Many questions about economy arise when measures against global warming are discussed. How expensive will the measures be? Is it possible to adjust the entire economy within the time we have available to avoid the largest problems?
Some researchers have studied the costs of measures against global warming, and what effects the warming and the measures have on the economy.
In 2018, William Nordhaus received the Nobel Prize in Economics for his work on integrating climate change into economic theory and models. In the article from 2018, "Projections and Uncertainties about Climate Change in an Era of Minimal Climate Policies" [L19] he describes the results of running a computer model, DICE. He describes four emission scenarios: 1. Business as usual, 2. Regulation that provides "optimal" economic development, 3. Regulation limiting heating to below 2.5 °C, and 4. Regulation recommended by "The Stern Review" [L34].
These runs are based on a number of important assumptions that may be debatable:
Results from the runs are displayed in three illustrations in the article. The illustrations show the development in emissions, CO₂ concentration in the atmosphere and temperature from 2010 to 2100. The temperature development can be summarised as follows:
|Business as usual:||The heating rises steadily from a level of approximately 0.7 °C in 2010 to approximately 4.1 °C in 2100.|
|Optimal economic development:||The temperature curve follows "business as usual" to approximately 2030. Then with less increase rate, increases gradually, and ends up at 3.5 °C in 2100.|
|Limiting the heating to 2.5 °C:||Follows "business as usual" to approximately 2025. The increase rate then decreases, and warming ends up at 2.5 °C in 2100.|
|The Stern Review:||Same course as "limit to 2.5".|
William Nordhaus's article has a one-sided economic perspective. The scenario that provides optimal financial development is what is implicitly recommended in the article. Financial costs caused by the heating seem to be the only drawback worth caring about. This perspective seems completely unreasonable. Flood victims who lose houses and homes will feel great losses even if they become fully financially compensated. Nor are consequences such as death and loss of health included in this perspective. Consequences for nature, such as reduced species diversity, are completely ignored.
The DICE model that Nordhaus uses is very sensitive to the conditions set as a basis for running the model. This is clearly shown in an article by Martin C. Hänsel et al. [L137]. The article reviews the latest literature in the field and puts other assumptions into the model that better match what they found. Their results from a run with the "Optimal economic development" emission scenario shows a temperature development that is more in line with the objective of the Paris Agreement, namely a warming at around 2.0 °C in 2100.
Integrated Assessment Models (IAM), of which DICE is an example, integrate climate change and economic development into the same system. An article (Frame et al. [L57]) that addresses the financial costs of Hurricane Harvey, which hit Texas and Louisiana in 2017, shows that such models can easily underestimate the cost of global warming. Hurricane Harvey caused costs of about $90 billion, and the greatest destruction was due to heavy rainfall. Frame's article argues that this type of hurricane in 2017 would, due to global warming and high evaporation, lead to significantly more destruction than it would otherwise have done (without global warming). Frame et al. estimate that $30-72 billion of a $90 billion loss is due to global warming. An early run of the DICE model (1999) showed that climate-related damage for the entire United States in 2017 would be around 21 billion dollars. Hurricane Harvey was just a single incident that resulted in three times as much damage as the DICE model was able to predict for this year throughout the United States. This comparison may seem somewhat unfair to DICE, since Harvey was an unusual event that certainly seized a good chunk of the "budget" for destruction in 2017.
The article by Frame et al. also discusses the consequences Harvey had on life and health. The lost life expectancy is estimated at 476,000 years as a result of Harvey's ravages. This includes those who died directly during the storm, as well as lives that were shortened due to injury and health problems that the hurricane directly or indirectly caused. According to the article, 357,000 of these lost life years could be due to global warming.
We live in a global, largely capitalist, economy with many connecting lines between countries. This is a complex system consisting of extensive trade, agreements between companies and between countries, and extensive information exchange. This system is difficult to change. In the 19th century, one could hope for a complete restructuring of the global economy, as Marx and Engels envisioned. But today this is completely unrealistic, at least on a global level. We must accept the world as it is, and rather work for concrete and clear changes that we can hope will be more realistic.
Many people use climate issues to argue for fundamental policy changes, and who envisage that such changes will automatically also solve the climate problems. An example of this is the Swedish professor Alf Hornborg, who proposes the introduction of local currencies that can only be used to buy locally produced goods ([L127], [L128]). At best, such proposals will only be detours to solve climate problems. A direct approach, such as replacing polluting coal power with emission-free alternatives, is much more realistic.
Solving climate problems requires a comprehensive restructuring of the economy. Polluting coal power plants and the coal industry that supplies the power plants with coal must be closed down. This will affect many people who may become unemployed or have to undergo training for new jobs. In Poland, where coal is the main source of energy, due to large and easily accessible coal reserves, as many as 407,000 were employed in the coal mining industry in 1990 [L130]. After 1990, Poland has significantly modernised and streamlined this industry, and by 2018 the number of employees had dropped to approximately 83,000, a reduction of about 80% in 28 years. Despite this reduction, general employment in Poland has increased in recent years, showing that restructuring is possible in a relatively short time.
But switching to emission-free alternatives requires large investments in industry and infrastructure that may not be profitable seen with narrow "business" glasses. There are large fortunes around the world, both personal fortunes and funds. These assets are mostly invested with one goal in mind, namely to increase the profit as much as possible. An example is the Norwegian Petroleum Fund where changing governments have long expected profits of 3-4% per year. Such expectations of financial return are the basis of the sustained economic growth we have had for a long time. In Norway, Statistics Norway has calculated that the average inflation-adjusted economic growth from 1865 to 2010 has been 2.9% per year [L131]. As long as the growth is eroding the earth's resources and challenging the earth's endurance limits, this is a path on which we cannot continue very long.
How should society use its investment capital in the best possible way, given the limitations that the planet's resources and endurance limits represent? It seems clear that a lot of capital is invested in useless consumption growth driven by advertising and competition between individuals (who has the nicest house and who can point to the most exotic holiday trip). Such consumption growth does not give us more happiness, see [L132]. It is not a lack of investment capital that hinders us in making the most sensible investments, it is rather simply the greed shown by investors. This greed is not so much personal greed, although this does undoubtedly exist. Greed is more institutional, that is, it is linked to institutions that are created with the sole purpose of increasing profits. This applies, for example, to funds managed by bureaucrats who are required to maximise profits for everyone who has invested in the fund. If there are very many investors in the fund without any single investor dominating, each individual investor will not feel any responsibility for the environmental impact of the investments. Nor do the fund managers feel any such responsibility; their job is to make money on behalf of investors.
Personal investors will often be more aware of the environmental consequences of their investments. This is especially true for those who start their own business and those who control most of their business. Here, the person's perceptions of society will often influence the type of business in which they invest and how it is operated. Few want to start a business that they themselves believe is harmful to society. People who invest in funds also have the opportunity to take social considerations into account by choosing what kind of fund they invest in. There are "green" funds that appeal to environmentally conscious people. For such reasons, the use of investment capital in society may gradually be turned in a more beneficial direction with the help of general changes in attitudes in society. Admittedly, there may be subcultures that are less motivated for such changes in attitudes, such as the richest part of the US population. A study in PNAS shows that this segment of the population is less empathetic and more likely to take immoral decisions than the poorer section of the population [L133].
As long as investments cause increased pressure on the environment, it will not be possible to continue economic growth in the same way as now. From the early 1800s, economic growth in Western Europe and North America stayed at about 1% per year, and at times was much higher than this (in the period 1950-1970, economic growth in Western Europe was on the whole 4% per year) [L2]. This can only continue if it is possible to disconnect the financial growth from the increased impact on the environment.
There are many huge fortunes in the world. Our petrolium fund is about $1.1 trillion [L70], but private fortunes are also quite large. Jeff Bezos, the founder of Amazon, was good for $150 billion in 2018 [L72]. In 2020, he transferred $10 billion to The Bezos Earth Fund, which aims to fight climate change. His divorced wife, MacKenzie Scott, took over shares in Amazon at the divorce in 2019, and now has a fortune of $60 billion [L129]. She has decided to give away her fortune during her lifetime for charitable and socially beneficial purposes. So far, she has given away 1.7 billion dollars, and used experts to find recipients who can best manage the gifts. Bill Gates, with a fortune of approximately $122 billion [L134], together with his wife Melinda, has taken the initiative for The Giving Pledge [L135], which is an organisation that invites individuals with large fortunes to donate the majority of the assets to charitable or socially beneficial purposes. More than 200 people from all over the world have committed themselves in this way.
We are thus witnessing a trend in which the richest people in the world are willing to donate large parts of their fortunes for socially beneficial purposes. There is a certain logic in this, since these fortunes are too large to be used for personal material needs. There is a limit to the number of luxury apartments and great cruise ships a person can benefit from. And heirs will surely be provided with a generous start-up capital, no matter what. But there are, of course, concerns with such a practice. A small minority of the population has a very large influence on which purposes are to be prioritised. Perhaps tougher taxation of large fortunes would be a better option, at least a more democratic alternative. On the other hand, many independent people who give from their own funds, will find more useful and varied purposes than state bureaucracies would be able to. These rich people are also part of society in general, and are affected in the same way as the rest of us by the ongoing conversation and debate in society. Therefore, for example, more attention to and knowledge about climate change could influence them to support research and initiatives for a greener development.
Latest update: 2021-08-13