Climate change poses serious financial risks for businesses and communities worldwide, affecting every industry, region and nation. Climate change impacts include rising electricity costs, decreased agricultural productivity and decreased ecosystem stability.
Climate action can reduce costs and open new business opportunities while protecting people, their homes and businesses from climate-related hazards.
What is climate change?
Climate change refers to any significant shift in average global weather conditions over a number of decades or longer; for example, an increase in extreme temperatures or wetter or drier conditions; this differs from natural variations like an individual heat wave or drought event.
Scientific consensus holds that human activities, such as burning fossil fuels such as coal, oil and natural gas for energy production in homes and businesses have contributed significantly to climate change. When these fossil fuels burn, they release carbon dioxide (CO2). This substance traps solar heat energy to warm Earth’s atmosphere globally – even far removed from sources of emission experience similar effects of warming.
Scientists have determined that to reduce climate change risks, immediate and drastic measures must be taken to radically cut CO2 emissions. They have suggested achieving net zero CO2 emissions by 2050 – this means getting rid of existing fossil fuel stocks as much as possible and clearing all remaining global carbon from the atmosphere – through energy reduction strategies as well as creating innovative renewable technologies like wind and solar.
Climate change impacts will vary by country, with richer countries likely being less impacted than poorer ones, according to an analysis conducted by the Swiss Re Institute. A worst-case scenario where global temperatures increase by 3.2degC could wreak havoc with economies around the world by midcentury – wiping away 18% off total economic output worldwide by midcentury alone.
Impact is felt across sectors beyond economics; from health to food security and water resources. Mass migration, conflict and disasters will result in widespread impacts that are particularly hard for those unable to adapt quickly enough.
Climate change will disproportionately impact those most at risk, such as those living in poverty. They contribute little to its causes but bear its impacts more severely; low-income communities, indigenous peoples, minority populations and women all stand a good chance of helping reduce climate risks through collective efforts to mitigate them.
What are the impacts of climate change?
Climate change will have profound effects across all regions, though its consequences will likely be felt more strongly in certain areas than others. Natural disasters caused by climate change such as hurricanes and wildfires can be devastating; disrupting supply chains, reducing productivity, increasing demand for energy and water use as well as leading to lower agricultural yields resulting in higher food costs and decreased living standards.
Climate change increases the risks of disease and death from air pollution, according to one study. Exposure to air pollution causes around seven million deaths every year and costs over 4% of GDP for countries emitting the most greenhouse gases.
Climate change will have greater effects on those who lack resources to adapt, such as those without adequate health insurance or insurance to protect their assets from climate damage. A recent study conducted by researchers revealed that under high emissions scenarios, damages from climate change cost between 2- 20 percent of county income in poorest third of US counties under high emissions scenario; wealthier areas will experience much lesser damages. This trend holds true across the board with poorest nations being most susceptible to climate change impacts.
According to a report released by Rhodium Group, climate change could cost America up to $160 billion in economic output annually by 2090, mostly through lost labor productivity from heat stress. According to projections made by Rhodium Group’s analysis, Southeast and South Great Plain productivity will see losses totaling two billion labor hours every year by 2090; Texas and Florida areas could experience even larger reductions.
Reducing climate change’s costs requires taking action, and emissions reduction efforts have proven significant savings – both direct (tax incentives and energy efficiency investments), and indirect savings from reduced health care costs and greater agricultural productivity. According to one recent estimate by the Global Commission on the Economy and Climate, stabilizing GHG emissions at levels that avoid 2.8degree C warming by 2100 would provide direct economic benefits of over $26 trillion!
How can we adapt to climate change?
As countries strive to reduce climate change, they are also striving to adapt to its effects that have already taken place. Adaptations can sometimes help limit damage that would have otherwise been sustained and provide communities with opportunities to increase well-being while mitigating climate impacts. Adaptation is the practice of selecting projects which provide maximum cost-efficiency and social value to communities, taking into account factors like benefits, risks, costs and implementation. This process includes planning and financing projects designed to protect assets, enhance infrastructure resilience and people resilience, increase crop yields, foster innovation, enhance human health and wellbeing and build and strengthen nature.
Investments in climate protection and mitigation can significantly lower the costs of climate change on economies in the short term. One study estimates that unchecked emissions would lead to losses related to hurricane damages, energy costs, water costs, and residential costs related to sea-level rise which could total 1.4% of GDP by 2025 and 1.9% of GDP by 2100 respectively.
Action taken to drastically cut global warming emissions can substantially cut costs associated with climate change over time. In the US alone, for instance, experts estimate that reaching net-zero emissions by 2050 will bring economic benefits estimated at more than $2 trillion.
Climate adaptation investments represent a valuable economic opportunity for developing nations. If temperatures continue to increase at their current rates since the industrial revolution, their economies could shrink up to 14 percent compared to what they would be without climate change, according to a report from Swiss Re.
Losses due to climate change include reduced agricultural productivity and increased costs of food production as well as heat stress, rising sea levels, damaged infrastructure and lost labor. Losses tend to be highest among poorer nations without access to adaptive measures or resources needed for their adaptation, making Malaysia, Thailand and India especially susceptible. Climate change’s consequences could prove even more severe in these nations than elsewhere.
What are the solutions to climate change?
Economic damage incurred due to climate change will depend on how quickly governments take steps to reduce greenhouse gas emissions and reach net-zero emission rates as quickly as possible. Reaching net zero will require investment and innovation – but also offer new opportunities for economic development in an era of clean energy.
One of the primary challenges lies in addressing how to divide adaptation and mitigation costs amongst rich and poor countries, as well as finding ways to effectively distribute them between direct costs (such as natural disaster losses) and indirect ones ( such as reduced agricultural productivity due to heat stress).
Another important challenge associated with climate change is how to properly evaluate its economic impacts, particularly those that can be difficult to measure financially, such as its effects on human health and biodiversity. Therefore, it is crucial that these effects be assessed both nationally and locally.
As well as these challenges, others remain, such as how to ensure economic development remains sustainable and resilient in an altered climate. There remains uncertainty regarding how best to include costs of climate change into national accounting; specifically how best to account for “externalities” not directly tied to production but still having significant negative economic ramifications.
Recent Deloitte research indicates that insufficient climate action could cost the U.S. economy up to $520 billion every year due to rising sea levels, heat stress, reduced crop yields and infrastructure damage. Their analysis included 22 sectors within the economy that would be affected if global temperatures rose by either 2.8 degrees Celsius or 4.5 degrees Celsius respectively.
This study also focused on how different strategies might impact the U.S. economy over time and identified which sectors would experience greatest benefit if America moved towards a low-carbon future. These sectors included water resources – which would see increased availability of freshwater; shipping and logistics (with reduced ice cover); defense technology (ie weather satellites/radar systems as well as aircraft/vehicles/ammunition etc), among others.