Wall Street bankers are now sounding the alarm over the dangers of a warming climate. Sophisticated, rational and hard-nosed business people.
A new Citibank report considers the costs and benefits of action verses inaction on the growing threat of climate change, in terms of global gross domestic product GDP. It shows that in the period to 2040:
. taking action against the climate change would save $1.8 trillion, and
. not acting against climate change will lose $44 trillion.
The Citibank report takes into account the potential lost revenue from leaving resources in the ground — including 80% of coal reserves, half of the world’s gas reserves and a third of global oil reserves — and still concludes that the global economy would see a net gain from acting on climate.
The likely total spend on energy (capital expenditure and fuel costs) over the next 25 years is actually remarkably similar on both an Action and Inaction scenarios — Citibank’s Action scenario implies a total spend on energy of $190.2 trillion while our ‘Inaction’ scenario is actually marginally larger at $192 trillion. While in the Action scenario we spend considerably more on renewables (reducing in cost over time) and energy efficiency to reduce energy usage), the resulting lower use of fossil fuels lowers the total cost in later years. (Citibank, p 23)
While the cost of inaction and adaption traditionally refers to the cost of living with climate change, such as increased spend on flood defences, here we examine the
additional costs to the world in terms of its impact on GDP. The estimated damages could be larger as these economic studies only measure those impacts that are quantifiable. Other impacts such as tipping points, weather related events or catastrophic risks are not included in the studies (Citibank, p 29)
The range of expected impacts is between 0.7% to 2.5% of GDP, for a temperature increase of 2.5°C, which is expected to be reached in 2060. If emissions continue to rise and therefore temperature continues to increase after 2060, the negative effect on GDP losses could become more than 3% of GDP with estimates ranging from 1.5% to almost 5%. Under an ‘Inaction’ scenario, the world would be locked to a high emissions infrastructure and the damages could continue for more than a century. (Citibank, p 29)
Citibank Report: August 2015
Key Words: Economics