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Global warming costs the economy

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Up in smoke: limiting carbon emissions would have "hardly any effect on economic growth, and might actually lead to faster growth" say some economists (Source: rai36de/iStockphoto)

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Global warming costs the economy

Tuesday 14th October 2014 2:24 pm

Welcome back to the final episode of my epic series on the so-called ‘pause’ in global warming.

Global warming poses some of the most complex risk management issues known to the human race.

Of course, when you think of ‘risk management’, you automatically think of insurance companies.

Insurance companies are one of the biggest of big businesses on the planet. They account for about 7 per cent of the global economy. But if insurance companies want to stay in business, they have to deal with reality. They long ago accepted the science of global warming.

In 1973 — over 40 years ago — Munich Re, one the biggest insurance companies in the world, began to see the results of global warming on its policy payouts.

Worldwide, insurance companies annually pay out about $50 billion for weather-related catastrophes. These payouts have doubled each decade since the 1980s. The insurance companies are very confident that this increase is due to global warming. Lloyds of London have publicly stated that they: “view climate change as the industry’s number-one issue.”

So what should we do? Have we ever successfully dealt with something as big and bad as this before? Yes. Let me give you three examples.

First, DDT. DDT was a great insecticide, and temporarily increased agricultural yields. But later, we discovered DDT damaged the egg shells of birds – even in penguin eggs in Antarctica, where no DDT was ever sprayed.

Second, acid rain. Coal has various contaminants, including sulphur. Burning coal produced rain containing sulphuric acid. In 1979, a very hard rain fell on Wheeling, West Virginia. It had a pH of 1.5 — more powerful than the acid in your stomach, and only a little weaker than car battery acid.

Third, ozone hole. Around 1930, Thomas F Midgley Jr invented the perfect refrigeration gas. His CFC was non-corrosive, non-toxic and non-inflammable. But it took until the 1970s to realise that CFCs were punching a hole in the protective ozone layer.

In each case, big business accidentally created a near-disaster, and in each of these cases (DDT, acid rain and ozone hole), governments stepped in and prevented it from happening.

With global warming, big business unknowingly created a big problem. This time, governments are not rushing to fix this.

Why? There are various reasons.

First, over the centuries, vast investments have been made in burning carbon fossil fuels — and enormous profits have been made. Companies don’t want to lose these colossal profits.

Second, ‘carbon entanglement’. All governments have financial interests in bringing carbon fossil fuels to market, and taking their share of the income stream. This usually makes up only a few per cent of total government revenues. But for some countries — such as Russia, Mexico and Norway — bringing carbon fossil fuels to market accounts for about one third of their revenues. In the case of the OPEC (that’s the Organisation of Petroleum Exporting Countries), fossil fuels provide the majority of government revenue.

Energy-related emissions make up the bulk of our carbon dioxide emissions, and luckily, they are the easiest to completely eliminate with existing technologies. Two thirds of current electricity generation depends on burning carbon fossil fuels. Some 95 per cent of the world’s transport systems still rely on burning fossil carbon fuels.

It turns out that going to a non-carbon economy would actually be cheaper than burning carbon. This is because of the combination of the plummeting price of renewable energy, and the so-called ‘hidden externalities’ of burning carbon.

Consider just one hidden externality: air pollution. It kills about seven to eight million people worldwide each year. The health costs of air pollution amount to some 4 per cent of the GDP of most countries, and 10 per cent of China’s GDP. Do fossil fuel companies pay for these costs? No.

Consider another hidden externality: subsidies. Fossil fuel companies get about $0.6 trillion each year in subsidies — about 1 per cent of the total global economy. Why?

Paul Krugman, the 2008 winner of the Nobel Memorial Prize in Economic Sciences analysed two reports. One was by the blue-ribbon international group, the New Climate Economy Project, while the other was by the International Monetary Fund. These serious and thorough analyses found that limiting carbon emissions would have, according to Krugman: “hardly any effect on economic growth, and might actually lead to faster growth”.

Whatever mix of government policies that will arise around the world, there has to be one consistent factor — the complete elimination of any emissions from the burning of carbon. Instead of annually dumping 30 billion tonnes of carbon dioxide into the atmosphere, we should dump zero.

But we have a very brief window of time. We have to begin to acknowledge and deal with the risks associated with global warming now. Otherwise we will end up powerless observers, with the ability to limit future harm having slipped from our hands.

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