Economic activity is that activity which is related to the use of scarce resources for the satisfaction of human wants. It may or may not generate income. On the other hand, climate change indicates the environmental conditions of the earth.
Climate change is one of the greatest threats to economic stability. Nicholas Stern, World Bank’s former chief economist, confirmed that greenhouse gas emissions is the biggest mistake that the world market has ever seen. He argues that we need to invest the equivalent of 2% of global Gross Domestic Product to mitigate the impact of climate change.
There is a warning from the World Bank that if we don’t do something immediately, climate change could push 100 million more people into poverty by 2030.
Heat waves make us less able to work and decline our efficiency or productivity level. Natural calamities such as hurricanes, typhoons, and cyclones devastate millions of people thereby leaving them in abject poverty after mercilessly sweeping away their communities.
Droughts shrink harvests and reduce agricultural productivity, further making difficulties in the laborious task of feeding the world population which is expected to reach 10 billion by 2050.
Agricultural yields are very sensitive to weather conditions and as our climate becomes even more extreme, more frequent droughts may decline crop productivity in areas where food production is of great significance.
Drought has a capacity to make water high-priced thereby affecting the production and raw material cost. To reduce the impact of different calamities, natural as well as man-made, it is important to integrate climate change into macroeconomics.
American Economist William Nordhaus along with Paul Romer received Nobel prize in Economics in 2018 for integrating climate change into long-term macroeconomic analysis. Nordhaus was the first economist to develop a quantitative model that reproduces the interaction between economic development and climate change on a global front.
According to him, the solution to climate change is to apply prices that will act as a deterrent to using fossil fuels, because the current price is too low and does not foster the search for alternatives like renewable energies.
The annual flow of carbon dioxide and other greenhouse gases that warm the earth’s atmosphere has increased ever since coal, then oil and gas too, began to fuel the industrial revolution that has brought great opportunities and better lives to many.
Atmospheric greenhouse gas levels have already reached the equivalent of around 430 ppm (parts per million) of CO2 compared with 280 ppm before the industrial revolution. Human activities are pushing the accumulated stock of gases higher by 2-3 ppm every year.
Industrial activity according to the United Nations Statistics 2013 is also on the increase especially with positive growth in the economies of many emerging and other developing countries especially in the South East Asia Pacific and Sub-Saharan African regions.
Associated with industrial activity and growth, the global economy could lose 10% of its total economic value by 2050 due to climate change. The impact of climate change has been predicted to be the toughest hit for Asian economies, with a 5.5% hit to GDP in the best-case situation and 26.5 % hit in severe situations.
The impact of climate change across the globe will act as a stumbling block to the bottom line of trade and commerce in many ways. Both intensity as well as frequency of extreme weather conditions can destroy industries, value-added processes, supply chain processes and other infrastructure.
Climate instability may force businesses to tackle uncertain situations in the price of resources for output, insurance, and energy transport. Accordingly, we may see some goods turning out-dated or losing their market.
The overall aggregate effect of climate change on economic growth will most likely be negative in the long-run. Global warming will primarily influence economic growth through damage to property and infrastructure, lost yield or output, security risk and mass migration.
Inflation is likely to increase as climate changes take place in general and global warming takes place in particular. In addition, COVID-19 pandemic may further badly affect our livelihood securities and resources already affected by climate change, necessitating instant efforts on the part of both government and non-government organisations to escape disastrous threats to human health.
Dr. Binish Qadri, Assistant Professor, Department of Economics, Cluster University, Srinagar .
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.