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

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.

*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.

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.

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.

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.)

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.

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.

Bibliography: