Climate Change: A Thorn in the Side of Economic Growth and Stability

Governments in Yokohoma, Japan have signed off a report on the global impacts of climate change which says that “changes in climate have caused impacts on natural and human systems on all continents and across the oceans” with clear evidence on crops, fresh water supplies, biodiversity and the ocean. The Fifth Assessment report (AR5) from the Intergovernmental Panel on Climate Change (IPCC) catalogues a series of risks, which for the most part, multiply as temperatures warm.

This is the second of three reports on the causes, consequences of and possible solutions to climate change, drawing on academics and practitioners from around the world. The first part of the report released last September was unequivocal that humans were the dominant cause of climate change since the middle of the last century. This second report is equally grim reading, with very few positive impacts projected under a changing climate at this speed.

For the business community and investors, the report says that climate change will indeed hit growth. After much debate, it was concluded with certain caveats that 2 degrees Celsius of warming would cause economic losses between 0.2 and 2% of global income. However, the IPCC says the economic models on which these numbers depend ‘vary in their coverage’ of economic sectors, ‘depend on a large number of assumptions, many of which are disputable’, and do not ‘account for catastrophic changes, tipping points and many other factors’.

While describing the 0.2-2% figure as ‘incomplete’, it concludes that losses ‘are more likely than not to be greater’ rather than smaller, than this range. The UN panel also says there are large differences between and within countries – some will be affected much more significantly than others.

“When you really look at where we are with the modern science, I think those 0.2 to 2%

numbers at 2.5 degrees are really old fashioned. They don’t include a lot of what we

understand about the way climate change impacts work and about the way a multi-stressor

threat multiplier can lead to damages. They don’t capture a wide range of processes that are likely to be important, and they don’t acknowledge the diversity of values,” said Chris Field, IPCC Working Group Two Co-Chair.

Whatever the exact figure tallies to, it is clear climate change will have impacts on all sectors of the economy, and is relevant to all investors, financial services and business. Decisions made by private sector investors and financial institutions will have a major influence on how society as a whole responds to climate change.

“This report is essential reading for businesses everywhere. If you want to understand the risks of climate change - to natural resources, to the insurance sector, to agriculture and food - the IPCC report paints the big picture. The insurance sector, for example, faces uncertainty in setting premiums, and major risks when wild weather damages property, people and assets. Understanding such risks within businesses, large and small is important work,” says Neil Adger from the University of Exeter UK and an AR5 chapter author.

Food

From fish in the ocean to rainfall patterns, things are changing and not always for the better. The quantities and quality of fresh water available will lessen in dry regions and increase in high latitude. The current rate and magnitude of ocean acidification is faster than any event within the last 65 million years.

Climate change is a major factor in the decline of pollinators like bees and warming will impact crop yields in temperate and tropical regions. Whilst some individual areas may see increased yields in the short term, overall climate change is likely to reduce yields of staple crops such as wheat, rice and maize, most showing a show a decline by 2050, some of up to 25%, even as demand for food grows.

Areas suitable for the growing of coffee, tea and cocoa, which support millions of smallholders in over 60 countries, will be significantly reduced. It’s likely the quality of coffee and other foods will decline too.

As per recent examples, droughts in Russia in 2010 and in the USA in 2012 led to major crop failures, a spike in prices and social unrest. The 2010-11 food price spike is estimated to have pushed around 44 million people below the basic needs poverty line across 28 countries.

Climate change will have impacts that for many businesses, may not be in the forefront of primary concerns but looking towards a stable and consistent workforce, climate change will increase displacement of people over the coming century. Impacts can also create rivalry between nations over natural resources and the risk of conflicts.

Estimates of the impacts of climate change on worker productivity, assuming current work practices, primarily through heat stress, indicate that productivity has already declined during the hottest and wettest seasons in parts of Africa and Asia, with more than half of afternoon hours projected to be lost to the need for rest breaks in 2050 in South East Asia and up to a 20% loss in global productivity in 2100 under a business-as-usual scenario.

The physical impacts of climate change include increased risks to population centres and assets in coastal zones from sea-level rise and storm surges, the likelihood of higher and more volatile agricultural commodity prices due to changes in agriculture patterns, and potential reductions in labour productivity due to environmental heat stress.

A large proportion of species, face increased extinction risk and although some will adapt to new climates, those that cannot adapt sufficiently fast will decrease in abundance or go extinct in part or all of their ranges. Many terrestrial, freshwater, and marine species have already shifted their geographic ranges, seasonal activities, migration patterns, abundances, and species interactions in response to ongoing climate change.

The report also says that redistribution of marine fisheries catch potential toward higher latitudes poses risk of reduced supplies, income, and employment in tropical countries, with potential implications for food security.

In order to limit global temperature increase below 2 degrees Celsius above pre-industrial levels, there will need to be significant investment required in the energy supply sector accompanied by a significant shift away from fossil fuels towards low carbon sources such as renewables and nuclear.

This report also acknowledges that a certain amount of warming is already locked in because of past emissions, and that in some instances there is no way to escape the effects of climate change. Some countries are already feeling the economic pinch of climate change.

“Asia is the most vulnerable continent to climate change, but it is not just developing countries in the region which are affected. Japan is already experiencing climate change and faces severe risks if action is not taken. Japan imports about 60% of its food from overseas, thus climate impacts, like poor crops yields in other countries, will boost the price of food here - with inevitable negative consequences on our economy. This is not an issue somewhere far away, but an issue for us here,” says Kimiko Hirata, International Director, of the Kiko Network, a Japanese NGO.

But more than all of this, the IPCC report drives home to businesses and individuals our responsibility and action in doing something about the climate challenge over the coming decades. As the IPCC’s own press release states, “The world, in many cases, is ill-prepared for risks from a changing climate... There are opportunities to respond to such risks, though the risks will be difficult to manage with high levels of warming.”