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Counting the costs of climate change



OXFORD Economics (OE), the respected “independent global advisory firm” (that’s what it calls itself), published a white paper last month that policymakers and investment strategists in this climate-challenged country ought to study closely.

In the paper, titled “The Economic Impact of Global Warming,” author James Nixon, OE’s chief European economist, notes that the impact of climate change is generally not considered in macroeconomic forecasting, even in long-range forecasting covering a timeframe of 20 to 30 years. The assumption, Nixon says, is that climate change will not have a discernible impact on the global economy until the second half of the century, and even then will, at worst, amount to only a few percentage points of global gross domestic product (GDP).

Obviously, Nixon is challenging this assumption. His contention is that, given the trajectory of global warming, climate change is already having economic consequences, and that these will become large enough before 2050 that they will have to be taken into account in economic forecasting and planning.

The paper works off the broadest consensus of available scientific data, which sets the global warming trend at 0.18 degree Celsius a decade, from the benchmark of the global average temperature (the so-called preindustrial average) of the years 1850 to 1900. Right now, the global average temperature is about 1.0 degree Celsius above that average; the Paris agreement seeks to keep the temperature increase at or to below 2.0 degrees Celsius, which is looking like an increasingly unrealistic goal.

There are two big problems with connecting global warming with a discrete economic metric, such as GDP. First, global warming and its climate change consequences are variable across the globe. The 0.18-degree Celsius figure is a global average, but some regions are warming faster and experiencing more rapid and extreme climate changes, while others are warming at a much slower rate.

Second, it is not always clear just how a particular climate effect — for example, changes in ocean circulation due to higher sea surface temperatures — impacts economic activity. This is especially true, because many of the consequences of climate change are most immediately social. Nixon’s paper acknowledges that point, but his study actually seems to come up short of following it to a logical conclusion. Negative consequences, such as people forced to relocate due to rising sea levels, or becoming migrants due to longer and more widespread droughts in some regions, as well as positive consequences, such as the increased use of climate-neutral energy sources lead to new economic activities — something the Oxford Economics paper does not clearly address. Therefore, calculating the economic cost of climate change effects requires the estimation of a net economic impact — subtracting what is lost and adding what may be recovered through alternative forms of productivity.

All of this leads to a greater level of uncertainty as the scope of the economic forecast becomes broader. There are simply too many variables: Climate change consequences vary from region to region; vary in scale, intensity and rate of change; and are ameliorated (or aggravated) by varying human responses to them. Given enough time and data, a reasonably competent researcher could figure it all out and develop a global indicator, which is the implicit suggestion of the Oxford Economics approach, and the report even provides specifics: About 1.2 percent of global GDP for every 1.0 degree Celsius increase in global mean surface temperature over the preindustrial average, or between 2.5 percent and 7.5 percent of global GDP for a temperature rise of 4.0 degrees Celsius — figures it arrives at by metanalysis of the most detailed studies to date on the question.

Again, those are measures of global impacts, derived by so much averaging that for any specific jurisdiction, they are most likely practically meaningless. Providing an actionable measure, however, is not the point of the Oxford Economics study. The point is to highlight that climate change does have measurable economic effects, and that these effects are occurring, or will occur within a short enough time horizon that they should be immediately considered in economic forecasting and the policy and investment planning based on it.

For a country like the Philippines, facing as many climate-related risks as it does — it is actually not ironic at all that. as you are reading this, much of the country is experiencing the effects of a typhoon — climate change-induced economic impacts need to be part of the narrative. That is something that might be a little difficult for the ruling class to accept, accustomed as it is to putting the best face on any judgment of the Philippine economy, regardless of the rationality of it. Adding a little realism to economic planning, however, will provide for more effective, and possibly even beneficial responses, than hand-wringing when results do not match hopeful estimates.

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Twitter: @benkritz

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