Economic Impact of Climate Change

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Abstract

The paper will look into the economic impacts that the rising issue of climate change will bring to our society. Although there might be the presence of some good impacts, the long-term effect of climate change is detrimental to the way of living and eventually to human life. Several studies have been done concerning climate change; however, these studies do not address the impacts of climate change to the global economy. There is a little perception of the marginal impact of this change. Public debate focuses on some of the effects of climate change such as the impact on the population’s health and their lifestyles. What they do not realize is that these impacts have an unparalleled connection to the economy. Some studies have delved into the subject with some bringing out vividly the direct and indirect consequences of this change. This paper will analyze these studies and try to make a conclusive report on the major impacts of climate on the economy. Moreover, the paper will seek to shed light on the elements of weather that are bound to change and their impacts on various aspects that make up the economy.

Keywords: climate change, economy, greenhouse gases, temperature, precipitation, gross domestic product (GDP), tourism, agriculture, industries, capital

Introduction

Change of climate and its impacts on the economy has become one of the major controversial issues in recent years. Its stories do not miss the media daily. Artists, journalists, are trying to profile its causes and impacts each passing day. Increased scrutiny has been afforded the issue with an increase in the number of environmental nongovernmental organizations and activists. It has become a big issue all over the world to the extent that political parties use it as an election material. People have also been awarded Nobel prizes and the Oscars for leading campaigns for the protection of the environment. Research on climate change has centered on its direct impacts such as the effect on lifestyle caused by increased temperatures. Despite the fact that research has been ongoing for more than a couple of decades, the margin of the problem had not been realized (Nordhaus & Boyer, 2000).

Only recently have studies delved deeply into the issue and come up with the realization that a serious problem is awaiting world economies. This threat does not come from terrorism or a physical fight between the countries in the world rather it is a problem that comes from our creation. The consequences of the actions of a good number of countries of the world are now upon the globe. It is funny how this problem will affect the economy because it was caused when the nations were trying to build their economies.

This paper tries to combine all the impacts of the change in the economy and come up with a conclusive result. It looks at the various elements of weather that are bound to change and how these changes will affect the economy. In addition to reviewing impacts that are already known, the paper will survey the issue that people are not familiar with while demystifying the issue surrounding them. The paper will conclude with the implications of these factors on the climate policy (Nordhaus, 2008)

Although the changes to these elements do not cause a direct impact on the economy, their effects are felt by the economy through other processes. The elements of climate prone to change are the Cryosphere, the temperature, the sea level, and the levels of precipitation. Some of the changes may appear to bring desired results, but their long-term impacts have been found to be dangerous. For instance, an increase in the levels of precipitation means that there will be increased rainfall. The increase in the amounts of rainfall is excellent except when there is the continued rise in the levels of rainfall to an extent that it causes floods. Climate change is the root of all the changes that occur in the environment and its eventual consequences. It is caused by actions that are otherwise helpful to the human beings. For instance, methane is essential in the barring hydrogen build-up in anaerobic digestion. It is therefore impossible to have dairy, rice or beef the presence of methane. These emissions characterize man’s daily living, without which some essential activities cannot continue. Getting rid of them is not an option on the other hand finding a solution or an alternative to this problem is a complex matter (Stern, 2007).

Literature Review

The century has experienced a number of studies with fewer schools and few people dominating. The field experiences tunnel vision as one of the insiders argues. With politicians posing that the great challenge of the century is climate, the situation is found out to be worrying. Studying the problem and finding out solutions has swallowed billions of dollars, which again could be seen in the attempt to reduce emissions (Nordhaus, 2009). The dearth of research is as a result of lack of daring, funding, and reward. This work requires much funding yet applied agencies dislike the outcome of such research and furthermore they refuse to fund them. Many people in the world, economists included have an argument that climate change is much more than cost-benefit analysis and unethical in terms of monetary valuation (Maddison & Rehdanz, 2010).

There is a fairly small impact on welfare in the increase of the atmospheric concentration on the present financial system. The estimates may vary, however, losses in welfare represents a small part of the GDP. The highest rate of emission comes down by 10-15% as indicated by Nordhaus & Boyer (2000) argument. Secondly, the impact is not negligible, but relatively small, implying a real concern if few percent of GDP per year is damaged. Initial gains of this change are pointed out by some studies (Mendelsohn & Dinar, 2009). These initial gains arise due to an increase in the amounts of carbon dioxide in the air, which makes the crops grow rapidly and cuts down water strain in vegetation (Plambeck, 1995). Moreover, regions of moderate climate are where worldwide economy is concerned; in this region, warming reduces health problems related to cold weather and the cost of heat. The effects of the change are doubtless harmful in the tropics, where most of the people in the world live.

The moment that regulations on emission begin affecting climate change, the effects begin falling (Fankhauser, 1995). In poor nations, relative effects are advanced (Mendelsohn & Dinar, 2009). The reason is that poor countries have a lower ability to adapt to climate change in health matters particularly. In water resources and agriculture, particularly, the exposure to the change by developing countries is likely to be advanced. These countries are closer to biophysical temperature limits and hence they are hotter and shorter of spatial limits should it get warmer. Still in developed countries, there are more studies on the impacts of climate change, unlike in developing countries where there are fewer studies hence resulting in two policy implications.

The first one is gases from greenhouse have a uniform mixture in the atmosphere and their effect on climate change is the same no matter who emitted them or where they are emitted. Thus, any justification of severe emission decrease means that the impacts forced on the underprivileged by the affluent and their predicament are considered (Stern, 2007). Secondly, one may wonder if the root of susceptibility to change in climate is poverty, then it implies that a better way to reduce impacts might be by invigorating reduction of emissions or economic growth. The inexpensive method of reducing climate-change-induced illnesses is empowerment rather than the reduction of emissions (Nordhaus, 2008). The argument by Mendelssohn & Dinar (2001) and Stern (2007) that states that at least for diseases, the development foregone by strict decrease more than compensates the avoided effects of climate change.

It is cheaper and easier to compensate poor countries on matters of damages of climate change than reduce greenhouse gas emissions as found out by richer countries. This overt compensation requires fiscal assistance and likely to take a procedural shape with part of it as an application (Nordhaus & Boyer, 2000).

A fifth observation from studies is that compared to time, the estimated impact has turned out to be less pessimistic. With a small variance between the change and the economic activities, the GDP is expected to rise by a small percentage annually. This is because the projections of future climate change and future emissions are reducing in severity with time. Adaptation has been ignored by earlier studies indicating that agents continue doing the same thing even though the climate is changing resulting to negative and large impacts. However, most recent studies included adaptation and were done by Mendelsohn & Dinar (1994). As climate changes, agents utilize the new opportunities and change their behavior to minimize losses. Thirdly, the major focus of studies done earlier was on the negative impacts of climate change contrary to the studies done later that focused on both negative and positive impacts.

Nordhaus (2000) & Frankhauser (1995) involve the use of enumerative methods, unlike Mendelsonh, who based his work on direct estimates of the welfare impacts using expenditures and observed variations in prices to perceive the effect of climate. Physical pragmatism and simplicity of analysis are major advantages of the enumerative method since it relies on controlled experiments. Its main disadvantage was things that change in reality were kept constant. According to these studies, the impacts of climate change are upon the globe and change is necessary in order for the world to withstand the effects.

Discussion

There are four elements of weather that change. These are ice and snow, rain, temperature and alterations in the sea level. An emission of harmful gases such as greenhouse gases is, among other human activities that make these changes occur. The impacts of the changes of the components stated above are related in one way, or another.

The change in temperature occurs in two different ways (a) increase and (b) decrease. The changes are mainly due to the emission of greenhouse gases. The effect of greenhouse gases is aggravated by the fact that the elements such as vegetation that would have reduced it have been depleted. These elements have reduced due to encroachment on forests. In certain countries, ice and snow are the main attraction of tourist. Increased temperatures will melt the snow. The continued rise of temperatures will lead to depletion of the snow. One of the elements of climate that is prone to alteration is precipitation. Increased temperatures in wet areas will lead to increased precipitation while increasing temperature in arid and semi arid areas will lead to low amounts of precipitation. Another aspect of climate whose change affects economic activities is the rise in sea levels. This factor is directly influenced by variations in temperatures and the amount of rainfall. It is a known fact that rainfall increases when the temperature increases, especially in areas near water bodies. Increased rainfalls will lead to rising in the sea levels (Nordhaus & Boyer, 2000).

Changes in all these factors affect several factors that are related to the economy of any country. The main factor related to the economy that is affected is the environment. The environment is the principal factor in the growth of any economy. This is because the state of the environment affects people’s health and lifestyle. Moreover, it affects agriculture, which happens to be the backbone of the economies of many countries. To break it down completely, change in climate affects the economy in the following ways, (i) direct impacts to the elements of the economy, such as agriculture and tourism, (ii) indirect impacts such as revenue spent on efforts of controlling and combating climate change.

Impact on Agriculture

Many countries, especially developing countries rely on agriculture for survival. Although these countries do subsistence farming, the fact that they contribute to food security is far much important. This is not to say that agriculture is just done subsistence because there are countries like Israel, Egypt, Brazil, and even Ireland. These states rely on agriculture to boost their economies. Changes in climate, especially temperature affect the rainfall distribution in the region. Both increased rainfall and reduced rainfall have an influence on the way people will do farming. For instance, when it comes to dairy farming, there are certain breeds of cattle that cannot withstand high temperatures. Therefore, increased temperature will affect their production capacity. On the other hand, crop farming will suffer more both ways because only a certain amount of rainfall is required for these crops to produce considerable yields (Maddison & Rehdanz, 2010).

Agriculture affects the economy in two ways that are through food security and the revenue from the export of food commodities. It is a widely known fact that for an economy to run, the working population must be well fed. A reduction in of food produced means that the population will spend more of its time searching for food. This will result in more funds being dedicated to the purchase of food. In addition, more time will be used in ensuring food security. These occurrences will affect the economy in two possible ways; first, the funds that would have been directed to other investments are now being put into food production. Secondly, the amount of time spent on food production would have been used to improve the other sectors of the economy. The bottom line is without enough food the other sectors of the economy will be badly affected because the workers will put their concentration elsewhere.

In another twist, since most countries export their food products, the reduction of food materials will hamper their economic progress. However, if they can change their strategy in production to suit their environment and produce more, the higher demand for the commodities will work in their favor. Increase in demand means an increase in prices and hence these countries will earn more revenue. This occurrence will be good for their economies. However, much there might be some good in climate change in agriculture; the overall impacts of the change are detrimental to the agricultural sector (Stern, 2007).

Impact on Human Capital

Labor is the most vital element of any economy. Its availability is a necessity for the workings of any sector of any economy in the world. Human capital is the most-affected element of the economy when it comes to climate change. The reason being all the changes to the other sectors directly affect it. For instance, changes in agriculture affect the food security, which in turn affects the capacity of human capital. On the other hand, changes in the climate, brings about illnesses that affect the health of the working populace.

The most detrimental impact of this change in labor is health. Increased temperatures and high speeds of wind increase the movement of airborne diseases. Moreover, increased temperatures affect the capacity of a person to work, therefore reducing his/her volume of production. For the growth of any economy, the human capital should be healthy in order to work well (Nordhaus & Boyer, 2000).

Impacts on Energy

Climate change has mixed impacts on the energy, while it has been known to increase the cost of energy since environmentally friendly methods is required for the production of energy, the direct impacts are positive. For example, increased speeds of wind will enable the energy sector to produce more renewable energy by use of windmills, moreover less cloud cover and rainfall during the summer means an expansion in the use of so energy. The production of hydropower in during the winter will increase due to increased wetness. These changes will prove to be more beneficial since energy will be environmentally friendly and will be available throughout the year. The availability of enough power is an essentiality for any economy since all its sectors use power to run their activities. From this case, the economy will profit from climate alteration (Fankhauser, 1995).

Impact on Tourism

Higher temperatures lead to higher precipitation, which will lead to, increased rainfalls. Increased levels of rainfall will automatically cause an increase in the sea level. Rise in sea level will affect tourism in regions that depend on coastal tourism. Tourism activities such as surfing become dangerous and hence the tourists opt out of them. On the other hand, high temperatures melt the snow and ice in countries such as Switzerland. The snow in Switzerland is the main tourism attraction, their depletion, therefore, will reduce the number of tourism in the country thus affecting the economy.

Another instance where climate change has affected tourism is in Kenya’s Lake Nakuru. Lake Nakuru had been a major attraction of tourism in Kenya for a long time; climate change caused a reduction of the water in the lake. Consequently, the flamingoes, which were the main attraction of the site, died. This affected the tourism sector in the country, hence affecting negatively on the economy of the country (Stern, 2007).

General Impact on the Economy

The efforts launched towards the control of factors that cause climate change needs funding. These efforts have increased over the decade leading to a huge amount of resources being used to curb their spread. Industries and businesses have reduced their operations in efforts to reduce the dumping of untreated wastes such as dangerous emissions into the environment. These efforts have taken huge chunks of money that would have otherwise been used in the expansion of the operations of the businesses. Governments on their part have had to pull out funding from other economic activities to fund environmental awareness sessions in their countries. On the other hand, the results of climate change have been detrimental to the environment and people’s health. The amounts of funds have been known to be used in the treatment of diseases caused by climate change such as cancer. Moreover, the government’s efforts of combating these effects have increased in the past decade therefore making climate change the prime issue to the government instead of the growth of the economy (Maddison & Rehdanz, 2010).

Conclusion

The change of climate has been a rising issue in our current world. Although its effect was foreseen, actions to combat it have taken longer than should have been. Globally, nations took time in ratifying the recommendations of various policies such as the Kyoto protocol drafted by the United Nations. Instead of agreeing and signing the agreement, these nations started pointing fingers at one another on who is responsible for the change. The stature of the possible effects of this change rose due to the unresponsive nature of these nations until recently when the change threatened the economies of these big nations (Fankhauser, 1995).

The impact of climate change is felt all around the universe. Although there might be some natural causes of climate change, most of these causes are attributed activities of man. The change has started taking its effect on every country globally and on various sectors of their governments. The change might affect the health; the lifestyles of the citizens and even transport network, but the most-affected department of the government is the economy. It is therefore wise that more than anything, more efforts is put into controlling the causes of climate change and combating its effects. Countries should come together and draft laws that will govern emissions and use of land so that this natural environment and hence a better economy is preserved for the future generations. Increased scrutiny should be given to the environmental laws of each country and an enhanced package of the climate change policy drafted. This is because without an excellent environment, all the sectors of the economy would be good as dead. For instance, the tourism sector, building the sector, and more so, the agricultural sector, whose activities depend on the environment would be dead (Maddison & Rehdanz, 2010).

References

Fankhauser, S. (1995). Valuing climate change: the economics of the greenhouse. London: Earthscan.

Maddison, D., & Rehdanz, K. (2010). The impact of climate on life satisfaction. Kiel: Institute for the World Economy.

Mendelsohn, R. O., & Dinar, A. (2009). Climate change and agriculture: an economic analysis of global impacts, adaptation and distributional effects. Cheltenham: Edward Elgar.

Nordhaus, W. D., & Boyer, J. (2000). Warming the world economic models of global warming. Cambridge, Mass.: MIT Press.

Nordhaus, W. D. (2008). A question of balance: weighing the options on global warming policies. New Haven: Yale University Press.

Plambeck, E. L. (1995). Validation and initial results for the updated PAGE model: policy analysis for the greenhouse effect. Cambridge: Judge Institute of Management Studies.

Stern, N. H. (2007). The economics of climate change: the Stern review. Cambridge, UK: Cambridge University Press.