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THE ECONOMICS of OUR CLIMATE CRISIS by Trisha Prabhu

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THE ECONOMICS of OUR CLIMATE CRISIS by Trisha Prabhu THE ECONOMICS OF OUR CLIMATE CRISIS By Trisha Prabhu INTRODUCTION Today, one of the most - arguably, the most - important issue facing humanity is human-caused climate change. Climate change not only threatens our Earth, but the almost 8 billion individuals who live here. Indeed, estimates find that 800 million people - or around 11% of the population - are vulnerable to the immediate effects of climate change, such as droughts, floods, or extreme weather events (“Climate Change” 2020). Experts predict that tourist attractions - place you know and likely love - like the Everglades and Miami This is what a Beach, will be submerged by the end of the century (Cusick 2020). parking lot in Second to the humanitarian crisis that climate change will bring Miami Beach, FL, is the economic crisis that will surely follow. Infrastructure will be looked like before destroyed. Economic output will be reduced. Adaptation and change the onset of will cost billions, if not trillions of dollars. Perhaps most concerning: Hurrican Dorian. despite these realities, most Americans and global citizens/nations Some experts remain disincentivized to confront the economics of our climate believe this may be crisis. This leads to a key question: how do we best estimate, mitigate, a more permanent and begin preparation for the economic effects of climate change? picture. In this briefing, we’ll try to answer that question; namely, we’ll Scientific American explore the economics of climate change. As Congress(wo)men, it will be your job to critically evaluate the information presented - a deep dive into the various facets of the problem at hand, a review of past action, an analysis of pertinent ideological viewpoints, and a range of potential solutions - and determine where you stand. HARVARD MODEL CONGRESS EXPLANATION OF THE ISSUE Historical Development In examining the economics of climate change from a historical perspective, one must turn to the evolution of climate change’s potential economic effects - how these effects/our understanding of them have changed, both in substance, and urgency, over the last few centuries. In doing so, we must differentiate between the United States (US) and the globe, which have seen rather distinct histories. Domestic Development Before the Industrial Revolution of the late 19th and early 20th century, the concept of a “greenhouse effect” was developed by early scientists, but it was not considered applicable to Earth and human activity (“Climate Change History” 2020). It was only after the Industrial Revolution (and the onset of extensive use of fossil fuels), which took place in Europe and the US, that, in the early 20th century, American scientists began to suggest that the Earth could be warming (“Climate Change History” 2020). In 1989 the US, along Kyoto Protocol – with other developed nations, established the Intergovernmental An international Panel on Climate Change (IPCC) under the United Nations to treaty signed by determine climate change’s economic impacts; this panel President Bill Clinton determined for the first time that these impacts could be severe in 1997; it called for (“Climate Change History” 2020). In 1997, the US, sensing the reducing the emission urgency of the matter, signed the Kyoto Protocol, the first global of six greenhouse agreement to reduce greenhouse gases, but in 2001, then-President gases in 41 countries Bush pulled out of the Protocol, arguing that it hurt the US economy in the short term (“Climate Change History” 2020). A similar situation played out in 2016, with the Paris Agreement and President Donald Trump. International Development Globally, the history of climate change economics focuses on BRICS nations - Brazil, Russia, India, China, and South Africa. In the late 20th and early 21st century, these countries saw tremendous In 2007, China economic growth (their Industrial Revolution, so to speak), which overtook the led to increasing emissions - and concern about the potential United States as economic effects of climate change on these nations (“The Response the world’s largest Of…” 2020). India, for example, began detailed climate change emitter of economic assessments, determining that climate change could pose greenhouse gases. serious risks to their citizens’ livelihoods (“The Response Of…” 2020). Scope of the Problem The economics of climate change is an issue with a wide scope; specifically, the issue extends itself to a subset of key problems, © HARVARD MODEL CONGRESS 2021 – REDISTRIBUTION OR REPRODUCTION PROHIBITED 2 HARVARD MODEL CONGRESS including: 1) estimation of the “cost” of carbon, 2) how best to prepare for the physical damages we’re likely to incur, 3) to what extent we can reduce effects on total economic output, and finally, 4) how best to economically incentivize change. As you can imagine, these dilemmas themselves are rather complex - and thus, explored in-detail in the sections below. Economic Tradeoffs: Estimating The “Cost” of Carbon Perhaps the most important “mini-issue” under the umbrella of the economics of climate change is what is commonly referred to as the “social cost of carbon” (Evans et al. 2017). As discussed, scientists already have irrefutable evidence that society’s increasingly rapid emission of carbon dioxide (CO2) will have negative repercussions for our climate. With that said, that leaves us with an important Climate change will question: how best can we estimate the future economic damage of have a range of emitting one ton of carbon? After examining all of the quantifiable economic effects, costs and benefits (example: costs - rising sea levels, which will impacting submerge infrastructure, vs. benefits - increased yield for some everything from crops), what’s the “cost,” so to speak, associated with emitting one infrastructure to ton of CO2 into the atmosphere today (Evans et al. 2017)? Estimation agriculture. How do of the social cost of carbon is an extremely important issue, because we estimate that? it plays a critical role in climate policy - if the social cost of carbon is CarbonBrief high, then, economically, it makes sense to take drastic measures in the present to mitigate climate change; if it’s low, the imperative to act is less urgent (Evans et al. 2017). The dilemma associated with this issue is disagreement on how, exactly, to estimate the “cost” of carbon. Different nations assign different values to the “cost” of carbon (as they’ll each be affected differently); in the U.S, the cost is calculated by several federal If the social cost of agencies in cooperation with the Executive Branch (“The true cost…” carbon is high, 2020). The current central estimate is around $50 per ton of carbon, though most experts agree that estimate is too low (“The true cost…” then, economically, 2020). it makes sense to take drastic Bracing For Physical Impact: Damages and Adaptation measures in the Another increasingly acknowledged issue in the economics of present to mitigate climate change is the “loss and damage” of property that nations are climate change. sure to face. These “damages” include property, arable land, or the complete disappearance of low-lying nations, as well as the extinction of species with economic value (Mogelgaard and McGray 2015). Naturally, this reality presents a number of dilemmas: how and to what extent should we prepare for such damages? To that end, how much should we invest in “adaptation,” or efforts to adapt our society and environment to new threats? Examples of adaptation include early warning systems, climate-resilient infrastructure, improved dryland agriculture (investing in drought-resistant crops, © HARVARD MODEL CONGRESS 2021 – REDISTRIBUTION OR REPRODUCTION PROHIBITED 3 HARVARD MODEL CONGRESS for example), and making our water resources more resilient (Rosa- Aquino 2019). Here, once again, there is plenty of disagreement on how to prepare for these changes. Organizations such as the Global Commission Adaptation have advocated for big investments - figures as large as $1.8 trillion - arguing that in the long run, these investments will reap rewards (Rosa-Aquino 2019). Effects On Total Economic Output: Mitigation Unfortunately, damages/adaptation aren’t the only concern when it comes to the direct economic impacts of climate change. Recent research from the National Bureau of Economic Research suggests that it’s likely that catastrophic weather events will also mean lower worker productivity and reduced worker health and lifespan, which will reduce total economic output (Freedman 2019). The paper finds that if we continue upon the path we’re currently on Gross Domestic (“normal business”), US gross domestic product (GDP) could be Product (GDP) – cut by 10.5% by 2100 (Freedman 2019). The total value of This presents a number of important dilemmas: apart from goods and services attempting to slow emissions, how best can we mitigate these effects produced in a country on output? What (if any) investments should we make in our in one year; GDP is workforce and the American workplace? And given that the commonly used as a aforementioned research also finds that different sectors of the benchmark for American economy will be impacted in different ways, what changes economic health (if any) should the US makes as it builds its economy of the future? Behavioral Economics: Incentivizing Change Finally - and perhaps most interestingly - a key component of the economics of climate change is rooted in human behavior. From an economic perspective, for many Americans and American corporations, the
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