The Economics of Climate Change October 2013
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Climate change has the potential to alter the planet dramatically. And even slight shifts in, for instance, zones that accommodate various types of agriculture will have tremendous effects on the provision of food for an ever-increasing number of people. Rising sea levels will displace people and lead to migration (a process already under way). Many experts also believe that a change in climate will drive the occurrence of extreme weather, including droughts, large storms, and floods. In addition to causing environmental issues, loss of habitats, and threats to human lives, climate change can also have economic effects that are expressible in monetary value. Any related calculations can be perceived as emotionally detached and single-mindedly commercial, but they also provide an understanding of the magnitude of changes to economies and societies. Prediction models, policy considerations, attempts to assess costs, and opportunities for investment and mitigation all prove relevant in the economics of climate change.
Climate change could also create commercial opportunities.
The dynamics of complex systems such as the earth's climate might in fact offer some clues to aid in predicting tipping points and other potential changes in the system. University of Wageningen (Wageningen, Netherlands) researchers Vasilis Dakos and Marten Scheffer studied eight cases of sudden changes to global climate in the earth's past. In each of the cases, the scientists found abrupt increases in the autocorrelation of the recorded temperature preceding a transition in climate.
Researchers at the University of California, Los Angeles (UCLA; Los Angeles, California), have used the university's supercomputer to run 22 global climate models. According to their results, some areas of Los Angeles County will see temperatures rise by an average of 4°F to 5°F by midcentury (http://c-change.la/temperature). The study was commissioned by the City of Los Angeles and financed by a grant from the US Department of Energy (Washington, DC). The study, which was conducted by the university's Department of Atmospheric and Oceanic Science, investigated changes for the period 2041 to 2060. Particularly noteworthy is the fact that the research team projected changes for 2-square-kilometer areas instead of the 100-square-kilometer cells common for global climate models, thereby enabling them to examine changes at the neighborhood level. The researchers found that the number of extremely hot days in downtown Los Angeles will triple. In the valleys and mountains, though, the number of extremely hot days will quadruple, which is of particular concern because of the threat of wildfires.
Gail Whiteman from Erasmus University (Rotterdam, Netherlands) and Chris Hope and Peter Wadhams from the University of Cambridge (Cambridge, England) looked at the costs of releasing the 50 gigatonnes of methane currently frozen in shallow oceans along Russia's coast. Climate change could warm the waters, which would release the methane. Since methane is a strong greenhouse gas, its release would trigger additional global warming. The researchers calculated that if the methane is released within a ten-year period, the costs of climate change in the Arctic will reach $60 trillion—a sum surprisingly close to the $84.97 trillion gross world product for 2012. Even more problematic, the researchers found that the potential costs can range from $10 trillion to up to $220 trillion, establishing high uncertainty.
Geologist Richard Alley of Pennsylvania State University (University Park, Pennsylvania) has focused on sea-level rise caused by melting ice sheets. In earlier work, Dr. Alley suggested that the modes of ice-sheet melting represented a major uncertainty in climate models. In new research that focuses on Greenland and the Antarctic, he suggests that sea-level rise could occur faster than anyone is forecasting. His work suggests that melting in Greenland is not of immediate concern because of the island's underlying geology but that melting in the Antarctic could happen very fast. Dr. Alley suggests that a sea-level rise of 2 meters could occur in a very short time and points to policy makers' assuming that any rise in sea level will occur slowly as a major problem. He suggests that societies should address climate change in much the same way they address traffic safety. For example, policy makers, law-enforcement agencies, and individuals expend a significant amount of effort trying to prevent and prepare for drunk-driving-related accidents even though such accidents are relatively rare. He recommends that societies focus more on the possibly unlikely but severe outcomes that climate change could generate.
University of Cambridge (Cambridge, England) Bertrand Russell professor of philosophy Huw Price, Cambridge emeritus professor of cosmology and astrophysics Martin Rees, and Skype (Microsoft; Redmond, Washington) cofounder Jaan Tallinn are seeking funding sources to create the Centre for the Study of Existential Risk at the University of Cambridge. The team hopes to examine long-term extinction-level risks to the human race created by technology. One of the areas the researchers will focus on is anthropogenic climate change. The founders argue that the risks are uncertain but, because the extreme scenarios are so serious, deserve far more scientific investigation than they currently receive—a sentiment in line with Dr. Alley's.
Climate change could also create commercial opportunities, though. Decreasing ice levels could enable shipping companies to use Arctic regions to navigate between the Atlantic and Pacific Oceans by 2059. Currently, the Northwest Passage is accessible to icebreaker ships, on average, only every seven years. As ice levels decline in the coming decades, the frequency of access will likely increase noticeably. Researchers at UCLA collected data from seven polar-ice-loss models for the period 2040 to 2059 and used those data in scenarios representing both moderate and high levels of global warming. According to lead researcher and UCLA professor of geography Laurence C. Smith, "The development is both exciting from an economic development point of view and worrisome in terms of safety, both for the Arctic environment and for the ships themselves" ("Global warming will open unexpected new shipping routes in Arctic, UCLA researchers find," UCLA Newsroom, 4 March 2013; online). Traveling directly over the North Pole—an unexpected possibility the study surfaced—would take 20% less time than using the Northern Sea Route takes.
The United Nations (New York, New York) estimates that by 2030, investments in technology and infrastructure that aim to mitigate the effect of climate change could reach $130 billion annually. And some investors have identified companies and technologies that would benefit from climate change and rising temperatures as worthwhile investment opportunities. These investors put money into water-treatment technologies and companies, Australian-farmland purchases, and even a company that engineered a mosquito to counter dengue fever (the disease becomes more prevalent as temperatures rise). Other investments that benefit from potentially catastrophic climate changes include derivatives that hedge against extreme weather and natural disasters.