Economic costs of climate change

We have all heard of climate change and the devastating impact it is starting to have on our lives. But there are many, specially in the energy industry, that even deny the reality of climate change.

Here in the Philippines, we continue to put up coalfired power plants. This is justified by our urgent need for more electricity production and coal is convenient and until lately, relatively cheap.

The cost of using fossil fuels, however, should include costs related to the deterioration of our air quality. In the urban areas, the lack of mass transport that’s not directly powered by diesel or gasoline has probably chopped a few years from our expected lives.

Still, some business people are now starting to realize the impact of climate change in their corporate finances. This was the clear message of Federico R. Lopez, CEO of First Philippine Holdings, in a talk he recently had with Lopez Group managers.

“Piki”, as he is known in the group, said that for the Energy Development Corp. (EDC), the frequency of events attributed to climate change “has increased our annual insurance premiums from P294 million in 2009 to over P1.3 billion today.”

“In the last seven years alone, our geothermal operations have been interrupted and damaged by typhoons like Yolanda, Sendong, Glenda, Seniang, Amang, and Urduja, and the Leyte earthquake of 2017. These natural disasters left close to P10.5 billion of property damage and business interruption losses in its wake.

“What we’re experiencing in EDC will be the norm for all businesses in the years to come… We need to begin thinking about these things early if we do not want to be caught flat-footed. Remember, it wasn’t raining when Noah built the Ark.”

Indeed, Piki noted, we owe it to our future generations to start addressing the devastating impact of climate change.

Piki cited a series of studies done by McCann, a marketing communications agency. Every five years, McCann conducts a study on the youth and what concerns them.

In 2000, the study showed the youth just worried about two things: 1) Having to work each day. And 2) Need to make money. The list has grown over years. But in 2013, their top six concerns include: 1) Pollution in air/water. 2) Being a crime victim. 3) Scarcity of food/ water/oil. 4) Environment damage. 5) Parents sick or dying. 6) Natural disasters.

It just shows, Piki pointed out, how much the youth, especially the millennials, are concerned about the environment. “And as they become the largest consumer segment and with the increase in their purchasing power, at some point, they will make their concerns felt in the way they purchase.”

Piki observed “whichever way we choose to play in our respective businesses, there is one major sea change we must all prepare for… The limits of our planet to sustain life as we know it are now being reached.”

Stephane Hallegatte, a senior economist in the World Bank’s climate change group, was quoted by the Financial Times as saying one of the things that will determine the cost of climate change is how quickly people adapt and prepare for a warmer world.

“If you assume that nobody acts until there is a disaster, then with the same change in physical conditions you can have a very high cost.”

Piki warns, “we’re now hurtling at an accelerating speed toward a world that’s more than 2°C warmer than it was in the pre-industrial era. Many say that even if we’re successful at meeting Conference of Parties (COP) 21 commitments, it will only bring us to a world that’s already 3°C warmer.

“That type of world last existed more than three million years ago where sea levels were 25 meters higher than they are today. That 2 to 3°C change is not just like turning up the thermostats in this room by so much and merely removing our jackets to adapt.

“This slight change in global average temperature has enormous implications on water cycles, sea levels,

From B4 health, diseases, rainfall and wind patterns, intensity of typhoons, heat waves, droughts, wildfires, freshwater, and food supplies, and the operability of our transport and urban living spaces, just to name a few. All over the world, we’re seeing an acceleration of “100-year extreme weather events” occurring on a regular basis.”

The Financial Times reports that the biggest concern, according to Sam Fankhauser, director of the UK’s Grantham Research Institute, is what happens if the planet exceeds that 2ºC warming target on which many economic analyses are based.

“If you just say it costs three percent, four percent or five percent of GDP...that misses the whole story of what happens if it goes really, really bad.” Mass relocations of populations, water shortages, and increased conflict caused by displacement are among the worst-case scenarios.”

Recent studies published in Nature Geoscience are showing that Category four and five storms in the AsiaPacific region have doubled or even tripled over the last 37 years. The destructive power of typhoons has also increased by more than 50 percent over this same period.

Piki laments “Our massively warmed climate and environment is driven by a capitalist system that keeps stimulating excess consumption, rewards growth irrespective of the consequences, and doesn’t price in the external costs of that growth like damage to lives, environment, or the waste associated with it.”

He warns that many experts believe we are now living in an era where we could see more than half the species on earth wiped out before the end of the century.

“The last mass extinction occurred 65 million years ago, but which happened over thousands of years. Today we could see it happening in just over a few decades!

“No doubt about the fact that the planet will survive. It’s humans who may not.”

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco.