Our Changing Climate and its Economic Impacts

Posted by on July 12, 2014
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We are suffering a fever.  Month after month, this old planet just keeps getting warmer.  Not actually hotter month by month – we still have summer and winter.  But each month is usually a little bit warmer than it was a few years ago at the same month.  Despite the cold episodes in our winter here in eastern Canada and the long slow start to Spring, when they average in our temperatures with those from the rest of the world, the NOAA scientists report a much warmer than usual year.  If things continue this way through the northern summer, we could see some significant damage to coral reefs due to coral bleaching both in the Caribbean and in South-east Asia.

MAr-May 2014 global temp NOAA

On this map showing temperature anomalies as percentiles for the March to May period, eastern North America stands out as the only substantial land area with temperatures cooler than usual for this time of year.  Image courtesy of NOAA National Climatic Data Center.

NOAA’s global report for the month of May reports May 2014 was the warmest May on record averaging 0.74oC above the average for the 20th century.  This was primarily due to warm ocean temperatures; when they examined land temperatures only, this May was only the fourth warmest.  Looking further back, the global average temperature for the March to May period was the second warmest on record behind that for 2010.  The March to May map shows how eastern North America was clearly doing a very different dance to the rest of the world, remaining cooler than average while virtually every other land area on the planet was warmer or much warmer than average.  Australia, which had had a warm summer continued with its warmest May ever, while Alaska recorded its sixth warmest May.

The NOAA climate scientists are still declaring an el Niño event has about a 70% chance of starting in the next few months, and an 80% of commencing by later this Fall.  I think we are probably headed for a warm Fall and Winter.  Of course, that is ‘we’ globally.  There remains the chance that some portion of the globe, like eastern North America might do its own thing as it did last winter – you can always depend on the weather (rather than climate) to be undependable!

Economic Costs of Climate Change are Starting to be Recognized

While there remain plenty of climate change deniers out there, national governments and the business community are beginning to think about the economic costs of climate change.  It’s funny to me that we have abundant evidence of serious environmental consequences of climate changes now occurring, but these do not seem to grab the attention of governments and business.  Somehow, economic costs seem so much more real than environmental ones.  Still, at least they are starting to recognize the substantial costs of continuing business as usual, and that is far better than sitting dumbly assuming that nothing out of the ordinary is happening.

One action that got media attention was an Op-Ed in the New York Times on June 21st by former US Treasury Secretary, Henry Paulson.  He stated that we are “staring down a climate bubble that poses enormous risks to both our environment and economy. The warning signs are clear and growing more urgent as the risks go unchecked”.  In Paulson’s view we, meaning the US, has got to act and soon.  His preferred approach?  A carbon tax.  He says that failing to act on carbon pollution will be catastrophic: “With [the 2008 financial collapse]  indelibly affecting my perspective, viewing climate change in terms of risk assessment and risk management makes clear to me that taking a cautiously conservative stance — that is, waiting for more information before acting — is actually taking a very radical risk. We’ll never know enough to resolve all of the uncertainties.  But we know enough to recognize that we must act now”.  A dyed in the wool, senior Republican who clearly gets it.

I also saw an interview in GreenBiz.com with Mike Robinson, VP of Sustainability at General Motors, concerning GM’s recent signing of the Climate Declaration, an advocacy device organized by Ceres to bring businesses and individuals to lobby the US government to take action on climate change.  The list of names is interesting; GM is certainly the largest corporation on board.  And, gee whiz, there do not appear to be any fossil fuel companies to be seen!

ClimateDeclaration_42814

The Climate Declaration and the companies that had signed on by late June.
Image from GreenBiz.com.

OECD’s New Report on the Global Economy

The OECD is an international, business-friendly organization.  It has just released a report, Policy Challenges for the Next 50 Years, forecasting the global economy through the next several decades.  In typically positive, upbeat fashion, it tries to put the best spin on a global economy that has been stumbling about since the 2008 crash.  Still, it is forced to admit that GDP growth will decline over the next 50 years and that income inequality will become greater.  OECD has a remarkably conservative view of the likely impact of climate change, simply stating that “rising greenhouse gas concentrations pose the most comprehensively global risk to economic output”, and then going on to say, “while the full effects of unfettered GHG emissions are expected to produce their largest economic damages after 2060, rising global temperatures may start to affect GDP earlier.”  A couple of paragraphs later they estimate that global GDP might be reduced by between 0.7 and 2.5% by 2060.  They clearly don’t see climate change as anything to worry about just yet.  Do the authors pay any attention to environmental woes, or the costs of environmental crises that are happening around the world right now?

What I did find interesting is that the OECD report drew attention to their previously published estimate that a broad effort to mitigate CO2 pollution could yield a 6% boost to the global economy, partly because there exist some 550 different measures encouraging production of fossil fuels, amounting to $ 90 Billion (in 2011), and in addition, there are measures encouraging use of fossil fuels in various emerging and developing countries that together amount to $ 544 Billion (2012 data).  It seems a no-brainer to shift away from fossil fuels as quickly as possible, but as we all know, forging a comprehensive global climate treaty is not proceeding very well.

A New Way Forward to Break the Impasse in Climate Negotiations

This conveniently lets me turn to another article.  Writing in the journal Nature Climate Change, Marco Grasso, Università Milano-Bicocca, Italy, and J. Timmins Roberts, Brown University, Rhode Island, provide a perspective on how to move the negotiations for the climate treaty forward.  In A Compromise to Break the Climate Impasse, they suggest 1) initially limiting negotiations to a group of just 13 countries (actually 12 plus the EU) that together account for 81% of total cumulative emissions since 1990, 2) using national rates of consumption of carbon rather than rates of production to determine relative responsibility, 3) taking both responsibility and capacity to act into account in achieving an equitable apportionment of shares of emissions to be cut back, and 4) taking the negotiation back to the full suite of UNCCD member countries only after these 13 have reached agreement.  It’s an interesting proposal, although one would still need to get the US, China, Russia, India, and so on to reach agreement, and then gang up and push Canada and Australia to agreement also.

There were several interesting details in this article concerning Canada.  Canada ranks 7th in this group of 13 in terms of cumulative emissions, with 2.1% of total world emissions since 1990.  One can say that Canada only contributes a measly 2%, or note we are the 7th worst carbon polluter.  I expect Stephen Harper to cling to the former view.  Secondly, Canada’s production-based emissions since 1990 are almost identical to its consumption-based emissions: 10,693 metric tonnes CO2 produced in fuel and other products, and 10,953 metric tonnes CO2 released during consumption.

So much for the Harper government line that our CO2 performance looks so poor relative to other countries because we are a resource-exporting nation.  No, we export a lot of fuel that then gets burned elsewhere, but we also emit a lot of CO2 in operating our economy – about 260 metric tonnes more.  We are just really rather irresponsible emitters of CO2 all around! 

Some other countries have substantial imbalances, notably South Africa (29%), Russia (26%), and China (15%) which produce a good deal more CO2 polluting products than they consume, and the EU (22%), and Japan (21%) which consume more such products than they produce.

The compromise sounds to me like a worthwhile approach to explore.  But of course, I thought having the full 100+ countries sit round the table and agree would be an approach that would work once everyone understood how serious the problem is.  I keep forgetting that politicians only think short-term, and only about winning.

Growing Recognition of the Value in Formal Economic Accounting of Natural Capital

In the same issue of Nature Climate Change, Matthew Agarwala, of the London School of Economics, and three colleagues provide a commentary on economic accounting for natural capital.  They begin with the point that at least $ 40 Trillion per year is omitted from estimates of the global annual GDP.  This $ 40 Trillion is an estimate by the World Bank of the value of goods and services derived from the natural world for free every year.  It’s an under-estimate because the World Bank only used data from some of the ecosystem goods and services in just 100 countries.

Before going further, many ecologists, including me, have a real concern that converting nature to a sum of money representing what it does for us risks turning nature into a commodity that might be replaced by something man-made and believed to do the same things.  In fact, nature has tremendous esthetic, spiritual, cultural, historical and religious value beyond its value in providing us with goods and services.  Also, nature does not exist to fuel our economy, and we are hubristic enough without encouraging each other to convert nature into dollars and cents.  Still, for those, like Henry Paulson who live and breathe dollars and cents, pointing out the tremendous economic value provided to our economy by nature is probably a worthwhile exercise.  Just remember that is not the only value nature possesses.

Anyway, Agarwala and colleagues maintain that both governments and corporations are beginning to see the value in providing a proper economic valuation of their natural capital, in order to more accurately measure their economic performance, assets and liabilities.  They tell of a recent demand by shareholders that giant ExxonMobile “disclose the potential impact on natural capital asset (fossil fuel reserves) values if governments were to enforce emissions restrictions consistent with the 2 °C temperature rise target.”  Shareholders have a right to this information because the reserves are the major capital asset of the corporation, and if they suddenly become reserves that cannot be marketed, the value of the corporation drops like a stone.  The resulting report, which ExxonMobile has to be forced to publish, claimed that “none of [ExxonMobil’s] hydrocarbon reserves are now or will become stranded” on the grounds that they consider such an aggressive emissions reduction policy to be “highly unlikely”.  Now doubt they consider it highly unlikely because they believe they have the governments of the world suitably stuffed into their corporate back pockets (and evidence from Canada suggests they may well be right).  In fact, it is almost certain that there will be substantial ‘stranded assets’ left in the ground when we finally come to our collective senses and stop using fossil fuels.  If that does not happen, we will be so busy dealing with run-away climate change that we won’t much care about balance sheets or profits and losses in the markets.

Agarwala and colleagues discuss the difficulty of adequately valuing many natural capital assets – what is the value of replenishing oxygen in our atmosphere?  Plants on land and in the oceans share this immense job, while we keep consuming it.  They suggest that building economically acceptable approaches to value carbon, or CO2, may be a good beginning even though it is more of a liability than an asset, with other types of natural capital valued later.  They also consider the ways in which climate change and economic activity interact in affecting value of natural capital, and how it is important to include all important types of natural capital in the accounting.  For example, they state “hydropower in the Mekong River Basin (MRB) may serve a low carbon agenda, but the MRB is also a biodiversity hotspot, home to at least 877 fish species, the world’s largest inland fishery and the 70 million people that depend on it for up to 70% of their protein intake.  The more than 60 dams currently under consideration on the Mekong would interrupt nutrient deposition and fish migrations, compromising downstream agriculture and fisheries with estimated impacts ranging from +US$33 billion to –US$274 billion.  A focus purely on carbon would omit these broader natural capital impacts with severe consequences for public wellbeing, private sector revenues and social and political stability.  Crucially, the economic valuation of natural capital offers a common metric, allowing these competing goals and impacts to be compared on local and global levels”.

Of course the real value of natural capital accounting comes when decisions are being made on the profitability of undertaking particular ventures, whether these are being contemplated by governments or corporations.  If those planning a venture were required to not undertake it unless there is an overall economic profit in so doing, or if the overall economic loss is offset by the resulting societal benefit, we would be making far better decisions, as governments or as corporations than we do now.  It still won’t turn governments or corporations into model conservationists, but I think it would move them a lot closer to this goal than going on as we presently do.

Why, just today, Twitter alerted me to an article describing a hare-brained scheme by some group of Italian developers fronted by John Travolta (who just lost any cred he ever had with me) to turn Lighthouse Reef, one of Belize’s three Caribbean atolls, and location of two UNESCO World Heritage sites, into a megaresort for millionaires, called Puerto Azul, including a private jetport, a Formula One speedway, and an outdoor amphitheatre dedicated to Andrea Bocelli.  On a coral reef!  It seems some money has already been used to fly Belizean dignitaries to a glitzy launch event in Cannes, but it is not a done deal, and I’d like to believe Belize is capable of avoiding such a travesty.  (I do not need natural capital accounting to know this is a terrible project, but if the accounting was done it might help to persuade those who apparently do not see anything wrong with building a Formula One speedway on top of a reef.)  The fact that such outlandish projects proceed to the point of a launch party is bizarre.  There is a fairly extensive desert just across the Mediterranean, south of Italy with lots of room for speedways and amphitheatres.  You don’t build them on top of living reefs.  You really don’t.  It’s simply the wrong thing to do………

great-blue-hole-belize

The Blue Hole on Lighthouse Reef, perhaps soon to be a new Formula One speedway, a giant amphitheatre, and a modern jetport.  Some people (like John Travolta) just seem to like to mess things up!

But come to think of it, the world does include Dubai, which has done a masterful job of building stuff on top of its few scattered, suffering reefs.  So let’s use natural capital accounting to try and hold brain-dead developers and their glitterati friends to a higher standard than is currently used!

Sat_Map_Jan_07_OL

The Dubai coastline, sort of a developer’s wet dream.  Fortunately, the 2008 global economic crash has ensured that most of this awfulness has not yet been built.  Palm Jumeirah, the structure at the left, was built, and now functions as a rather strange holiday destination.  Image from Wikipedia

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