"The One Metric That’s Hiding The True Cost Of Climate Change"
When it comes to obstacles to climate action, the climate change deniers in American government are pretty well known. But there’s also a subgroup of “reasonable” critics who concede the science of climate change, then deny that anything particularly dramatic needs to be done about it policy-wise.
Their argument revolves around something economists call GDP, and they use to wriggle out of supporting major climate action by effectively saying, “Yeah, even if climate change is real, it’s not going to be a big deal.”
For the uninitiated, “gross domestic product” (GDP) is the total value, in dollars, of all the goods and services produced by the American economy — or whatever economy is being measured — in a given year. It’s become the go-to metric of our society’s material standard of living and even its general well-being. The U.N.’s Intergovernmental Panel on Climate Change (IPCC) generally projects that losses to global GDP from climate change will be between one and five percent per year by century’s end, assuming the planet warms 4°C in that time. (We could hit 6°C or more assuming the world makes no major changes.) One to five percent is a seemingly small number. So the “reasonable” skeptics then argue an all-hands-on-deck effort to cut greenhouse gas emissions is unnecessary, and that it would likely reduce GDP even more than doing nothing.
But to hear Kate Gordon tell it, this is a terrible way to frame the debate.
Gordon is the Vice President at Next Generation, the nonprofit founded by hedge fund manager turned environmental activist Tom Steyer. When Steyer and several heavy-hitters in the economics world decided to spearhead a study of climate change’s coming impact on the U.S. economy — down to the effects by county — they brought Gordon on as executive director, running the nuts and bolts of the project.
“I hate talking about GDP, frankly,” Gordon said. “Business decision-makers and people who work in individual sectors don’t think about GDP. It’s not their metric. They think about their own supply chain, their own business, their own decision making. They think very regionally because they are in particular places, and they think about very specific impacts.”
The same goes for most lawmakers at the state and national level. In Gordon’s experience, no one who works outside the realm of macro-economic planning at the national policy level talks about GDP.
“It masks everything,” she said.
Modeling Complex Systems Is Really Hard
Start with the practical difficulties: we’ve been tallying up GDP for most of this century, but projecting climate change’s impact on the economy is a whole other ballgame. On their own, the climate and the economy are enormously complex systems for computer models to even crudely replicate. Accounting for the effects of the first system on the second simply compounds the problem. So complexities, hidden factors, and feedback loops that could have profound ripple effects are all simplified away, because we just don’t have the information to know how to appropriately model those changes.
“Risky Business,” the report Gordon headed up, dealt with this problem by going deep rather than broad. They focused on three sectors of the economy where lots of data is available on how past changes in climate and weather affected productivity and behavior: energy, agriculture, and coastal infrastructure. Using forty climate models, they projected how global warming would affect those sectors going forward, and teased out the resulting impacts on labor productivity, mortality, and crime.
What affect climate change would have on water scarcity — and how that would in turn impact the economy — wasn’t included because there wasn’t sufficient data available at the time. Increased wildfire risks, and the way rising heat makes air pollution more toxic weren’t included because of the complexities involved.
CREDIT: Potsdam Institute for Climate Impact Research
Those choices are representative of the choices any attempt to model the economic impacts of climate change has to make. “We took a really conservative approach to the data,” Gordon said.
Yet even with those simplifications, the potential hits “Risky Business” found to national GDP varied widely, from a two-thirds chance GDP would drop one to five percent, to a one-in-twenty chance it would drop ten percent. The variations depended on how the model was designed and how much a human life is valued in dollar terms, serving as a concrete lesson on how difficult it is to actually project climate change’s affect on GDP.
Other models can also descend into ad absurdum results pretty quickly. For example, most scientists agree an 18°C rise in global temperatures would literally render the Earth uninhabitable. But the standard computer model used by the IPCC projects that rise would only cut global GDP by half.
Lord Nicholas Stern, a climate change economist, put together a previous report for the British government that estimated global GDP reductions between five and twenty percent if business-as-usual carbon emissions continue worldwide. And more recent work by Stern and others to create more sophisticated versions of the IPCC model yield GDP projections that are two-thirds lower under that scenario.
CREDIT: Simon Dietz & Nicholas Stern, Working Paper No. 180 – June 2014
The point isn’t so much that one approach is better than the other. It’s that GDP projections are flung all over the map even by small changes to the input information or underlying assumptions of the models. It’s just an inherently bad metric for understanding the damage climate change will do.
How Do You Put A Price Tag On Africa?
Another problem with measuring climate change with one single GDP number is that it requires ignoring vast differences between states, regions, communities, and socio-economic strata. That can hide tremendous amounts of real human suffering that’s hard to put a price tag on. “You have to aggregate all of the impacts up to one number,” Gordon said. “Which is insane.”
She offered agriculture as an example: “We have a gigantic country with extremely different climate zones. If you want to move little corn symbols around on a map from place to place, you can move them all up north and then they’re still there,” Gordon said. “So that’s not that big a hit to GDP overall. But it’s a huge hit to the Southern Midwest and the Southeast.”
Another example of the inherent perversities in using GDP is Hurricane Katrina: that catastrophic event was ultimately a net positive for national GDP, even as it was a negative for Louisiana’s state GDP, because of all the construction jobs created and the materials bought during the reconstruction of New Orleans. Yet Katrina also killed thousands, and nearly obliterated the social fabric of an entire city, with all its accompanying history and culture. Similarly, moving all of those crop symbols up north could be a net positive for GDP, but would also entail uprooting or even completely destroying communities and ways of life that have existed throughout the Midwest and Southeast for generations. How all that should be valued, and how much we should sacrifice as a society to avoid it, is a question GDP calculations cannot even begin to answer.
Or consider issues like ecosystem services and ocean acidification. The former encompasses all the functions the natural world performs that are of value to human society — such as crop production, the way coastal marshlands can blunt storms, and the ability of plant life to prevent soil erosion. The latter is the way carbon dioxide is absorbed out of the atmosphere and into the oceans, changing the chemical makeup of the water.
The science of how to measure and objectively value ecosystem services is still in its infancy, and as Gordon pointed out, we don’t really know how to model the economic effects of ocean acidification because we’ve never seen it happen before. But ocean acidification and the changes to ecosystem services could vastly reshape Earth as we know it. The IPCC’s own model hints that anywhere from 40 to 70 percent of Earth’s species could go extinct if greenhouse gas emissions stay on their current trajectory.
So what value do we place on the ocean’s coral reefs and the myriad animals they support, and how do we weigh their loss against other values? What price tag do you put on a species of bird or fish or mammal which, once gone, will never return? How does humanity weigh moral accountability if our own carbon emissions contributed to that destruction?
The point can be summed up with a simple example: the continent of Africa has amounted to something around three to five percent of global GDP for the last two centuries. In other words, losing one to five percent of GDP is arguably the equivalent of the entire African economy simply disappearing from the planet. That’s 1.1 billion people, many exceedingly vulnerable to the worst impacts of climate change. Does it make any moral sense to say the IPCC’s projections don’t justify dramatic action, simply because the GDP percentage is small?
Trevor Houser, one of Gordon’s colleagues, sometimes asks, “Would you rather have a one percent tax increase on everyone in the country or kill one percent of the population? Because it’s about the same impact [on GDP].”
Think Of It Like Insurance
To their credit, most actual economists realize GDP was never meant to measure something as sweeping as the well-being of a society. It’s politicians and the figures and writers encased in the macroeconomic debate in Washington, DC that have focused on it to the exclusion of all else. Gordon argues against using GDP at all, and concentrating instead on the risks of what climate change could actually do to people and communities.
On the question of how much we should spend to ward off climate change, Gordon uses the common experience of buying insurance as an analogy. When buying a health care plan, everyone instinctively considers factors like their own risky behaviors (like smoking), their own family history (say, heart disease), their future economic prospects and their future lifestyle, among other things.
“People make adaptation and mitigation decisions in their own lives, and then buy insurance because of things that are a probability but not a certainty,” Gordon continued. “But you wouldn’t just say, ‘I don’t believe that there’s any impact there. I don’t believe those numbers are true so I’m not going to buy insurance.’ Unless you’re a very high risk person.”
She recommends going granular: giving different businesses owners, different industrial sectors, different voter constituencies, and different politicians from different congressional districts the information on how climate change could impact them and the people their responsible for. That makes the risks personal and concrete. People can imagine how their own home, businesses, or community might change, and everyone can deal honestly with who faces what risk. If you’re a property developer in Miami, for instance, the threat climate change and rising seas pose to the city probably won’t matter to your economic calculations, because you’ll likely get the money you sunk into the development back in five years or so. But if you’re an insurer in the city, or the government backing that insurance, or you’re a bond rater underwriting long-term investments in new bridges, roads, or sewer systems, then climate change starts to loom very large indeed.
CREDIT: “Risky Business” prospectus
Another thing that is standard practice in risk management techniques is breaking down the odds of a particular event. When deciding how much to pay to avoid a risk, you don’t just factor in the likelihood. You factor in the damage that would come if the risk panned out. So even if a particular result of climate change has a low probability of occurring, it could also inflict massive damage if it does occur. In which case, you’d be justified in spending the same amount of money to avoid it as if you were anticipating a low-damage risk with a high probability of occurring. At Washington, DC’s roll-out conference for the “Risky Business” report, one of Gordon’s colleagues compared climate risk to national security risk; he took former Vice President Dick Cheney’s famous quip that “if there was even a one percent chance of terrorists getting a weapon of mass destruction … the United States must now act as if it were a certainty,” and replaced “terrorists getting a weapon of mass destruction” with “extreme climate change impacts.”
So the report also broke risks into a “likely” category — meaning a spread of outcomes that all had a roughly 67 percent chance of occurring — versus events that fell into the one-chance-in-twenty category. (To return to the health insurance analogy: one-in-twenty is the risk the average American faces of developing colon cancer.)
Within the “likely” category by 2100? A national shift from about seven days every year getting over 95°F, to an average of 50 days a year. The eastern half of the country is also likely to see a few days each year where both heat and humidity are so high people cannot sweat to stay cool, so remaining outside risks their health or even their lives. Thanks to the heat, there’s also a potential drop of two percent for the nation’s labor productivity, and a one-in-twenty chance of a three percent drop — “like losing all of Connecticut’s labor force.”
“But it’s also preventable,” Gordon added. “Unlike some of the sea level rise that’s already baked in, we can actually bring some of those numbers down on heat. If we act. If we cut back emissions now.”
That’s especially important for climate change, which is different than many other problems risk management assesses. Those other risks can go up and down over time due to political factors, security factors, etc. But because the risks of climate change are driven by the accumulation of greenhouse gases in the atmosphere, the risks just keep ratcheting up the more we release. “What are today outlier risks become the median over time,” Gordon said. “So we have to plan for that.”
So talking about climate change as a matter of specific risks, rather than as a matter of GDP or of carbon taxes or who’s to blame for the problem, is the strategy Gordon goes with: “I’ve already gotten traction with that with audiences that do not want to have a conversation necessarily about who caused climate change. If you begin there you’d have a big climate denial conversation.”
“It’s a very different place to start,” she said.