So just how hard will climate change hit the American economy?
A big step toward answering that question happened Tuesday, with the release of “Risky Business.” Put together by a research team headed up by the likes of former Treasury Secretary Henry Paulson, former New York City Mayor Michael Bloomberg, and billionaire environmental activist Tom Steyer, “Risky Business” is a sweeping analysis of climate change’s economic impacts on the United States, broken down by region and sector. The report came with some dramatic numbers, including hundreds of billions of dollars in possible coastal damage, looming drops of 50 percent or more to crop production, and a quadrupling of extreme heat days by the end of the century.
A prospectus was also released, digging into the report’s methodology in much greater detail. It built the overall model of economic damage by looking at six major categories: coastal damage, agriculture, labor productivity, increased deaths, crime, and energy costs. The study also looked at multiple paths climate change could take as laid out by the Intergovernmental Panel on Climate Change. Called “Representative Concentration Pathways” (RCPs) they run the gamut from business-as-usual carbon emissions (RCP 8.5) to moderate cuts to carbon emissions (RCP 4.5) to really steep reductions (RCP 2.6). Basically the more the less carbon emitted, the lower the number. The differences in economic damage between the paths are all significant, particularly by 2100 — which shows that even if we fail to keep global warming below 2°C there’s still a lot of damage we can avoid.
Here are the best charts from the “Risky Business’ prospectus that show all the different body blows climate change will likely deliver to the U.S. economy:
As climate change increases drought and heat waves and shifts precipitation patterns, it threatens to upend agricultural production in much of the country. According to the study, “likely” outcomes — which it defines as a two-thirds chance — go as high as 40 percent drops in crop production under business-as-usual by 2100. The kind of crop failures we currently see only once every 20 years would start occurring more than once every two years by the end of the century.
Significantly, the poorest ten percent of the nation’s counties would be hit much harder than the other 90 percent — by mid-century alone, likely costs in the poorest counties go as high as $900 per person each year.
Increased heat puts more demand on the electrical grid to keep buildings cool, so global warming will tend to drive up energy costs. With the exceptions of the Northeast and Northwest, those hikes would occur across the country, driving the likely national increase in energy expenditures as high as 25 percent by 2100. The likely per person costs of increased strain on the energy system could go as high as $287 each year — and could go over twice as high for poorest 10 percent of counties.
By increasing heat waves and humidity, which increase risk of exhaustion, heat stroke, and even death, climate change threatens to cut down significantly on the amount of productive work Americans can do outdoors. By 2100 under business-as-usual, the study projects likely losses to labor productivity of more than two percent (the colored rectangles) and one-chance-in-twenty losses of over three percent (the T-shaped bars). For comparison, the economic crisis in Greece since the 2008 recession involved a labor productivity drop of less than one percent.
The average annual costs of declining labor productivity could reach $504 per person. And as with agriculture, the poorest 10 percent of counties see the worst hits, while the hardest-hit states are in the Southeast and the Great Plains.
“A growing body of rigorous quantitative research across multiple disciplines has found that weather, and in particular temperature, affects the incidence of most types of violent and non-violent crime in American cities and rural areas alike” according to the study. The effect gets pronounced at days over 95°F — the frequency of which is likely to increase by as much as four times by the end of the century. Overall, crime is one of the lesser impacts, with likely per person costs only rising as high as $35 by 2100. And the increases in crime tend to be peppered across the entire country. But it’s an example of the subtle ways climate change’s effects can ripple through literally every conceivable aspect of human society.
To put it bluntly, heat waves kill. Citing the study’s data, Dr. Alfred Sommer, Dean Emeritus and Professor of Epidemiology and International Health at John Hopkins, said, “There will be 10 to 20 times as many incremental deaths because of excess heat and humidity 100 years from now.” In pure economic terms, never mind the emotional and moral toll, the likely costs of those deaths could reach as high as $710 per person each year by the close of the century — or $1,736 according to the VSL methodology. The states in the southeast corner of the country suffer the worst.
Rising seas threaten to inundate developed areas along the coast while making flooding from storms more likely, and increased heat content in the oceans from global warming will make storms stronger as well. As a result, climate change threatens major economic damage to coastal areas around the world. Here in America, that mainly means the states in the Southeast and the Northeast. Thanks to the concentrated nature of the damage, the likely average per person costs of flooding and storm damage nationally will only go as high as $138 each year by 2100. But costs for those specific coastal areas will likely be many hundreds of dollars higher.
Ultimately, combining the costs of coastal damage, lost agriculture, lost labor, higher mortality, more crime, and higher energy prices is complex. The “Risky Business” team ran several models using both direct costs and a more complex macroeconomic approach (which lowered the projected damage). They also used two different measures of mortality: “market” costs and “value of a statistical life” (VSL) costs. The first simply tallies up the wealth production the economy loses whenever someone dies prematurely, while the second judges how people actually value life by how much their willing to spend to mitigate the risk of death in other circumstances. Each approach has its strength and weaknesses, so the differences mainly amount to a “conceptual exercise” in the study’s words.
However, relying on the direct costs model and the VSL value of mortality yielded a total likely hit to the economy of something between 1.5 to 5.9 percent by 2100 — but with a one-in-twenty chance that damage could reach nearly 10 percent.
Another thing worth noting: two important concepts in the analysis are “risk aversion” and “inequality aversion.” What matters in risk management is not just the possible future costs of a risk, but how much you’re willing to pay to avoid those costs, which adds to the total future costs in weighing whether alternative sacrifices in the here-and-now are worth.
“Risk aversion” and “inequality aversion” refer to the added amounts we’re willing to pay to avoid general risk and the risk of economically unjust outcomes, respectively.
Using standard methodologies, the study concluded that combining risk and inequality aversion could add significantly to calculations of climate change’s damage to the economy. Combing the two added roughly 25 percent to the costs of the agricultural impacts at mid-range aversion, and 42 percent at the high-range. For the costs of increased deaths, those two aversions added around 100 percent at the mid-range and 200 percent at the high-range.
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The Risky Business analysis admittedly leaves out a good deal. Future technological innovations and adaptations that could reduce the damage are inherently hard-to-impossible to anticipate, for instance. The “Risky Business” team attempted a few limited thought experiments to account for that, though they only modestly reduced the economic damage projected in the models.
The modeling also doesn’t include future economic damage from water scarcity, hits to labor productivity from increased disease, aggravations of international instability, or the impacts of ocean acidification on marine food supplies and industry — just to name a few caveats. The ways that different impacts can interact and strengthen one another also couldn’t be included in the modeling. And finally, there’s just the fact that GDP is an inherently poor measure of what we’re really interested in when it comes to the welfare of any society in concrete human terms.
“For a parent,” the study notes, in a moment of massive understatement, “the welfare impact of losing a child to heat-related mortality is much greater than the net present value of that child’s expected future earnings.”
Tom Steyer is a member of the Board of Directors at the Center for American Progress.