Over the Summer, a heatwave struck Southern Europe bringing record-breaking temperatures, with some areas experiencing over 48°C. As global warming continues, extreme weather events such as this will only become more common and thus will have a serious impact on the global economy.
How does extreme heat affect economic growth?
According to researchers at Dartmouth College, heatwaves have cost the global economy over $16tn since the 1990s. Higher temperatures make it harder to work. Consequently, workers experience a drop in productivity and many businesses are forced to shorten their opening hours. A fall in productivity could mean higher average costs for firms, therefore lowering their profits. This could lower investment and economic growth as firms are more hesitant about expansion. For workers paid by the hour, lower working hours may also squeeze average incomes, leading to lower material living standards and less consumption, slowing down economic growth. Extreme temperatures are projected to cause the loss of two billion labour hours each year by 2090, resulting in $160 billion in lost wages. Outdoor jobs in sectors such as construction and agriculture are at particular risk of heat exposure, which can cause health issues and even death. Between 1992 to 2016, 285 construction workers in the USA died due to heat-related causes.
Global warming also causes sea levels to rise and brings more frequent natural weather events such as floods and storms. This could have a severe impact on infrastructure, especially near coastal areas. Poorer quality infrastructure could lead to delays and congestion as well as deter potential investment, leading to less economic growth. In addition, rising sea levels could lead to governments investing vast sums of money in coastal protection schemes, which can be hugely expensive. This can increase the budget deficit and run the risk of austerity[i] measures in the future.
In countries where the government cannot afford large scale coastal protection projects, there may be mass migration into more inland areas. A higher population could lead to increased demand for public services such as healthcare, making them more inaccessible, which lowers living standards and may exacerbate inequalities. Excessive migration can also cause local tensions and conflicts with pre-existing populations.
What sectors are the most vulnerable to global warming?
Agriculture is extremely susceptible to changing climate conditions. Abnormal numbers of extreme weather events can lower crop yields and kill livestock. Research by the Arsht-Rock Foundation found corn farmers are losing about $720mn in revenue annually due to extreme heat. Corn farming provides almost 185,000 jobs in the USA. It is also the most widely farmed crop and the 2nd most popular vegetable in the USA.
Many commodity crops such as rice and wheat do not grow above certain temperatures, meaning farmers will have to switch to producing other crops. This can be hard for subsistence farmers in developing nations who typically rely on one type of crop for their income. Many may be forced to abandon their work and move into cities for a more stable income. Uncontrolled rural to urban migration may lead to overcrowding and the development of shanty towns in major cities. Global warming will also hit water supplies, thus making irrigation more difficult, further decreasing crop yields. As such, a lower food supply will lead to cost-push inflation for consumers. Higher prices erode consumer purchasing power, leading to less consumption and lower material living standards.
The construction industry also faces risks from global warming. Not only do higher temperatures lower productivity and lengthen the time span of construction, but they also affect vital materials such as concrete and steel. High heat can soften steel and cause cracks in concrete, decreasing their lifespans. As such, buildings will require more maintenance and higher quality materials, adding to costs and eating away at profits. Moreover, higher demand for materials can also increase its price, further adding to costs.
Winter tourism can be badly affected as global warming causes severe snowmelt in many mountainous regions. Rapid warming in the Adirondack Mountains, USA could decimate its winter activities sector, which accounts for 30% of the local economy. Currently, the Adirondacks brings in about 12.4 million visitors annually. In 2018, tourists spent around $1.5 billion in the local economy. The loss of tourism may lead to severe unemployment as well as a huge loss of government tax revenues which has a knock-on effect on public service provision.
In 2018, the Carbon Disclosure Project asked more than 7,000 companies to examine their financial costs of climate change. The report found that, unless they took pre-emptive measures, 215 of the world’s 500 biggest companies could lose an estimated one trillion dollars due to climate change. For example, higher temperatures mean that Alphabet may have to deal with rising cooling costs for its data centres. Western Digital (WD), which is the world’s 2nd largest manufacturer of hard drives, produces up to 60% of their hard drives in Thailand. In 2011, the seasonal monsoon came early, bringing record-breaking rainfall and severe flooding disrupting production in WD’s factories. In total, the costs to WD from flooding amounted to $199 million.
How might the global economy adapt to and mitigate the effects of global warming?
If all climate pledges made during various climate summits such as COP27 were to be met, the world would still be on track to see a global temperature rise of between 2.4°c to 2.6°C. However, climate scientists have warned that any rise in global temperatures passing 1.5°C will cause irreversible and devastating consequences to the planet.
A key part of mitigating[ii] global warming would be a reduction in the use of fossil fuels and stopping the destruction of carbon sinks[iii] such as rainforests. This would be problematic for many nations as their economies rely heavily on fossil fuels for development and the clearing of carbon sinks provides many economic opportunities such as agriculture, mining, and logging. As such, many developing countries have asked for financial assistance from developed nations to help their transition into renewable energy sources and protect their natural carbon sinks. Back in 2009, $100 billion a year by 2020 was promised to developing nations, but that pledge was never delivered. In addition, some of the biggest consumers of fossil fuels, including China, India, and Russia, have refused to make any stringent pledge to combat global warming. Thus, it is likely many of the more recent climate pledges will also be missed.
Many nations are now focused on adapting[iv] to living in a warming climate. Greece appointed its first chief heat officer in 2021 who is responsible for preparing the country for heatwaves and reducing its risks to human health, while Spain said earlier this year it would ban outdoor work during periods of extreme heat.
Some firms are introducing measures such as using “misting” and more air conditioning on employees to keep them cool. Others are switching working hours, trying to do more at night or during the early hours of the morning to avoid the hottest periods of the day, although this can be met with objections from local governments and residents as it clashes with their work-life balance.
Furthermore, some cities are investing in cost-effective solutions such as “cool roofs” that are painted white to reflect heat or adding shade using canopies on buildings or increased tree cover.
Adaptation is also expected to be high on the agenda for COP28.
What economic opportunities can rise from global warming?
The CDP also reported that 225 of the world’s 500 biggest companies believe global warming could generate over $2.1 trillion in new business opportunities. Increasing awareness has brought demand for the green energy sector and electric vehicles. In August 2022, the US Congress passed the Inflation Reduction Act providing $369 billion in funding in the form of subsidies, tax breaks as well as loans to firms investing in cleaner energy sources. This is projected to create many manufacturing jobs and lower the cost of energy in the long run.
As the Arctic Sea ice melts, new shipping lines will open for trade, substantially cutting transport time to previously isolated regions of the world and providing new opportunities for trade. The warming Arctic could also offer more prospects for oil and gas drilling.
Weather satellites and radar technology will be in demand to monitor extreme weather. Air conditioning and cooling products will be needed around the world. This can lead to more demand for manufacturing. Furthermore, Biotech companies are developing new GM crops that are resistant to the impacts of global warming. In addition, many pharmaceutical companies expect increased demand for drugs to combat the spread of diseases, such as malaria, due to increased temperatures.
Footnotes:
[i] Austerity - a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both.
[ii] Mitigation - One of two solutions to global warming whereby we reduce greenhouse gas emissions or remove those gases from the atmosphere.
[iii] Carbon Sinks - A carbon sink is anything, natural or otherwise, that accumulates and stores carbon.
[iv] Adaptation - The other solution to global warming whereby we adjust to the effects of global warming aiming to moderate or avoid harm to humans.
Bibliography:
Slushball Earth hypothesis | Snowball Earth, Glaciation, Cryogenian | Britannica
How Does Global Warming Affect The Economy? (forbes.com)
Report: Adirondack tourist spending up | News, Sports, Jobs - Adirondack Daily Enterprise
Mitigation and Adaptation | Solutions – Climate Change: Vital Signs of the Planet (nasa.gov)
