The Cost of Carbon: Fossil Fuels and their Legacy
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| The economic cost of carbon emissions has financial burdens on societies worldwide |
The Economic Cost of Carbon Emissions
Being one of the most pressing issues of our time, the economic cost of carbon emissions reflects the direct and indirect financial burdens imposed on societies worldwide. Its major costs directly come from damages to infrastructure, disruptions to industries, public health expenses, and climate change inaction, among other factors.
This sub-topic explores the multi-faceted economic costly impacts of carbon emissions, focusing on climate-related disasters, product and productivity losses, and the uneven burden on developing and developed countries.
Direct Costs: Climate-Related Disasters and Infrastructure Damage ($275 billion globally)
The economic costs associated with GHG emissions are clearly illustrated through various events created by hurricanes, floods, droughts, and wildfires, among other climate-related disasters. These environmental events are increasing in frequency and intensity, resulting from rising global temperatures aggravated by greenhouse gas emissions.
One of the primary impacts of extreme weather is the destruction of infrastructure, including roads, bridges, buildings, and utilities. For example, Hurricane Harvey in 2017 caused approximately $125 billion in damages, making it one of the most expensive hurricanes in US history (National Oceanic and Atmospheric Administration [NOAA], 2023). Additionally, rising sea levels pose significant financial risks to coastal cities such as Miami, Jakarta, and Venice, which are vulnerable to flooding and erosion.
In 2022 alone, climate-related disasters resulted in global economic losses totaling $275 billion, with uninsured losses accounting for a significant portion of this figure, particularly in developing nations that often lack robust insurance markets (Swiss Re Institute, 2022). The rising severe and frequent anthropogenic disasters also pressure the insurance industry, making insurers face higher claims. This situation makes premiums more expensive and only offers limited coverage for high-risk areas. It leaves communities in a more risky environment as they become more exposed and vulnerable to future climate-related catastrophes.
Indirect Costs: Productivity Losses and Economic Disruptions (80 million jobs)
Carbon emissions adversely affect all forms of productivity and economic stability across industries in all countries.
The shifting temperature and precipitation patterns can disrupt production in the agricultural sector, leading to lower yields and higher food prices. For example, Sub-Saharan Africa experienced prolonged droughts in the past few years, resulting in crop production failures, jeopardizing food security and livelihood in that region (World Bank, 2021). Another case is drought in the Midwest, the United States, in 2012, which cost $30 billion in agricultural product losses. These cases highlight and starkly teach us that ecosystems are very sensitive and vulnerable to any form of climate variability.
Rising temperatures and intense heat also risk labor productivity, affecting outdoor activities in the construction, agriculture, and transportation sectors. The International Labor Organization (ILO) estimated that the constantly rising heat could result in the loss of 80 million full-time jobs worldwide by 2030, equivalent to a 2.2% decrease in total working hours (ILO, 2019).
Furthermore, climate-related events can disrupt global supply chains, leading to delays and increasing business transaction costs. In 2011, devastating floods severely affected the electronics and automotive industries in Thailand, showing the negative impacts of climate change on modern economies and their interconnectedness.
Public Health Costs: A Hidden Economic Burden ($5 trillion globally)
The public health effects of carbon emissions result in substantial economic implications through direct healthcare costs and reduced productivity.
The combustion of fossil fuels releases harmful pollutants, such as fine particulate matter (PM2.5) and nitrogen oxides (NOâ‚“), which contribute to severe respiratory and cardiovascular diseases. The World Health Organization (WHO) estimates that air pollution causes about 7 million annual premature deaths and an economic burden of over $5 trillion in lost productivity and healthcare expenses globally (WHO, 2021).
Moreover, rising temperatures are associated with an increase in heat-related illnesses and fatalities, particularly among vulnerable populations. For instance, the 2003 European heatwave resulted in over 70,000 excess deaths, which imposed high costs on healthcare systems and affected productivity (Robine et al., 2008).
Additionally, climate change is expanding the habitat range of disease vectors, such as mosquitoes, resulting in higher rates of vector-borne diseases like malaria, dengue, and Lyme disease. Such maladies include economic burdens to healthcare costs, reduced workforce productivity, and long-term negative impacts on the community's well-being.
Unequal Economic Burdens: Developing vs. Developed Nations
The economic costs of carbon emissions are uneven worldwide. Despite their low contribution to global emissions, developing countries often bear the highest costs due to their geographic vulnerabilities, dependence on climate-sensitive sectors, and limited financial resources for adaptation.
Bangladesh, the Maldives, and all small island nations and low-lying countries and regions are too vulnerable and already facing the brunt of climate change's economic costs. These island nations suffer major challenges in relocating their inhabitants to safer grounds and securing materials for constructing extreme weather-resilient infrastructure. The adaptation strategies of such small island and developing states (SIDS) heavily burden their finances, often exceeding their gross domestic product (GDP).
Moreover, most developing countries with economies relying heavily on agriculture are highly susceptible to climate variability. In Sub-Saharan Africa, for instance, the impacts of climate change could reduce crop yields by up to 30% by 2050, aggravating poverty and food insecurity in this region's already existing arid issues (UNEP, 2022). This agricultural dependence creates a vicious cycle where climate impacts further deepen economic struggles.
With plans to address these challenges, almost all developed nations have agreed to provide $100 billion annually to climate finance to assist developing countries in their fight for survival. However, the commitment still has to be fulfilled, as many of these countries still need to provide financially, and the annual amount to assist developing countries has yet to be reached. The need for more financial support to become resilient against climate challenges entails economic disparities and the inability to be sustainable and survive against the impacts (UNFCCC, 2021).
The Cost of Inaction vs. Climate Investments
If we fail to address GHG emissions, major economic risks will lead to escalating costs surpassing the investments needed for climate action. The urgency of this issue cannot be overstated, as the economic repercussions of inaction are devastatingly far-reaching.
According to the Swiss Re Institute's research, if we do not take massive action to mitigate climate change, the global GDP could decrease by as much as 18% in 2050 (SRI, 2021). This alarming projection arises from various factors, including reduced labor productivity, damage to critical infrastructure, and escalating healthcare expenses. The cumulative impact of these losses badly demands proactive measures to safeguard our economic future.
Conversely, investing in renewables, enhancing energy efficiency, developing green spaces, and constructing more sustainable infrastructure would entail economic opportunities while adapting to climate change. According to research from the Global Commission on Adaptation (GCA, 2019), approximately US$4 can be earned as benefits for every dollar invested in climate adaptation. These benefits encompass decreased disaster-related costs and improved productivity, emphasizing the potential of climate action to generate positive economic outcomes.
Furthermore, transitioning to a low-carbon economy addresses environmental challenges and opens doors to job creation and sustainable economic growth. The renewable energy sector alone employed an impressive 12 million individuals worldwide in 2020, highlighting the sector's vitality. With the potential for significant expansion in the coming decades, as the International Renewable Energy Agency (IRENA, 2021) reported, the move toward a green economy provides both environmental and economic dividends.
The report from the International Renewable Energy Agency (IRENA, 2021) indicated that moving toward a green economy provides both environmental and economic benefits, a potentially crucial and major expansion in the coming decades.
