Economic impacts of climate change

This article describes the economic impacts of climate change. Given the inherent nature of economic forecasting, which involves significant degrees of uncertainty, estimates of the results of global warming over the 21st century have varied widely. Many analyses, such as that of the Stern Review presented to the British Government, have predicted reductions by several percent of world gross domestic product due to climate related costs such as dealing with increased extreme weather events and stresses to low-lying areas due to sea level rises. Other studies by independent economists looking at the effects of climate change have found more ambiguous results around the range of net-neutral changes when all aspects of the issue are evaluated, though the issue remains intensely debated.Even the Stern Review on the Economics of Climate Change, a report prepared for the British Government which has been criticized by some as overly pessimistic, estimates that under the assumption of business-as-usual with regard to emissions, global warming will reduce welfare by an amount equivalent to a permanent reduction in per capita consumption of between 5 and 20%. In absolute terms, this would be a huge harm. Yet over the course of the twentieth century, world GDP grew by some 3,700%, and per capita world GDP rose by some 860%. It seems safe to say that (absent a radical overhaul of our best current scientific models of the Earth’s climate system) whatever negative economic effects global warming will have, they will be completely swamped by other factors that will influence economic growth rates in this century.Although figures tend to be at the upper end of the scale compared to other estimates currently circulating, even quantitative estimates fail to include the economic upheavals that would arise as a consequence of climate-induced conflicts or might be triggered by climate-induced migration.Climate change potentially affects the whole worldwide portfolio of utility by threatening to drive all of planetary welfare to disastrously low levels in the most extreme scenarios. With global climate change, diversification is limited because all eggs are inherently in one basket. This article describes the economic impacts of climate change. Given the inherent nature of economic forecasting, which involves significant degrees of uncertainty, estimates of the results of global warming over the 21st century have varied widely. Many analyses, such as that of the Stern Review presented to the British Government, have predicted reductions by several percent of world gross domestic product due to climate related costs such as dealing with increased extreme weather events and stresses to low-lying areas due to sea level rises. Other studies by independent economists looking at the effects of climate change have found more ambiguous results around the range of net-neutral changes when all aspects of the issue are evaluated, though the issue remains intensely debated. Climate change impacts can be measured as an economic cost (Smith et al., 2001:936-941). This is particularly well-suited to market impacts, that is impacts that are linked to market transactions and directly affect GDP. Monetary measures of non-market impacts, e.g., impacts on human health and ecosystems, are more difficult to calculate. Other difficulties with impact estimates are listed below: In a literature assessment, Smith et al. (2001:957-958) concluded, with medium confidence, that: