The Cost of Climate Change

By Manishka De Mel

Skyscrapers in New York City, New York, United States of America. © Chris Martin Bahr/WWF

Skyscrapers in New York City, New York, United States of America. © Chris Martin Bahr/WWF

Scientists started highlighting the impacts of climate change several decades ago, when consensus about the issue began forming in the 1980s. The Intergovernmental Panel on Climate Change (IPCC) was established in 1988, and the first IPCC Assessment was published in 1990. For many years, climate change remained a topic that didn’t percolate beyond the scientific community, and was generally considered to be ‘an environmental issue’ that did not need urgent attention. Over the past 15 years, it has been increasingly identified as a crosscutting issue that left no sector untouched.

It’s been almost a decade since Sir Nicholas Stern, former Head of the British Government Economic Service, warned of the economic implications of climate change. The British Government released the Stern Review on the Economics of Climate Change in 2006, highlighting the financial implications of climate change. It warned that if emissions continued in the current trajectory, the cost could be a 20% reduction in per-capita consumption (now and forever), due to climate change alone. Stern revisited the results of his report more recently and stated, “Looking back, I underestimated the risks. Some of the effects are coming through more quickly than we thought then.” In 2014, The New Climate Economy, guided by Stern, shows a path to tackle climate change without harming economic growth.

The Risky Business of Climate Change

More recently, The Risky Business Project, co-chaired by Michael Bloomberg, focused on quantifying and publicizing the economic risks of climate change in the US. This was the first comprehensive economic assessment done for the country. The report highlights that the impacts of climate change are already beginning to affect the American economy, and will grow over the coming years. Coastal, public health, and energy sectors are among the worst affected. In the US, damage to coastal property and infrastructure from rising seas and storm surges is estimated to increase from $2 billion to $3.5 billion in the Eastern Seaboard and the Gulf of Mexico within the next 15 years. The impact on coastal areas is staggering. According to the report, “if we continue on our current path, by 2050 between $66 billion and $106 billion worth of existing coastal property will likely be below sea level nationwide, with $238 billion to $507 billion worth of property below sea level by 2100.” The agricultural sector, without adequate adaptation measures also faces significant declines in crop yields over the short-term. Extreme heat events, that are projected to increase, will cause impacts on public health and labor productivity, and will drive power generation demand for cooling purposes.

The Cost of Disasters

Globally, extreme weather and disaster-related losses add up to $2,800 billion between 1980 and 2012. The cost of Superstorm* Sandy was $65 billion, of which $19 billion of the losses were in New York City. It is estimated that a day without electricity in New York City could incur over $1 billion in terms of lost economic output. In 2013 alone, natural disasters cost the insurance industry $37 billion. Disasters also have a significant impact on small and medium businesses, and research indicates that one in four do not open after a major storm. While this is not a comprehensive account, it serves as a snapshot to highlight the financial implications of disasters. While such disasters cause large death tolls, and costs to people and governments, businesses suffer major losses as well. Disasters and extreme events can impact a business’ supply chain, impact consumers and damage goods, and prevent services from being performed. Building resilience to minimize these impacts is key to the success of any modern day business.

The World Conference of Disaster Risk Reduction (WCDRR) was held in Sendai, Japan in March of this year. The Sendai Framework for Disaster Risk Reduction acknowledges that many disasters are exacerbated by climate change. It also states that while the economic costs of disasters are often highlighted in the developed world, in developing regions mortality and economic loss are often disproportionately higher, leaving behind major challenges to meet financial costs.

Businesses Call for Climate Action

The bottom line of businesses is being impacted by climate change. Many businesses have voluntarily cut emissions, and are urging governmental action, while many are simultaneously preparing to build resilience to minimize climate impacts. Groups such as the US Climate Action Partnership, that includes major businesses, nonprofits and energy companies, have called on the government to take legislative action to curb greenhouse gas emissions. Ceres, a non-profit organization advocating for sustainability leadership, together with its Business for Climate and Energy Policy (BICEP) coalition launched the Climate Declaration, a corporate call-toaction, with over 750 companies as signatories (including leaders like Apple, Sprint and GM).

The report, Weathering the Storm, looks at how multinational companies are beginning to assess and address the risks of climate change and extreme weather. It focuses on S&P Global 100 companies, and research shows that while the vast majority of companies acknowledge risks from climate change and extreme weather, challenges described pertain to adequately understanding the risks and associated implications for the business. The major areas of concern are direct impacts on production capacity such as property damage or supply interruptions, and impacts on operational costs such as higher commodity prices or maintenance costs. Several major businesses such as Nokia, Coca-Cola, Pfizer and GlaxoSmithKline have already identified the adaptation challenges associated with climate change, and are taking resilient measures, as showcased by the UN Global Compact.

The Road Ahead

While the numbers paint a gloom and doom scenario, it is encouraging that businesses around the world are taking action to curb climate change through mitigation, while also building resilience through various adaptation measures. The statistics can help motivate action, as early mitigation and adaptation measures can reduce the financial costs of climate change.

* Sandy lost some of the characteristics of a hurricane before reaching the Eastern Coast of the United States, and is commonly referred to as a ‘superstorm’.