New research reveals how climate change impacts economic growth.
By Lars Moratis
We’ve come a long way in 40 years’ time. From an economic perspective, by 2011 total gross world product had risen from US$12.138 trillion in 1970 to the staggering amount of approximately US$70.160 trillion. While the US has been the single largest economy since 1970 as measured by GDP, China is – despite the current economic crisis – trailing to become the biggest national economy somewhere in the near future, as predicted by The Economist, being only the eighth largest economy in 1970.
By sustainability measures, on the other hand, one could seriously question if mankind has made equally impressive progress.
Human Development vs. Sustainable Development
According to author Wayne Visser in his book The Age Of Responsibility, almost on any account the modern world hasn’t become a more habitable place since the publication of the alarming report of the Club of Rome in the early 1970s. In fact, when looking at the trend of the United Nations’ Human Development Index (HDI) compared to countries’ ecological footprint, an overall picture emerges in which countries tend to develop positively along the lines of the former, while increasing their eco-footprints (with Nepal as a notable exception).
Hence, the world seems to progress in a manner missing the sustainable development quadrant, defined as a high HDI score and a low footprint. As a consequence, the effects of climate change on modern society have by now become huge and oftentimes disastrous. And they are quickly becoming an imminent threat to economies, human wellbeing and democracy as I recently argued in an article for CSRwire.com.
Obviously, we’ve come a long way – and, yet, not from every perspective.
Overshoot and Collapse
In 1972 the global think tank, the Club of Rome, reported on the findings of its computer simulations on unbridled economic and population growth and their effects on resource depletion in the book The Limits to Growth.
Investigating the consequences of interactions between the Earth's and human systems, the findings of the research team at MIT led by Dennis Meadows mainly prognosticated a “state overshoot and collapse” of the global system forty years from now. Although the methods and findings have been criticized by various scientists, the report conveyed an alarming message and became a hallmark for sustainability.
Ugo Bardi of the University of Florence corroborated in 2011 that the Club of Rome’s admonitions are becoming increasingly disturbing, as reality seems to be closely mimicking the curves that their scenarios generated at that time.
New Findings on How Climate Change Affects Economic Growth
Exactly 40 years after the publication of The Limits to Growth, new MIT research has been published on the relationship between the rises in temperature and economic growth. Melissa Dell, Benjamin Jones and Benjamin Olken used historical fluctuations in temperature within poor countries to identify its effects on aggregate economic outcomes for the period 1950-2003. Adopting this perspective, the research addresses a breadth of mechanisms underlying the climate-economy relationship and emphasizes aspects that are often left unconsidered in climate literature.
The study by Dell and her colleagues examines aggregate outcomes directly, thereby avoiding relying “on a priori assumptions about what mechanisms to include and how they might operate, interact, and aggregate.”
Their most important findings show:
- Higher temperatures appear to substantially reduce poor countries’ economic growth.
- Higher temperatures cause wide-ranging and serious consequences, such as the reduction of agricultural and industrial output and political stability.
- Rather than merely impacting the level of economic output, higher temperatures seem to reduce growth rates as well.
- Climate change may therefore have substantial negative economic impacts on poor countries.
- A temperature increase of one degree centigrade may reduce long-term economic growth in poor countries by no less than 1.3 percent.
The authors conclude that “[g]iven uncertainty over adaptation, international spillovers, technical change, and other issues, the estimates here – driven primarily from short-run fluctuations in temperature – cannot alone provide precise predictions about the estimated impacts of future climate change. The results do, however, provide clear guidance on critical economic dimensions that integrated assessment models and other attempts to think about global climate change should incorporate.”
A Responsibility For Developed Nations
Dramatic as the results of this study are, they should not surprise us. We are witnessing the all too visible effects of weather patterns caused by climate change – something that has recently been emphasized by NASA scientist James Hansen. Neither should we be surprised that even though the research focuses on poor countries, the results are equally important for developed economies, especially for internationally oriented, export-dependent countries.
The Netherlands are a case in point. Dutch annual exports currently total over 410 billion euros and the Netherlands exported 65 billion worth more goods and services than it imported in 2011. The Netherlands Environmental Assessment Agency, the national institute for strategic policy analysis in the fields of environment, nature and spatial planning, calculated that the ecological footprint of Dutch consumption lies approximately 85 per cent abroad.
The transition economies Brazil, Russia, India, Indonesia, China and South-Africa (the so-called BRIICS countries) account for one-fourth of this, while the rest of the world, including the Middle East and developing countries, account for ten per cent. The Netherlands will thus be economically impacted by the extent to which climate change affects developing countries. The same holds true for countries with similar export figures.
The Moral Side: Slavery And Intergenerational Injustice
Apart from economic consequences, the new MIT research also has moral implications. First, the results imply an extra sense of responsibility for countries such as the Netherlands. Developed countries have a moral obligation to developing nations not to let temperature rise further. They should combat climate change and strive for sustainability-conditioned economic growth in order to reduce its effects. Therefore, one of the best strategies for development cooperation could be taking the right measures to counter climate change.
Second, we should help poor countries by helping them adopt similar sustainability-conditioned economic growth patterns in order to avert the dire consequences of climate change. Indeed, we should allow them to develop, but when doing so let them benefit from our insights and new technologies in improving economic prosperity and wellbeing, while at the same time reducing their eco-footprints.
James Hansen pointed out in a recent interview with The Guardian the “great moral issue” that climate change involves, putting climate change on equal foot with slavery and labelling it as an “injustice of one generation to others”. Hansen’s words make an intriguing and uneasy parallel.
Waking Up – Again – To The Limits of Growth
In conclusion, the research by Dell and her colleagues adds to the insights of environmental and climate research about how climate change affects economic growth, four decades after the Club of Rome’s wake-up call. Undoubtedly, there are business opportunities to be found in climate change -- and that can generate momentum for combatting climate change that may eventually turn the tide. However, there are climate limits to growth as well that we need to be aware of if human society is to continue to progress.
Lars Moratis is an expert and consultant in the field of CSR and sustainability. A graduate of Erasmus University Rotterdam School of Management, he has worked for various educational institutions on projects and new ventures, including NCDO (the Dutch expertise and advisory centre for citizenship and international cooperation), MVO Nederland (the Dutch CSR knowledge centre), the Open University and the University of Amsterdam. He is a social entrepreneur and activist and the author of several books, including The Basics of CSR (published in Dutch) and ISO 26000: The Business Guide to the New Standard on Social Responsibility (published in English and Dutch). He can be reached at email@example.com.