Lost jobs and the collateral damage of climate change

Lost jobs and the collateral damage of climate change

closed business, climate change and economic costs
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Business closures — and resulting labor disruptions — are an often-overlooked consequence of environmental volatility.

The following is an excerpt from the book "Decent Work, Green Jobs and the Sustainable Economy."

Environmental challenges and social challenges are inextricably linked. Economic growth, job creation and incomes depend on — and can degrade — natural resources and systems. However, they can also restore and enhance environmental sustainability.

Given the scale and the urgency of these challenges, it is clear that the world will have neither the resources nor the time to tackle them separately or consecutively. They need to be addressed together, in a comprehensive and complementary manner.

The questions are, then, whether and how an environmentally sustainable economy can offer opportunities to create decent work and improve social inclusion.

Environmental challenges: the economic and social costs

Since the first U.N. Conference on the Environment in 1972, the world’s population has almost doubled to over 7 billion. Meanwhile, the world economy has more than tripled in size. While this growth has pulled hundreds of millions out of extreme poverty, the benefits have been unevenly distributed and achieved at significant cost to the environment.

Future economic growth with decent work, rising living standards and improved human well-being will critically hinge on preserving, managing and restoring the natural assets on which all life and economic activity depend. Failure to do so will have serious consequences, especially for the poor, and will ultimately undermine the economic growth and human development prospects of future generations.

The BAU scenario of “grow first and clean up later” is not sustainable. Escalating natural resource use and pollution will compound the growing scarcity of fresh water and fertile land and accelerate the loss of biodiversity and climate change beyond tolerable levels.

If not addressed quickly and decisively, these environmental challenges will increasingly undercut economic growth and jobs. This cost is obvious in the case of immediate impacts such as large-scale pollution from environmental disasters, but is even higher for the less perceptible, insidious, “slow onset” phenomena such as biodiversity loss and climate change, which cause damage that is often irreversible.

It is important to bear in mind that these challenges are often interrelated, and can give rise to positive feedback loops that exacerbate undesirable outcomes. Indeed, the OECD in its Environmental outlook to 2050 argues that “there is compelling scientific evidence that natural systems have tipping points or biophysical boundaries beyond which rapid and damaging change becomes irreversible."

It warns that further delay in addressing environmental challenges risks very costly — even, in certain cases, catastrophic — changes. Estimates available for some of these economic and social costs highlight that they are indeed significant.

Natural resource use

The International Resource Panel has analyzed the economic effects of scarcity of natural resources. In a 2011 report it examined the extraction of four categories of primary raw materials — construction minerals, ores and industrial minerals, fossil fuels and biomass.

It found that, in total, these materials are mined and harvested at a rate of 47 billion to 59 billion tons per year. A BAU scenario would lead to a tripling of global annual resource extraction by 2050. A recent study by the McKinsey Global Institute has shown that intensive resource use drives up energy and commodity prices. It argues that a complete rethinking of resource management, with sharp increases in energy and material efficiency, will be needed to reconcile limited resources with soaring demand.

In particular, demand increases of 30-80 percent across all major resources will coincide with increasing difficulty and cost of finding and extracting them. The study points out that the sharp increase in commodity prices between 2000 and 2011 has wiped out the price declines of the previous 100 years. Moreover, it suggests that the global economy could face several decades of higher and more volatile resource prices, which could have adverse consequences on output.

The slump in prices for energy and some commodities since 2009 in the wake of the “great recession," along with subdued economic growth coupled with cheap finance and massive investment in shale gas extraction, could be seen as an instance of this volatility. Already, the overuse of resources has led to the sharp contraction or collapse of some industries in G20 countries, such as forestry in China, Indonesia and the western United States, or fishing in parts of Canada, with associated job losses ranging from tens of thousands to almost 1 million.

Pollution

In the absence of increased efficiency, reuse and recycling, global waste volumes will continue to escalate rapidly, adding to the pollution of soil, water and air. The World Bank estimates that global annual production of waste will reach 2.2 billion tons by 2025, nearly double the most recent figure of 1.3 billion tons.

Pollution of air, water and soil is a persistent problem for the health of humans and ecosystems at both local and global levels. According to the OECD, exposure to hazardous chemicals is already significant on a worldwide scale and is likely to increase in the coming decades, particularly in emerging economies and developing countries. The concentrations of pollutants in some cities already exceed safe levels.

Unabated increases in pollution are likely to lead to a doubling of premature deaths caused by airborne particulate matter in urban areas, to 3.6 million per year by 2050, most of them occurring in China and India. At the same time, the benefit:cost ratio of acting on pollution can be as high as 10:1 in emerging economies.

Respiratory problems resulting from pollution could also increase, particularly in urban areas. Meanwhile, indoor air pollution from burning biomass, coal and kerosene is responsible for 4.3 million premature deaths each year, according to new figures from the World Health Organization that are substantially higher than previous estimates. Most of the victims are women and children.

Pollution trends in general are likely to widen existing inequalities and deepen vulnerability among the poor. Pollution also may diminish the working capacity of the labor force and coerce workers into premature retirement, thereby adding to expenditure on social security.

Water scarcity and land degradation

Fresh water is already scarce in many parts of the world. Water stress is projected to increase, with water supplies predicted to satisfy only 60 percent of world demand in 20 years’ time.

The OECD’s Environmental outlook to 2050 projects that, by 2050, 2.3 billion more people will be living in areas experiencing severe water stress, bringing the total to over 40 percent of the world’s population. Water shortages will hinder the growth of many economic activities. Industry, power generation, human consumption and agriculture will increasingly compete for water, with serious implications for food security.

Irrigation for food production in agriculture already takes about 70 percent of available water. And, while agricultural yields have increased thanks to the use of chemical fertilizers, more intensive farming reduces soil quality and contaminates water resources. Water and food shortages also tend to increase the workload of women.

Biodiversity

The wealth of plant and animal species provides the basis for food production and raw materials for a host of commodities and products, from textiles and building materials to paper and pharmaceuticals. The number and the diversity of species are critical for the stability of ecosystems.

Today, species become extinct at a rate between 100 and 1,000 times higher than what could be considered natural. Up to 30 percent of all mammal, bird and amphibian species will be threatened with extinction this century. While the main drivers of biodiversity loss have been land-use change and management (agriculture, commercial forestry, urbanization) and pollution, climate change is projected to become the fastest-growing driver of biodiversity loss by 2050.

In spite of their vital functions and the enormous scale of their value, ecosystem services and biodiversity are often overlooked: their value and the cost of their loss are not systematically reflected in national accounts and are rarely transmitted as market signals into business decision-making. Initial findings from the Economics of Ecosystems and Biodiversity (TEEB) series put the annual cost of losses in biodiversity and ecosystem services due to deforestation and forest degradation at the equivalent of $25 trillion. This is equivalent to over 30 percent of world GDP in 2011.

Several hundred million people depend on forest, marine and coastal biodiversity for their livelihoods. The World Bank estimates that, in 43 low-income countries, natural capital makes up 36 percent of total wealth, even without factoring in the wider range of services that ecosystems provide.

The availability and sustainable use of biodiversity by the poor are directly relevant to poverty eradication. For example, in Brazil, India and Indonesia, the standard contributions to GDP of agriculture, forestry and fisheries combined, reflecting only the traded goods in the markets, were 6.1 percent, 16.5 percent and 11.4 percent respectively in 2005. For the rural poor, the share is much higher: 89.9 percent, 46.6 percent and 74.6 percent respectively.

For developing countries, the cost of these forms of environmental degradation, taken together, is very significant and offsets much of the economic growth achieved. World Bank studies of 21 developing countries found the annual cost to range from 2.1 percent of GDP in Tunisia to 9.6 percent in Ghana, with a weighted average of 8 percent.

Climate change

One of the most serious global threats, and one which aggravates other environmental concerns such as water scarcity and biodiversity loss, is climate change. In the medium to long term, climate change leads to an increase of average global temperatures, changes in rainfall regimes and an increase in sea levels. In the short term, climate change impacts include the results of erratic weather patterns and more extreme weather events.

Climate change is primarily caused by increased concentrations of GHGs in the atmosphere, arising mainly from the burning of fossil fuels and biomass, animal husbandry, rice-field irrigation and use of nitrogenous fertilizers. These GHGs trap more of the energy reaching the earth from the sun, an effect similar to that which occurs in a greenhouse.

As can be seen in figure 1.1, energy supply and agriculture-related activities together account for roughly 59 percent of total emissions. Industrial activity (i.e. manufacturing) and transport are also two major sources, accounting for 21 percent and 14 percent respectively:

Emissions from fossil fuel burning, cement production and land-use changes are up 42 percent over 1990 levels, and they increased 2.7-fold, to 10.75 billion tonnes of carbon, between 1960 and 2013. Global average temperatures are today 0.8 degrees Celsius higher than before the onset of the industrial revolution, with a 0.7 C rise since 1951.

As a result, the melting of glaciers in the Arctic and on Greenland has led to a global average sea-level rise of 10–20 centimeters in the past 100 years, while weather patterns have become more erratic and extreme weather events more devastating.

Per capita GHG emissions are still highest in high-income countries, at on average about 10 times those of developing countries in 2011, although in 2013 China, with 7.2 tons of carbon per capita, surpassed the European Union, with 6.8 tons.

Under BAU scenarios, continuously rising emissions could drive concentrations of GHGs in the atmosphere from the present-day level of 390.5 ppm CO2 to 685 ppm by 2050, with probable consequent warming of 3 C to 6 C. This concentration and attendant range of temperature increases, far exceeding the internationally agreed maxima of 450 ppm and 2 C, would have serious and possibly unmanageable consequences.

Because GHGs remain active in the atmosphere for long periods of time, global temperatures and sea levels will continue to rise for centuries even after GHG concentrations have been stabilized. The challenge for the future is therefore to radically and quickly reduce emissions as well as to adapt to the climate change which is already occurring and will continue for decades due to GHG emissions already released.

Modelling undertaken by the International Institute for Labour Studies (IILS) supports the conclusion that much higher concentrations of GHGs in the atmosphere will entail considerable costs in terms of output and aggregate productivity levels. In particular, the IILS Global Economic Linkages model, which simulates behavior by enterprises, suggests that productivity levels in 2030 would be 2.4 percent lower than in 2010 and 7.2 percent lower by 2050 in a BAU case.

The negative effect is related to the impact of extreme weather conditions on agriculture and infrastructure, to scarcity of fresh water resources and to issues related to human health.

Besides directly lowering output, this distortion also lowers the productivity of capital and labor. If the model were adjusted to include the cost to individual well-being, the cost of inaction would rise further. Unmitigated climate change could lead to a permanent loss of global consumption per capita of 14 percent by 2050. Living standards would be significantly affected as a result.

These estimates are in line with a number of studies assessing the economic damage resulting from climate change. Lord Stern, the former chief economist of the World Bank, estimated the permanent loss of global economic output at 0-3 percent for warming of 2 C to 3 C and 5-10 percent for 5 C to 6C (the current BAU scenario). Global consumption would be reduced by between 5 percent and 20 percent over the next 200 years.

According to Nordhaus, economic damage from climate change would increase to 3 percent of global output by 2100 and close to 8 percent by 2200 on current emission trends. Average annual damage from 2000 to 2200 would amount to $26 trillion.

In addition to the economic costs of policy inaction, there will be other effects on social well-being, such as rising health costs. For example, findings from the UNFCCC show that global warming — through its impact on disease vectors — could expose an additional 400 million people to the risk of malaria before the end of the 21st century.

Already, there is growing evidence of the dramatic effects that severe weather that may be linked to global warming can have on economies and societies. As climate change continues to alter weather patterns, unpredictable weather conditions remain the most significant factor causing volatility in the price of agricultural products. High prices for maize and soybean following drought in the United States in 2012 illustrate the nature and the scale of the problem.

The number of people suffering from malnutrition and hunger stands at 805 million worldwide, of whom 791 million are in developing countries. The food price increases in 2008 pushed more than 105 million people into poverty and triggered food riots in a number of countries.

There are also direct losses of jobs and incomes. For example, as a result of Hurricane Katrina in the United States in 2005, New Orleans lost some 40,000 jobs; the hardest hit were women, mostly African American. Cyclone Sidr in 2007 disrupted several hundred thousand small businesses and adversely affected 567,000 jobs in Bangladesh; the estimated value of non-agricultural private assets fell by some $25 million.

In both cases, poorer households were more exposed because they live in more vulnerable areas and have fewer resources to enhance resilience to climate change.

Climate change is likely to have a particularly marked effect in magnifying existing patterns of gender disadvantage. Worldwide, women have less access than men to financial, institutional and other resources that would enhance their capacity to adapt to climate change, including access to land, credit, agricultural inputs, decision-making bodies, technology and training services.

In many countries, droughts, floods and deforestation increase the burden of unpaid work on girls and women, leaving them less time for education or earning an income. The situation is even worse for women attempting to recover from environmental disasters.

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