The New Equation: When Economists (Finally) Get On Board With Climate Change

Author: Antoine Ebel
Antoine Ebel a former research intern with the Worldwatch Institute’s Climate & Energy Program and the President of CliMates, an international student think-tank striving to research and promote innovative solutions to climate change.
 
Highlights
  • Six years – and numerous climate-related disasters – after the U.K.-commissioned Stern Review, the economic community is beginning to accept the realities of climate change. At this year’s World Economic Forum, global leaders stressed the financial urgency of addressing climate change.
  • Despite this shift in attitude, environmental advocates still face numerous hurdles, the largest being the worldwide struggle to reinvigorate a sluggish labor market.
  • Though focusing on the economic impact of rising sea levels and unpredictable weather is one way to mobilize policymakers, this approach is a double-edged sword, as leaders may be hesitant to take costly but necessary steps to fight climate change. 
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Jim Yong Kim's leadership of the World Bank may signal the prioritization of climate change. (World Bank)

When Sir Nicholas Stern published his UK government-commissioned Stern Review on the Economics of Climate Change six years ago, his work wasn’t exactly met with great enthusiasm by his fellow economists. Most of them dismissed the predictions – 75 percent chance of 2-3 degrees Celsius warming with current trends, reducing economic output by 3 percent, with worst-case scenarios permanently amputating global consumption by 20 percent – as too alarmist. A few took the opportunity to dismiss the “scientific consensus” on the issue (it was 2006, remember?). Even William Nordhaus, one of the most climate-aware among the profession, argued that the discount rates (how much more we value our present consumption over our future consumption) used in the Review were too low.

Six years and a few climate catastrophes later, the tone of the conversation has radically changed. Stern’s description of climate change as “the greatest and widest-ranging market failure ever seen” has penetrated minds across the globe – even those usually impervious to environmental preservation imperatives. The annual meeting of the World Economic Forum, which took place in Davos, Switzerland a week ago is the latest illustration of this evolution. The preliminary “Global Risks Report”, which is published in preparation of the Forum every year and usually sets the tone of the meeting, was particularly adamant on this point: the climate bill is growing larger by the minute, and it’s still uncertain how we’ll be able to pay for it.

The “Global Risks Landscapes: 2013 versus 2012” section of the report is particularly striking: climate-related risks increase their presence in every single category, from economic (volatility of food prices) to societal (water supply crises) and even geopolitical (global governance failure). The signal sent by the report is clear: far from being a marginal issue, climate change will affect nearly every aspect of human existence, especially economic activity. Many prominent statespersons and business executives repeatedly emphasized that message over the course of the annual meeting – though Internal Monetary Fund head Christine Lagarde probably won the eloquence prize when she warned that “unless we take action on climate change, future generations will be roasted, toasted, fried and grilled” (bon app├ętit!).

And yet, Sir Nicholas Stern, a regular visitor of such prestigious business events, is still not happy. In parallel to the (at least seemingly) passionate advocates for climate action that were heard in Davos, the economist admitted to the Guardian that he had “underestimated the risks” and that the world seemed “on track for something like four [degrees Celsius warming]” – thus echoing the recent “Turn Down the Heat” report by another fairly recent climate convert, the World Bank.

And yet, after talks of “Russian roulette” and “existential threat,” Stern concluded on the global greening of the economy: “it’s a very exciting growth story.” This cautious optimism permeated the Davos forum in general. However, The Economist, among others, observed “a mismatch between the upbeat mood of [forum attendants] and the poor outlook for jobs” – as well as, one might add, for the environment.

Pointing to this mismatch does not equate to saying fighting climate change necessarily hurts the economy, and that climate advocates should always stick to the scariest parts of the story – it doesn’t, and they shouldn’t. But Stern’s final sentence, in particular, is the textbook economist reaction to an ecological crisis: it essentially suggests that we should only care about climate change because it could hurt our GDP and some of the solutions have a great wealth-creation potential. Granted, economists are merely doing their job when they make such assumptions; it’s expected of them to think that way. But climate activists, perhaps in an attempt to lure mainstream capitalists into entering the conversation, have also indulged in  this discourse to a very large extent – “market externalities” have replaced “moral dilemmas”, while “ecosystem services” make declarations about the beauty and integrity of ”Mother nature” seem old-fashioned.

There is great value in reminding the fact that a healthy planet is the sine qua non condition of wealth and well-being as we know it. The fact that more and more economists are coming to terms with this fundamental notion is undoubtedly good news for climate. The transition to a low-carbon world can, and will, generate jobs and opportunities. But going all-in on the economic rationale of climate change can come at the risk of presenting the issue as a mere cost-benefit analysis.

If the basic math of anthropogenic climate disruption is enough to gather shallow support from the business and political spheres, is it enough to convince them, and the general public, of the necessity to keep two-thirds of the world’s proved fossil fuels reserve on the ground? Does it create a moral and ethical incentive strong enough to stay off Arctic oil and Alberta tar sands, or put the brakes on any of the other projects that threaten to push us past the point of no-return? To follow the recommendations of several Nobel Prize laureates on redefining the way we measure economic wealth, and take the leap towards sustainable prosperity? Will it prevent the disappearance of 20 percent of the world’s nation-states, and the destruction of priceless biological diversity?

Taking an economist’s approach to climate action too often fails to address this vital question: if fighting climate change costs more money than it generates, should we keep doing it anyway?

Print/EmailAntoine Ebel | February 4, 2013