The economic benefit of combating climate change
Mainstream thinking believes two things about combating climate change. Firstly, restricting the increase in global average temperatures to under 2 degrees] celcius post pre-industrial levels is going to be more than difficult. Secondly, it’s believed that with the absence of aligned global action, countries that step out to tackle the 2 degree path will be slapped with a first-mover disadvantage.
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In reality, the first point is probably true but the second is not. Research by Burchardt, et al (2018), from Boston Consulting Group finds that near-term macro-economic payback can be achieved for most countries using well-proven, existing technologies and strategies.
“The cost of not acting on climate change has been estimated to be ~0% per capita GDP by 2100, however the impact of taking climate action is a 1% gain in GDP per capita by 2050.” (Burchardt, et al, 2018).
Almost all countries could eliminate 75% to 90% of their gap in obtaining a 2 degree path simply by following what’s already known to work. If they prioritise reduction in emissions with the most efficient technologies they will actually accelerate, not slow, GDP growth. What’s more, all countries can generate economic gain even by moving only part of the way. The technologies required vary by country according to their resources. For example, Russia needs to have a greater mix of nuclear power, Brazil has significant scope for hydrogen, and Europe and America have viable solar and wind options.
The requirement for investment by countries to achieve this is immense. For Germany alone, it’s estimated at $1.6 trillion through to 2050 or 1.1% of GDP. But if we break this down into additional annual expenditure, the costs are far less at $20 billion. In this scenario, with Germany moving forward unilaterally, the economic impact overall is actually slightly positive. This comes from a combination of accelerated investment combined with an 80% reduction in fossil fuel imports that outweigh declining industrial competitiveness.
Most developed countries are on a path to lower emissions under current policies due to increases in efficiency, electric mobility, and the gradual decline in fossil fuel use. The US and Germany have both managed to decouple greenhouse gas (GHG) emissions with economic growth (Greenhouse gas emissions are going down while GDP is growing).
We’re well aware of the devastation that will occur if we do nothing. What’s perhaps not so well-known is the economic advantage of taking action. In a world of stagflation the economics of acting are compelling. Reversing the trends represents an immense challenge, but, in choosing the right course of action, it becomes achievable. Throughout history mankind has demonstrated an extraordinary ability to surmount challenges and maintain hope through adversity; this time will be no different.
Burchardt, J., Gerbert, P., Schonberger, S., Herhold, P., Brognaux, C., 2018. “The economic case for combating climate change.” Boston Consulting Group.