In his maiden speech at the World Bank’s annual meeting in Tokyo, the Bank’s new president, Jim Yong Kim, underscored the important role sustainable development plays in poverty alleviation and economic growth, specifically citing climate change mitigation as an institutional priority. While laying out his agenda for the Bank, Kim said: “I know that we cannot ignore the scientific evidence on climate change and that we must embrace the urgent task of protecting our environment. If we do not, we risk creating a physical environment which will undermine and reverse development.”
Compared to the U.S.’s national leadership, Kim’s comments on the issue are quite strong and should be welcomed by climate hawks. Many commentators have been disappointed by climate change’s absence in the U.S. presidential race, with experts explicitly lobbying Obama and Romney to showcase the issue at the debates. The standard reply is that measures taken to mitigate climate change would inevitably drag down economic growth and is therefore not worth pursuing, especially as the world’s economy stumbles through a sluggish recovery from the 2007-2008 financial crisis. Polling bears this out, demonstrating a wide gap in the number of voters who see tackling global warming as an issue of vital importance, versus the economy or reducing the budget deficit. This attitude was evidenced by Mitt Romney’s quip at the Republican convention that, while Obama promises to slow the rising oceans and heal the planet, he was more directly concerned with the welfare of American families.
This rationale betrays the classic short-term attitude of deferring painful decisions to the idealized circumstance of an undetermined future. What Kim’s remarks make clear, and what recent climate change research demonstrates, however, is that an economic growth agenda that does not take into account climate issues is counterproductive. Opting for GDP growth while shifting global warming aside for later deliberation is what President Obama is fond of calling a “false choice.” While efforts to reverse climate change may draw down short-term economic growth to some extent, Kim makes clear that doing nothing will, in the long-term, accomplish the same result with greater certainty. Climate change has demonstrable macroeconomic effects, and not planning for both preventive and palliative policy measures will undo future growth.
Take, as one example, research published in the American Economic Journal: Macroeconomics by economists Melissa Dell, Benjamin Jones, and Benjamin Olken. Looking at fifty years of temperature and precipitation data, they demonstrate that for poorer nations, one can reasonably forecast a 1.3 percentage point drop in GDP for every 1 °C rise in temperature. These weather effects, furthermore, have both short- and long-term consequences. Temperature shocks can damage immediate economic output (through, say, rising food prices due to less-than-optimal yields of staple crops). Beyond agriculture, however, temperature changes can also affect industrial output (through distortions in consumer demand) and put stress on institutions that, in the developing world, are less able to weather instability. Consequently, the authors find that the same 1 °C rise contributes to a 2.7 percentage point rise in the probability of political change.
While this research demonstrates that the effects on the developed world have been more muted, it does not follow that the developed world’s level of resilience will remain constant without further investment in climate mitigation efforts. A new report from the German reinsurance firm Munich Re, which helps underwrite insurance policies to protect against natural disaster damage, estimates that the costs of severe weather in the United States are running close to $36 billion a year, a substantial increase from the $9 billion a year average during the 1980s. While even some climate experts have questioned how direct the relationship is between climate change and this specific string of extreme weather, the amounts are enough to cause concern in the insurance industry. Thus, even the resources of the developed world, strained as they are by the lingering effects of the economic crisis, could conceivably continue to struggle to keep up with the damage being done by rising temperatures. A financial crisis is a financial crisis whether it is caused by subprime mortgages or nationwide crop failures, and much less attention has recently been paid to the latter.
The most straightforward solution, of course, is to begin pricing carbon, and doing it robustly enough to anticipate a wide variety of future climate-related financial calamities and related contingencies, as analyst David Roberts often points out. In his Tokyo speech, Kim highlighted several projects that serve both a development and climate change agenda: immediate drought assistance, crop insurance programs, and alternative energy projects. Each of these initiatives is designed with the developing world in mind, as that is the World Bank’s writ, but the developed world should take heed. Just the day before, Kim addressed the Annual Meeting in Tokyo, Norway’s government announced it was doubling its carbon tax on its oil industry, using the revenue to fund a $1.6 million mitigation fund, and to pursue projects focused on low-carbon and renewable energy sources, food security, reforestation efforts, and the purchase of carbon credits. Altogether, it represents a decisive and clearly focused effort to price environmental effects into the planned expansion of a lucrative industry.
The financial costs of these efforts are clear, yet doing nothing will hurt economic growth prospects both now and in the future. The question remains to what extent is there wide political space to pursue such a solution. Yale’s Project on Climate Change and Communication, which regularly polls Americans on their views on climate change, shows that climate change is growing in the public consciousness, to a great extent as a result of increasing erratic weather and long stretches of unusually warm weather, especially this past summer. Their polling further demonstrates that undecided voters overwhelmingly say the president and Congress should be “doing more” to address global warming.
The problem to-date has been one of communication and leadership, specifically separating climate change from the U.S. and global economic and security efforts, and the lack of any discernible plan to tackle the impending challenge from senior political leaders, the particulars of which could be subjected to a cost-benefit analysis. It is very reasonable to assume that emerging climate hawk consensus could fracture in the face of specifics, and policies such as a carbon tax could run into entrenched and relatively powerful political constituencies, such as the oil and gas industries. Yet the cost of deferring a decision is rising each day, and the link between climate and economics (and security) is becoming too intertwined to keep on a policy backburner.