Climate change and the economy

The insurance giant Swiss Re has just published a report on the likely economic impact of climate change by 2050.

This is only 30 years away, so it is very relevant. Most people are aware that our planet’s natural range of CO2 in the atmosphere is between a low of 180pp, causing the temperature to be 7C cooler than today, causing an ice age, and a high of 280ppm, taking the temperature up to a warm period. We are now at 415ppm, 1.2C warmer, and still rising.

This 1.2 degree rise in temperature has already resulted in billions of dollars of damage to the world’s economies.

The visible signs of this are the huge fires in Australia and California, and the winter floods in Europe, plus the more powerful hurricanes and cyclones. Swiss Re cover the losses from these events, and therefore has a vested interest in knowing what the future is likely to be.

Swiss Re used the IPCC agreement as the benchmark of its research, limiting climate change temperatures to a rise of 1.5C above 1880 preindustrial levels or a backstop temperature increase of 2 degrees. All the components for these scenarios are well researched, and the world’s countries have signed up to achieving these levels.

Obviously it’s not as simple as that, as many countries that have signed the agreement, including New Zealand, have done almost nothing to achieve their target reductions, which is why we are waiting for the outcome of the climate change report.

The Swiss Re report is very detailed, but the summary is that, if we achieve the promised target of the IPCC agreement by 2030, the temperature will rise by 1.5 to 2 degrees and the world’s economy will shrink by 4 per cent. If we continue on today’s half-hearted trajectory the temperature will rise by 2 to 2.6 degrees, and the economy will shrink by 11 to 14 per cent. If we continue with business as usual and do nothing, the temperature will rise by 3.2 degrees and the economy will shrink by 18 per cent.

The biggest losses are in a group of areas typified by changes in water distribution, evidenced by the drought in south west USA and in Australia, crop yields and food insecurity, malnutrition and disease. There are also economic losses in converting our energy sources away from minerals of coal, oil and gas, the mining industries associated with those products and the utilities associated with the redistribution of water, and a strengthened smart electrical grid.

There will also be costs due to the start of sea level rise. Looking at the analysis of the world’s economies in this report, New Zealand is placed at 18, which is not bad, but with the world in turmoil, no country is immune, and the report confirms that after 2050 things will get a great deal worse.