Climate Change and its Economic Impact Part 1
Abstract
With Nicholas Stern’s report stating that climate change could shrink the global economy by a phenomenal 20%, reversing the impact of climate change is finally reaching board level. Staff across all types of organization will soon be expected to make carbon-friendly decisions from implementing the right technologies through to purchasing from ‘green’ suppliers. With each tonne of CO2 emitted causing damage worth at least $85, climate change and the economy can no longer be viewed in isolation. It is a financial burden that everyone will have to bear.
The environment, and in particular climate change, can no longer be viewed as an issue for tree-hugging environmentalists and Governments to sort out. Faced with the reality that climate change is as much an economic threat as it is an environmental one, reversing its impact is finally reaching board level and becoming integral to corporate decision-making. As this ‘environmental thinking’ becomes an increasing priority for businesses, staff across all types of organization will feel the impact and will be expected to make carbon-friendly decisions in all aspects of their working life.
Climate change and the economy
Former World Bank chief economist, Sir Nicholas Stern, is to thank for raising awareness of the relationship between the economy and climate change, causing worldwide leaders to finally sit up and take notice of the impact our changing environment is having on the bottom line. One of the most alarming findings from Stern’s report is that climate change could shrink the global economy by a phenomenal 20%.
If temperatures rise 5°C above pre-industrial levels as is expected, global food production will be seriously affected, flooding will affect millions with some being permanently displaced, and up to 40% of species could face extinction. However, by taking action now to reverse the effects, it would cost just 1% of the global gross domestic product, which is a huge incentive for businesses to act immediately. As well as avoiding the negative economic affects of climate change, Stern asserts that by shifting the world onto a low carbon path, the global economy would eventually increase by an incredible $2.5 trillion every year. In addition, by 2050, markets for low-carbon technologies could be worth at least $500 billion.
Some businesses are already seeing a financial opportunity in climate change, particularly in the form of carbon emissions trading. Under the United Nations Framework Convention on Climate Change (UNFCCC), countries are permitted to use a trading system to help meet their Kyoto Protocol emissions targets. So,
organizations that are able to reduce their emissions can ‘trade’ excess permits to other, more polluting, organizations.
It is not inconceivable that within ten years, businesses around the world will be trading carbon emissions credits as they do shares, and credit controllers will find themselves chasing emissions credits as they do monies owed. Carbon emissions trading is a practical measure to show businesses the full cost of their actions and in fact, United States investment bank, Morgan Stanley, has already announced plans to invest nearly $3 billion in buying carbon credits around the world.
