The Economics of not acting – the path we are on today
As the evidence we covered earlier shows us, it is clear that the path we are currently on has profound economic implications.
The climate crisis:
Presents a serious threat to global economic and social stability;
Could trigger widespread geopolitical conflicts, driven by famine and the movement of people; and
Poses a material risk of full-scale global economic collapse.
This much is clear from the science.
The science of the climate system can be relied upon because it is based on the fundamental laws of physics and chemistry. It still has areas of uncertainty and complexity, but the overall conclusions provide a clear and reliable basis on which to make judgements and determine action.
Economics is not a science. It is so heavily influenced by human behaviour and by unpredictable interactions with the societal, ecological and climate systems, that forecasting the outcome from different paths is more challenging. An example would be famine exacerbated by climate change creating mass people movements which drove geopolitical conflict and resulting economic uncertainty.
Nevertheless, we do have enough analysis on which to make reasonably well-informed judgements, despite the uncertainty. The IPCC’s analysis for example suggests that 1.5 degrees of warming would create estimated economic costs of around $54 trillion. At 3.7 degrees this cost increases to $551 trillion - equivalent to all the wealth in the world. We are currently on the path to 3 – 5 degrees.
Even at this early stage of impacts, market awareness of these risks is rapidly growing. This was recently argued by Feike Sijbesma, CEO of Royal DSM and Chairman of the CEO Climate Leaders of the World Economic Forum:
“The financial world is becoming nervous. The Financial Stability Board, established by the G20, and several central banks, are warning about climate-related financial instability. Investors want companies to disclose more climate related-risks. Insurance companies warn that failure to reduce greenhouse gas emissions could result in a world that is ‘pretty much uninsurable’.”
The market evidence to support Sijbesma’s view is strong. Losses from the physical impacts of the climate emergency are already being felt with a five-fold increase in insured losses in past three decades. With one-third of global equity and fixed income assets in carbon exposed sectors there is increasing concern that the inevitable slump in the value of fossil fuels could trigger another global financial crisis. Growing awareness of this risk is in turn driving divestment, with funds that have committed to exclude or restrict fossil fuels increasing from $52 billion in 2014 to now over $11 trillion in 2019. This is a staggering increase in just 5 years.
Much harder to measure but probably even more significant, is the economic cost of the political instability, geopolitical upheaval and military conflict that climate change will almost certainly bring with mass relocations, refugees and the high likelihood of ongoing food crises.
Given this wide range of economic impacts, and particularly given the near certainty of the physical forces driving them, it is hard to justify any rational argument that we ‘can’t afford’ a climate emergency mobilisation. In fact, the overwhelming logic suggests that, economically, we can’t afford not to embark on such an approach.