Climate Change & Economics: How Global Economies get effected?

How Climate Change Effects Global Economics?

Does one impact the other? Understand the relationship between climate change & economics, and how climate change is shifting global economies.

By Saloni Gole

Climate change–  a word we keep hearing way too often and are now experiencing around us. Raging forest fires, melting glaciers, heat waves, frequent cyclones, storms, drastic changes in the seasons. All these are real-time impacts of climate change that call for exigent measures.

The most recent Intergovernmental Panel on Climate Change (IPCC) report calls for an SOS for the planet and thus sends out a monition to the entire population aboard the planet. “Earth is warmer than it’s been in 125,000 years”

Time is, very clearly, slipping by and the need for everyone to act upon this keeps mounting on. But a majority population expects environmentalists and policymakers to take the lead. While that is not wrong, it does not give indivduals a free pass. Climate change impacts everyone, not just in the long run, but right now.

Effects of Climate Change on Global Economics

Contrary to popular belief, the impacts are not just limited to rising sea levels and melting glaciers. The impacts are everywhere. One of these aspects is economic impacts. Let us dissect how climate change & economics are related and affect each other.

Impact of Climate Change on Developing Nations

Potential Vulnerability to Climate Change: Global Map
Source: ‘Climate Change Is A Global Mega-Trend For Sovereign Risk‘, Moritz Kraemer and Liliana Negrila (Standard and Poor’s Rating Services, 15 May 2014)

Developing nations are more vulnerable to the severe effects of climate change. Multiple reasons can be attributed to this. Developing countries’ primary sources of income are nature-based occupations like agriculture, fishing, tourism. Eventually, rising temperatures will lead to severe disruptive impacts on multiple food crops. This will culminate into lesser production and hence decrease in export leading to even lesser GDP for these countries.

Fishing and sea-related occupations are also threatened as well due to a notorious frequency of storms, tsunamis due to high-rising temperatures.  The fact that these countries are developing implies that they lack sufficient infrastructure to completely shift to secondary or tertiary occupations. Thus they are also more vulnerable to disease, malnutrition, and access to hygienic resources. All of this does not just require money but also drains the nation of future profits.

Not to mention, developed countries have shifted the base of multiple industries like textile into developing countries to get easier access to cheap labour and more land. Hence, the environmental and economic effects on developing countries are enormous, as compared to the number of emissions they are contributing with.

The below graphs very clearly illustrate the vulnerability vs prosperity situation of all countries, shedding more light on developing countries’ helplessness.

Source: ‘Climate Change Is A Global Mega-Trend For Sovereign Risk‘, Moritz Kraemer and Liliana Negrila (Standard and Poor’s Rating Services, 15 May 2014)

Climate Change disrupting Economic Growth

The effects of events like cyclonic storms, rising temperatures are predicted to be catastrophic. Research is still underway for quantifying the extent of the damage they are going to bring about. But even considering the most generic conditions, these events will lead to a significant loss of infrastructure and raw materials. This, combined with lower agricultural produce, points to only one obvious conclusion- inflation.

Economic growth, characterised by esoteric terms like GDP, can increase for some amount of time when these losses are attempted to be recovered. But global warming isn’t a one-day phenomenon. So the increasing frequency of all these events naturally leads to frustration and lesser attempts to revamp the industry after the incurred losses. Hence the drop in GDP is inevitable, leading to a decline in the global economy. 

Also, infrastructural losses aren’t the only losses here. Manpower is significantly affected as well due to lesser food availability, the occurrence of multiple diseases, and natural disasters. The domino effect is gobbling up the economies of these countries as well as the entire world.

According to the Swiss Re Institute, the most severe impact of climate change could be the loss of up to 18 per cent of global GDP by 2050 if global temperatures rise by 3.2°C. Economies in Asia would be the hardest hit. China is at risk of losing nearly 24% of its GDP in a severe scenario. While the world’s biggest economy, the US, stands to lose close to 10%, and Europe almost 11%.

Climate Change & Indian Economy

Amidst a raging global pandemic when the economy of the country is already crippling, gauging the current and future economic impacts climate change can bring about is of utmost importance and urgency. 

Research says “India is already experiencing the consequences of 1°C of global warming”. India stands to lose around 3-10% of its GDP every year, by 2100, given the current ways of life continue. If the temperature rises to 3°C warming in India, the loss figures shoot out the roof. 

The loss isn’t all statistics, it leads to much worse social implications. The income gaps widen by more than a 3.5% increase in the poverty rate, leading to more inequality in society. According to a report by ODI, the costs of climate change in India are already high. Flooding in India over the past decade has caused $3-billion in economic damage – accounting for 10 per cent of global economic losses from flooding.  

This demonstrates that the human and economic costs of climate change will only rise in the coming years, especially if urgent action to reduce greenhouse gas emissions is not taken.

Economic Growth & Environmental Impact

For long economic growth has grown and ignored its effects on the environment. But seeing how climate change can hamper and decline economic growth severely, we may want to reconsider. It is crucial that we start accounting environmental harm while making plans about economic growth globally.

The task may seem impossible but it can be achieved if global economies agree. There are a few instances where nations have successfully had economic growth while ensuring optimum use of natural resources.

Take the Latin American nation of Chile for example. Chile has been a global leader in sustainable development and is ambitiously contributing to the climate change agenda. 17.4% of the GDP and over 50% of Chilean exports directly depend on natural resources and biodiversity which are extremely vulnerable to climate change. As a result, giving the environmental perspective prominence in shaping and planning Chile’s development was necessary.

Chile has been a pioneer in the use of renewable energy, which now accounts for an average of 20% of total production. The country has also created an electromobility strategy, which includes the use of electric corridors and clean-tech buses.

Chile still has a long way to go but investing in the environment does reap economic & social benefits enjoyed by all the citizen of the country.

How can individuals ensure economics and the environment go hand in hand?

While changes in production and rigorous policies are needed to ensure economic growth & environmental upgradation, individual citizens play an important role. Here are a few ways in which individuals can contribute in bringing about this change.

  1. Vote from your Pocket. Everything you are buying sends a message to the vendor, supplier, manufacturer, and in turn the industry. So choose the kind of message you want to send & amplify

  2. Avoid shopping from brands that follow unsustainable practices. Whether it is unethical treatment of their workers or environmental degradation, your small step speaks volumes. 

  3. Sustainable purchases at individual levels have the potential to cause a ripple effect and change market trends. The changes in market trends can beckon national and global economies to change.

  4. Engage in climate change conversations with those around you. The more voices, the better.

All of these solutions might seem very far-fetched but they are very much doable and within our grasps. Being a conscious consumer, one who voices their opinions and lets those in charge know what they want is the greatest power.

The concluding message is that not only are all spheres of necessity in life connected- like climate change and economics but also that the impacts traverse from one branch to the other in no time. Every economic decision that we take influences the climatic landscape in some shape or form. So we all need to choose wisely, and not just one for the other.

Saloni is a biotech engineering student studying at IIT Kharagpur. She runs the Instagram page called The Sustainability Saga to help more people in India, become aware of sustainability and a zero-waste lifestyle in a simple manner. Saloni’e hobbies include reading novels, dancing, learning new languages, and debating.

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