19/08/2018

Most Economic Forecasts Have A Big Blind Spot: Climate Change

CNN - Lydia DePillis

Heat waves that ground airplanes. Rising seas that drown waterfronts. Wildfires that consume whole cities and blanket the West Coast in smoke.



Climate change is having a real impact, not just on the environment but on the economy too. And a growing body of research by economists and climate scientists shows that extreme weather will weigh on economic growth even more so in the future. But almost no mainstream economic forecasting model takes that into account, in an omission that some economists say could affect the accuracy of economic predictions going forward.
The most recent study to quantify the economic impact of the carbon emissions that spur climate change was featured last week in a brief by the Federal Reserve Bank of Richmond. By evaluating the performance of state economies in previous years, the report found that every one degree increase in average summer temperatures decreases annual state-level output growth by between 0.15 and 0.25 percentage points.
That snowballs over time. If meaningful action isn't taken to curb emissions, US economic growth will be a third lower than it would otherwise have been by the end of this century — or sooner, if warming accelerates even faster than scientists currently anticipate. Theoretically, that means Americans will be poorer and have lower living standards as a result (on top of the the general disruptions to daily life caused by extreme weather events).
The long-term nature of those effects is why most Wall Street analysts don't obsess about climate change like they do about the impact of tax cuts or tariffs, which have relatively large short-term effects that dissipate over time.
"Most of those studies look at growth 50 years forward or even longer," says Michael Feroli, US chief economist at JPMorgan, referring to climate change research. "Our current forecast extends to the end of 2019."
However, some closely watched forecasts do extend longer. The Congressional Budget Office, for example, makes projections out at least a decade. Over that time frame, the impact of climate on growth could be significant.
"Through the beauty — or here, ugliness — of compound interest rates, even a tiny hit to growth rates can have huge economic consequences down the line," says Gernot Wagner, an energy economist who holds several posts at Harvard University. "And, sadly, the more we learn, the more it seems that climate damages do indeed effect productivity and, thus, economic growth rates."
The director of the CBO, Keith Hall, said at a Senate Budget Committee hearing last year that while they do take climate forecasts into account when evaluating federal expenditures like the National Flood Insurance Program, the agency thinks the overall economic effects of climate change would not be significant within their ten year forecast window. Also, the CBO's 2016 long-term outlook posits that the effects are still highly uncertain, and may even be positive in some parts of the country.
The Federal Open Market Committee, which sets the federal funds rate, officially projects out about 5 years. But Fed officials often speak about longer run growth prospects, and also have to forecast around nearer-term climate-related shocks. Earlier this year, when Senator Brian Schatz pressed him on the enormous costs imposed by hurricanes and wildfires in 2017, Fed Chairman Jay Powell responded that climate change didn't factor in to their calculations for either.
"Climate change is something that is entrusted to other agencies," Powell said during the Senate monetary policy hearing. "We have particular responsibilities, particular tools, interest rates, supervision, looking out for the financial system; it's just not clear that it's really in our ambit."
Recent research has found that climate change impacts the economy through many channels. There's the obvious effect on agriculture, as farmers scramble to keep up with changing threats from insects, diseases, early springs and drought. But rising temperatures also depress labor productivity, since manufacturing and construction workers can't get as much done in the extreme heat. Retail also takes a hit, since consumers are less willing to shop as the mercury rises.
In some ways, the impact of climate change on the US economy is similar to the effect of America's aging population, which is also expected to drag down growth over the long term — a better-understood phenomenon that the Fed and the CBO do incorporate into their long-run forecasts.
The missed connection is frustrating to Susan Joy Hassol, director of a nonprofit called Climate Communication that seeks to further public awareness of global warming. She thinks it's partially due to the fact that economists and scientists often operate in different academic silos, which kept climate change economics a niche field until recently.
But climate advocates have also historically focused on how climate change affects the natural world — think polar bears — rather than people's pocketbooks. Instead, conservatives have dominated the economic argument by saying that drastic measures to curb warming, such as imposing a tax on carbon emissions, would be more expensive than dealing with any potential effects down the line.
And that, Hassol says, is just not true.
"Every analysis that's been done of this shows that action is far cheaper than inaction, and there's a global clean energy race that we are currently losing, and that's bad for our economy," Hassol says. "We've got to break this out of the environmental and science box, because I think it's first and foremost an economic story."
The Obama administration had made strides in connecting climate to the economy, issuing a number of reports and also refining a metric called the "social cost of carbon," which was used in tallying the costs and benefits of proposed regulations. The Government Accountability Office, which answers to Congress, continues to warn about the risk climate change poses to federal revenues.
But climate work has mostly ceased under the Trump administration, which last year disbanded a group that calculated the social cost of carbon, and archived the Environmental Protection Agency's web page on the subject.
Nevertheless, research on the connection between climate and the economy is advancing in a surprising place: The private sector. Insurance companies, for example, increasingly integrate climate projections into their coverage offerings. Hundreds of large global companies have signed on to an effort to incorporate climate exposure into financial disclosures.
Ratings agencies, such as Standard & Poors, take climate change into account when evaluating credit risk. Academic and government economists, meanwhile, have started using financial data to evaluate the impact of climate change on asset valuations.
"I think what was missing until a few years ago was some more convincing evidence that climate change could in the short term and the long term have big effects on the economy," says University of North Carolina economics professor Riccardo Colacito, who co-authored the Richmond Fed paper. "That creates a very large incentive for financial economists who don't have a background in climate science to start filling in that missing background."
Colacito traces a burst of interest in climate change impacts to 2014, when former Federal Reserve chair Janet Yellen attributed a spate of poor quarters to an unusually harsh winter — which scientists have said will also become more common in the coming years.
If weather can lead the Fed to revise economic growth estimates in the past, it may take a closer look at what a changing climate will mean going forward.

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Capitalism Can Crack Climate Change. But Only If It Takes Risks

The Guardian - *

 Anglo-Saxon capitalism’s drive to maximise profits in the short term won’t save the planet. Perhaps the Chinese model can?
‘China is committed to phasing out coal.’ Photograph: Feature China/Barcroft Images 

This summer’s heatwave has provided a glimpse of the future, and it is not a pretty one. On current trends, the years to come will see rising temperatures, droughts, a fight to feed a growing population, and a race against time to reduce dependency on fossil fuels.
The struggle to combat climate change brings out the best and worst of capitalism. Decarbonisation of the economy requires alternatives for coal and cars that run on diesel, and that plays to capitalism’s strengths. Innovation is what capitalism is all about, and there has been staggeringly rapid progress in developing clean alternatives to coal, oil and gas. The cost of producing solar- and wind-powered electricity has collapsed. Great advances are also being made in battery technology, which is vital for the new generation of electricity-powered vehicles. Humans are endlessly creative. In the end, they will crack climate change.
But by the time they do, it could be too late. Capitalism – especially the dominant Anglo-Saxon variant of capitalism – has trouble thinking beyond the here and now. People running big corporations see their job as maximising profits in the short term, even if that means causing irreparable damage to the world’s ecosystem. What’s more, they think they should be free to get on with maximising profits without any interference from politicians, even though the fight against climate change can only be won if governments show leadership, individually and collectively.
The economist Joseph Schumpeter talked about the process known as “creative destruction” – the way in which inefficient producers are put out of business by disruptive new technologies and that, as a result, transformation happens. During wars, the best brains are employed by governments to produce more efficient killing machines.
But normally creative destruction takes time, especially if the old guard can marshall sufficient resistance to change – something the fossil fuel industry has been adept at doing. It is vital that capitalism’s Dr Jekyll emerges victorious over its Mr Hyde. More than that, it needs to be an immediate knockout blow.
In the past, politicians have only tended to focus on climate change when they think there is nothing else to worry about. Tony Blair, for example, commissioned a report from the economist Nick Stern into climate change during the years before the global financial crisis, when growth was strong and wages were rising. Margaret Thatcher only started to talk publicly about protecting the environment when the economy was booming at the end of the 1980s.
When policymakers have other things to worry about, tackling climate change drops down the list of things to do. The Paris agreement in 2015, which committed the international community to restricting global warming to well below two degrees centigrade, shows that the issue is taken more seriously than it was two or three decades ago, but that doesn’t mean that it is a top priority.
When times are tough, politicians are suckers for the argument that there is a trade-off between growth and greening the economy. There isn’t. Companies account for capital depreciation when they draw up their profit and loss accounts. If governments adopted the same principle and accounted for the depletion of natural capital when drawing up their national accounts, growth would be lower. In countries such as China and India – where the cities are dangerously polluted – it would be markedly lower.
The good news is that in Beijing and New Delhi, policymakers have woken up to the idea that green growth is better growth. China is committed to phasing out coal, in part because it is worried about climate change and in part because it sees an opportunity to be a world leader in green technology. India, although slower to act, is also starting to take advantage of collapsing prices for electricity generated by solar and wind, and has set itself demanding renewables targets.
But the bad news is that progress towards decarbonisation is still not fast enough. As things stand, fossil fuels will still account for more than 50% of energy consumption by 2050. CO2 emissions will carry on rising and global warming will continue.
Stern says technological progress has been much faster than he thought possible when his report was published in 2006, and he thinks it is quite something that all the major car-makers now accept that the era of the internal combustion engine is coming to an end.
“But the speed of action is still far too slow,” Stern warns. “Emissions have to be peaking now and turn down very sharply. We have not yet acted on the scale needed, even though the ingredients are there.”
Winning the race against time requires political leadership. It means acknowledging that the Chinese model of managed and directed capitalism might be more appropriate than the Anglo-Saxon model. A massive scaling up of investment in clean technology is needed, because the $300bn spent on decarbonisation worldwide last year merely matched the cost of the losses in the US from climate and weather-related events. It also means scaling up the lending of the World Bank and the regional development banks to help poorer countries build wind and solar capacity. And a global carbon tax set high enough so that fossil fuels remain in the ground must be implemented.
And, more than anything, it means accepting that the world needs to wage war against climate change. Powerful vested interests will say there is plenty of time to act, and they are aided by climate-change deniers who say there is nothing to worry about. These people need to be called out. They are not deniers, they are climate-change appeasers. And they are just as dangerously misguided as fascism’s appeasers in the 1930s.

*Larry Elliott is The Guardian’s economics editor

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Hothouse Earth: Our Planet Has Been Here Before – Here’s What It Looked Like

The Conversation -  |  | 

Only you can prevent hothouse earths. Flickr, CC BY-SA
Even if carbon emissions are reduced to hold temperature rises at the 2°C guardrail of the Paris Agreement, changes already afoot in the environment such as melting permafrost and forest die-back could accelerate warming well into the future, potentially pushing our planet into what is being called a “Hothouse Earth” state.
The risk of a hothouse was raised by a recent study, though the authors stressed that it is not inevitable. But what is a Hothouse Earth state, and how will it feel for humans and the rest of nature?
The Earth has been in hothouse (often called “greenhouse”) states before, and there is not one kind of Hothouse Earth, but several. A little like Dante’s circles of Hell, they progress into ever-deeper states of heat and changes to the planet’s biosphere and climate. The end result is undoubtedly hellish, and even the early stages would be, for humans at least, decidedly uncomfortable.

Paradise lost
The first state last occurred 125,000 years ago, during the previous interglacial phase of the Ice Ages. Atmospheric carbon dioxide levels were like those of pre-industrial times, at about 280 parts per million (ppm), and global temperatures were generally similar to today. Early humans were present, but in small numbers with only local impact on Earth’s ecology. We might regard it as an Eden of pristine landscapes and ecosystems.
Cave paintings depict early humans in species-rich ecosystems. Yvon Frunea/Wikimedia Commons., CC BY-SA
During this interglacial phase, sea levels rose to some six metres above today’s as part of the Greenland and West Antarctic ice sheets melted, perhaps as changing ocean currents carried extra heat to the ice. It’s a reminder of how easily sea level can change. Then, animal (including human) and plant communities simply adapted by migrating with the shoreline. Modern civilisation, with its sprawling coastal megacities, would not adapt so easily.
We are already set for the next stage. By burning fossil fuels we have launched atmospheric carbon dioxide levels beyond 400ppm – that’s an extra trillion tons of carbon dioxide in the air. With this thicker thermal blanket, the Earth is absorbing more heat, with most of it going into the oceans. We are already noticing the effects, with extreme weather events rising and ecosystems such as coral reefs already suffering drastic change.

The world at 400ppm CO₂
The last time the Earth saw these kinds of carbon dioxide levels was 3m years ago, well before Homo sapiens appeared, in what is called the “Mid Piacenzian Warm Period” of the Pliocene Epoch. This was warm – but not yet truly hot. The Earth still had a lot of polar ice, especially over Antarctica, but ice on Greenland and West Antarctica was much less extensive, and sea levels were some ten metres or more higher. Global mean temperature was perhaps a couple of degrees warmer than at present, with more warming around the poles than at the equator. If carbon dioxide levels now hold steady, this is the kind of Earth we could be heading towards.
This period in Earth’s history was also Eden-like, with a diversity of life on land and at sea – but getting to that state may be traumatic for crowded humanity as the sea level keeps rising. A true Hothouse Earth emerged when carbon dioxide levels reached something like 800ppm – about double those of today. This was the world of the dinosaurs, 100m years ago. There was little or no ice on Earth and the polar regions had forests and dinosaurs which were adapted to living half the year in darkness.
Dinosaurs flourished in a hothouse world of swamps and rainforest - but they had millions of years to evolve alongside it. Shutterstock
The biosphere thrived, though equatorial regions tested the thermal limits of life. Much of the low-lying land had been claimed by the sea, which was now a worldwide warm bath in which animals steered a course to avoid the large, oxygen-depleted regions, a result of the sluggish ocean currents typical of an ice-free world. Even this type of Earth is not so unpleasant, though – once you’re there.
But it’s the transition that’s tricky. Some combination of unrestrained carbon emissions and the natural feedbacks of greenhouse gas released from melting permafrost and forest die-back might set us on such a trajectory in little more than a century. Humanity, in such a world, might crowd on to the remaining land and mourn its drowned cities.

Hell on Earth?
Hothouse Earths can also get hotter during “hyperthermal” events, typically triggered by sudden, massive carbon dioxide releases from extraordinary volcanic outbursts. The larger of these coincided with the times of the great dyings – mass extinction events like those at the end of the Permian Period 251m years ago, in which most life perished through extreme heat, suffocation or starvation. This is where true hell on Earth appears.
The ultimate Hothouse Earth has, thankfully, not yet been reached. If it had, we would not be here to discuss it. It is a runaway greenhouse world like that of our sister planet Venus – heated to the point where the oceans are boiled away, with water vapour streaming through a punctured stratosphere, leaving a furnace-like surface devoid of life.
The lifeless surface of Venus shows the consequences of a runaway greenhouse effect. NASA
It seems that even burning all of our hydrocarbon fuels will not yet invite such a state, which is some comfort. However, this is surely the eventual state that the Earth will reach in about one billion years, as the sun heats up. Fortunately, this is not our immediate problem.
Hothouse Earth is a journey with many stops and even the next few steps would be a bumpy ride for human civilisation. It’s the speed of the change that’s crucial. In a transition stretched out over millennia, humans could probably adapt to even a dinosaur-style hothouse. But if it’s going to come in centuries, or even in a human lifetime, there’ll be trouble ahead.

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