhouse gas emission society than to convert to a low emission society- the costs of conversion will assuredly be high. In the long run, the costs of climate change considerably outweigh the costs of conversion, but our current civilizations aren't known for having much in the way of foresight. Conversion will cost us an equivalent of about 1% of our economy/economic growth over the next century or so. The damages of climate change are considerably higher.

Apart from the eternal prioritization of the short term in our civilization, there's another reason that we can (and do) ignore long-term costs so willingly- namely, there's a huge blindspot in the market. Externalities are costs (or, sometimes, benefits) that affect people outside of the economic transaction/ action that produced the cost. Producers of greenhouse gases do not pay for the costs produced by their emissions. This is possibly the single biggest issue with those who have blind faith in the market- the market simply has no interest or incentive currently for making legible and accounting for most externalities.

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Changes in seawater pH between the pre-industrial period (before around 1700) and the present day. Ocean acidification, often referred to as the evil twin of climate change, results from the exact same base cause- increased atmospheric CO2 levels. Terrifyingly, it wasn't a widely predicted concern until around 2001, and a disproportionate amount of the change has occurred more recently. Other unpredicted threats caused by altering the temperature and chemistry of our atmosphere are quite likely. Like climate change, we can discuss the economic threats of ocean acidification quite easily- and will, later in this series. [Image source]

Forcing the market to pay attention to these externalities would be an extremely effective solution- that is, forcing greenhouse gas emitters to pay for said emissions. There are two main solutions to this, both of which try to establish a cost per ton of carbon emitted to incentivize lower emissions. (That number, by the way, is usually pegged around 25$ per ton- there's a lot of complicated math behind it, but it's probably the best number to sufficiently reduce emissions to reach our current goals while not overburdening the economy.)

The first is a carbon tax. The carbon tax simply taxes emitters some amount of money for every ton of carbon they release in the atmosphere. By increasing costs, it economically incentivizes greenhouse gas emitters to do so less. The other is the cap and trade solution- essentially, putting a hard limit on how many greenhouse gases can be emitted in a country, and then letting companies buy and trade licenses to emit greenhouse gases. While there is a lot of debate about which is better, to an extent it's a rather nit-picky debate- either one would most likely be quite effective at doing its job, so it really just comes down to which fits as a solution better in any given nation. (There are, of course, some partisans for either solution who disagree, but that's to be expected.)

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A coal fired power plant in Germany. Coal would become immensely unprofitable under either a cap and trade or carbon tax plan- coal is by far the "dirtiest" fuel in terms of atmospheric carbon emissions per unit of energy produced. "Clean coal" simply doesn't exist. Atmospheric scrubbers that remove the greenhouse gases from its emissions are a working solution, but would increase in expense the more carbon needed to be scrubbed. Beyond that, sequestration of the carbon removed thusly is another whole can of worms. [Image source]

There are, of course, heavy concerns with either solution. Most notably, the global community would have to be on the alert for freeriders- countries content to allow others to try and take care of the problems themselves, making it even more difficult to mitigate climate change. Other, further solutions have been proposed for climate change- much more active ones. These include geoengineering and carbon sequestration. Carbon sequestration involves the active removal or carbon from the atmosphere and storing it underground, underwater, or in the form of added plant life. There are a lot of serious concerns with this one, however, and it would be much more expensive than merely preventing the emissions.

The other category of solutions, geoengineering, is potentially much cheaper than sequestration, but also much, much more dangerous. One common geoengineering plan involves releasing sulfur compounds into the atmosphere that mimic volcanic gases, which actually have a global cooling effect. Doing so, however, would have far-reaching effects that would quite likely be disastrous- it would be a cure far worse than the disease.

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Projected seal level rise if carbon emissions were to double (black line) or quadruple (red line). Note that this chart ONLY takes into account thermal expansion of the oceans- warm water takes up more space than cold water. This chart does not take into account the melting of the ice sheets at all, which could drastically increase this already quite scary projection. [Image source]

There are, of course, countless non-economic solutions to climate change. Better green technology, smarter and more effective regulations, mass changes in lifestyle choices, urban layouts and designs, etc, etc can all have huge impacts. Without some way of actively confronting our economy's incentivization of greenhouse gas emissions, however, we'll be simply unable to effectively combat climate change.


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Excellent post as always @mountainwashere with cool figures.

I always like how we end up using a solution to a problem by changing a system that we do not always completely understand prior to changing it. e.g. geoengineering. Change one variable, what are the outcomes? I agree with you that it is dangerous...

Too many of one thing, bring in something else that kills something else that becomes a larger problem than the initial problem.

Getting back to your topic, this (geoengineering) for climate change was addressed as the key plot point of an roaring fun film, snowpiercer:

This scene, the start of the film, humans decide to geoengineer to save the planet, doing so they (we) send the planet into a new ice age (i.e. taking things a bit too far by not truly understanding the problem or the solution). There are some chemtrail stuff that I am not promoting by this was the only video link to cover the starting scene of this cool flim.

Now as a scientist I like seeing how the system reacts on the fringes. Warm something too much and things start to change. With climate change, the climate is changing, more warming, places like Greenland and Antarctica start to melt more, putting more cold fresh water into the Ocean system. With cold water pulsing south from Greenland, this hits the warm Gulf Stream, weakening it and reducing the warming effect it has on Europe and global climate, further changing the climate. See figure below from the journal Nature. Really interesting food for thought.

Screen Shot 2018-07-01 at 10.14.02 pm.png
Figure 1: From Thornalley et al., 2018 - 11 - April - Nature.

I personally do not think we should geoengineer until we understand everything. Who knows, there may be a big natural eruption that does the same thing for us and if we geoengineer at the same time, suddenly we cool things down too much. Cue the Snowpircer train. Who knows, wait and see (well we could model it, but garbage in, garbage out). Cheers!

I love Snowpiercer, such a good movie!

I did a whole post on geoengineering a while back, I might need to do another soon.

Cool! It is a good one, I may have to give it a watch again. Geoengineering is always topical and I am always keen to learn more so looking forward to your thoughts on it!

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Awesome! Thanks for that and for your awesome community and purpose!
Everyone needs a bit of incentive so that is cool.
Cheers!

Interesting post it is. I think a global trade in emissions would be the most effective. It allows to pose a hard limit on the amount of produced greenhouse gasses and it can be lowered year after year to reach targets. I think it is also a better approach since consumers won't criticize the government again for taxing products for their benefit (although higher prices are a result nonetheless). It also leads to a balance where reducing pollution can be more cost effective than buying emission rights. But aren't they already doing this? Or is this not on a global scale yet?

Carbon taxes are indeed way easier to implement but I don't think it offers a lot of control on the total amount of emissions.

And of course, geoengineering could be potentially very dangerous as you and @snowyknight already mentioned. Treating the symptoms rather than the cause is not the way to go, but could it be a last resort, in case all else fails? I think it would be even more dangerous than climate change itself.
Because an important thing to note is that climate change doesn't kill species or disrupt societies, It is the speed at which it changes that can be so destructive. So geoengineering in timescales of only a few years could even be more disastrous.

ps. snowpiercer sounds like I film I definitely want to see! :D

People against geoengineering (PAG)? Hahahaha.

Good points all around! Yes check out Snowpiercer, it is awesome. I saw in the theater at a film fest and it was amazing!

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Fast change can easily overwhelm species adaptive capabilities!

And heck yeah, you should definitely watch Snowpiercer.

It is depressing that in 2018 we are yet to take the global warming issue seriously.

The most powerful country on earth is led by a global warming denier and credits on carbon tax are being bought from other countries to get around the problem.

Even over here in Ireland, the green isle, we have one of the worst records when it comes to decreasing our carbon emission. Politicians cannot take long term decisions that are unpopular because they get to pay the price at the next election.

It is the sad reality of democracy that most people don't vote with their brain for their children but always find excuses to say 'not in my backyard'.

It's really depressing. We are letting our children down
...

Children and grandchildren.

Children and grandchildren.

Better green technology, smarter and more effective regulations, mass changes in lifestyle choices, urban layouts and designs

Very nice article. I really agree with you that there has to be a mass changes in the way people choose to live their lives. So that we don't destroy the beautiful planet we have.

It's somewhat akin to compound interest- a small investment early on is more important than a large investment later. The faster we can take action, the more effective it will be in the long run.

Truely, the quicker we combat climate change, the better for the world at large.

Thanks for sharing. This is an amazing write- up!!

Thanks for reading!

Nice post as usual.

One key piece of info that I never considered was how increased temperatures can provide an agricultural benefit to some wealthy countries while hurting many 3rd world countries. I guess that just makes convincing those countries to help stop climate change that much harder.

It really does, which sucks.



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You have a minor misspelling in the following sentence:

Terrifyingly, it wasn't a widely predicted concern until around 2001, and a disproportionate amount of the change has occured more recently.
It should be occurred instead of occured.

Your post has been personally reviewed and was considered to be a well written article.
You received a 80.0% upvote since you are a member of geopolis and wrote in the category of "history".

To read more about us and what we do, click here.
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I've always wanted to see a graph like this control for the level of infrastructure spending year over year with an additional control for inflation. Basically, is there more for a natural disaster to ruin now vs. in 1970, assuming a natural disaster of the same magnitude? The answer if obviously "yes" but a study like that would actually become a bigger point of discussion assuming the difference was vast while controlling infrastructure growth over the same time period.

It's something already accounted for in all the economic surveys of natural disaster costs I've encountered, so I believe it's standard.

There will be a MINI ICE AGE!!! It is happening now because low sun activity, not the 11 years cycle. Please, use data from 2018 and scientific journal, not only Wikipedia...

I don't accept youtube videos as evidence in conversations. Please link me to data from actual scientific journals claiming there's going to be a mini ice age.

(You can't, because there isn't one predicted by serious scientists.)

Review solar cycles since 1600 to see how the solar activity is lowering https://arxiv.org/pdf/1312.3408.pdf

The lower sun activity cause the increase of cosmic rays, which weather change https://link.springer.com/article/10.1134%2FS0016793218020111

Read both your articles, neither of them present any argument that we're heading into a "mini Ice Age".