Climate Change and the future of the Economy

Updated: May 30, 2021

Philanthropist Bill Gates in his new book “How to avoid a climate disaster” claims we are emitting approximately 51 Billion tons of carbon dioxide equivalents per year fuelling global warming. It is important to note this is a by-product of our carbon-intensive economic activity which shows no sign of slowing down.

The last years have been eye-openers. The COVID-19 pandemic forced every country into lockdown paralysing the global economy, leading to millions of bankruptcies and massive unemployment. The 2020 wildfires in California caused Nappa valley wine-makers to lose approximately 80% of the Cabernet Sauvignon grapes, halting wine production. The polar vortex that froze Texas this February crippled electric grids and left millions of people stranded with no power under freezing temperatures. Hurricane Etna drove one of the most devastating Atlantic hurricane seasons leaving thousands homeless.

The World Bank estimates climate change could push nearly 100 million more people into poverty by 2030 as temperatures rise. The increased heat is expected to increase drought seasons, reducing agricultural productivity and further complicating the task to feed the world’s growing population which is expected to reach 9.8 billion in 2020. Consequently, food and fresh-water scarcity will lead to rising prices and could spark future conflicts between countries.

Human health and productivity are also on the verge. Heatwaves are expected to lower working capacity and lead to more heat-stress related deaths. Increased precipitation and rising temperatures in some areas will drive waterborne and foodborne diseases like Dengue, Zika and Lyme to new territories, triggering pandemics like COVID-19 more frequently.

A recent survey carried out by the New York School of Law revealed that 3 in 4 economists agree climate change will be devastating and hence “immediate and drastic action is necessary”. These believed the social cost arising from climate change would be shattering, and we should take action; the benefits arising from taking action to reverse this issue will outweigh the costs in the long term.

There is rising concern among financial institutions. Janet Yellen, the US treasury secretary, referred to climate change as an “existential threat” and the biggest risk for the US financial system. Similarly, Jerome Powell, chairman of the Federal Reserve has presided over the formation of two internal committees on climate risk: one on issues of relevance to bank examiners and one on potential risks imposed in the financial system.

So, the warming of the planet does not limit itself to more devastating natural disasters. It will have catastrophic repercussions on the economic system and our lives. Therefore, climate change should be given focused attention, especially by economists and younger generations. It will be a greater problem in the future than it is now, which we need to prepare ourselves for. Action is needed immediately, and economic action such as the implementation of environmental policies should go hand in hand with any environmental measure taken.