The Silent Economic Threat of Climate Change

Pedro Fresco

6 mins - 11 de Marzo de 2024, 07:00

This year, 2023, the planet is experiencing an unprecedented climate anomaly. We have been suffering from progressive warming for decades, but this year the temperature records have soared in an unexpected way. Since the beginning of June, we have been experiencing record high temperatures well above the previous maximum. As an example, the temperature this September in Europe was 1.1°C higher than the previous record high in 2020.

What we are experiencing has researchers expectant and concerned. There is speculation that a climate tipping point may have been exceeded, although this situation is generally considered to be caused by the combination of global warming and the El Niño phenomenon, a cyclical event caused by the warming of the Pacific Ocean. Global temperatures this year could rise by around 1.5°C above pre-industrial levels, which is the most ambitious goal of the Paris Agreement. This does not mean that this target has been missed, because this temperature increase would not be permanent, but it is showing us what a world which has reached that 1.5°C of warming will look like. For a start, two of the effects predicted by the models for a 1.5°C warming, namely increased flooding and extreme weather events, have occurred this summer. We only have to look at Greece to see this, and it is not the only exceptional case we have experienced this summer. 

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As obvious as it is, we humans tend to forget how our civilisation and our economies are sustained by the natural conditions in which we live. It is more than obvious for agriculture, climatically adapted to each area of the world but also for issues such as tourism or general productivity. Just think of the increased recurrence of droughts and how the lack of water affects agriculture, tourism and potentially industry itself, which is the second largest water-consuming activity after domestic consumption.

In 2006 the economist Nicholas Stern published a famous report bearing his name in which he warned that climate change would produce losses in GDP of between 5% and 20% globally. Subsequently, Nobel laureate William Nordhaus assessed the loss in a smaller but equally relevant way. Although the effect of climate change as a reducer of economic growth is difficult to measure, its significance is well known.

For a country like Spain, this negative effect could be intense. A recent report by the credit rating agency Scope calculated that Spain could suffer a loss of 8.3% of its GDP per capita by 2050 due to climate change. A country that is a major agricultural exporter such as Spain is particularly vulnerable to climate change, but the effects are not limited to this sector alone. Tourism itself may be affected, both by the heat and by the increase in extreme weather phenomena at the end of the summer. The Mediterranean can become a heat bomb that, as this year, makes large, intense low-pressure systems in the mid-and upper troposphere very likely. If tourists in the Caribbean tend to avoid the hurricane season, is it so difficult to think that the same thing can happen in the Mediterranean during the time of major low-pressure areas?

Comparisons with other countries can help to visualise the risks. In some Middle Eastern countries, there is a ban on working in open spaces and in direct sunlight during the middle of the summer. The extension of heat waves outside the summer period could make situations such as those we have seen in schools in the Canary Islands commonplace, with the suspension of classes due to extreme heat in mid-October and, therefore, difficulties for workers in reconciling work and family life. These problems can be mitigated through adaptation (air conditioning in classrooms, teleworking, alteration of working hours), but as in so many other fields, adaptation to climate change will represent costs and these costs will have a negative economic impact on growth and on the resources that we can allocate to other issues.

To a certain extent, this anomalous 2023 can offer us a great lesson: we have been “lucky” enough to be able to see what a normal year will be like in two or three decades, which will not be a particularly warm year as we perceive it today but the “new normal” due to the warming caused by human activity. 2023 has been a window to the future and the lesson to understand that, if we do not stop the emission of greenhouse gases, what the next generations will experience will be much more extreme than this – and not only because of the temperature but also due to the effects of the normalisation of this climate, including the loss of biodiversity, the spread of tropical diseases, or mass migrations.

We have known for a long time what we must do. On the one hand, adaptation: All our future developments must be adapted to the reality of the future, at the risk of generating useless infrastructures and varied investments. Adaptation will condition investments, urban developments, working hours, and social dynamics. On the other hand, mitigation: The roadmap to contain warming to acceptable levels is well known and was recently restated by the International Energy Agency: triple the rate of installation of renewables, double energy efficiency gains, rapidly electrify transport and air conditioning, and reduce 75% of methane emissions, all by 2030.

It is not a simple path, nor is it cheap. But as the popular adage aptly puts it, ‘cheap is expensive’. With an investment of just over 1% of GDP per year in technologies and infrastructure to reduce greenhouse gas emissions, we would avoid the worst economic and social consequences of climate change, saving a significant part of the mitigation costs. In purely economic terms, this is quite a reasonable cost of insurance, and if you don’t think so, think of the price of olive oil or the fate facing farmers in Thessaly.
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