Economic Implications

The economic implications of climate change are pervasive and will only intensify without urgent action. The costs of inaction will far exceed the costs of investing in mitigation and adaptation strategies. Building a climate-resilient economy is essential for ensuring long-term prosperity and safeguarding vital resources.

Damage to Physical Assets and Infrastructure

  • Coastal Property and Infrastructure Loss: Sea level rise and more intense storms directly threaten coastal real estate, businesses, and vital infrastructure like ports and roads. This damage causes billions of dollars in losses and disrupts trade and transportation.

  • Inland Infrastructure Damage: Wildfires, flooding, and extreme heat can damage homes, businesses, roads, power grids, and water supply systems, with repair and rebuilding costs straining economies.

Disruptions to Key Economic Sectors

  • Agriculture: Droughts, shifting precipitation, and heatwaves reduce crop yields, harming agricultural output and leading to higher food prices and supply chain disruptions.

  • Tourism: Coastal destinations face erosion and infrastructure damage from sea level rise. Extreme heat and wildfires can deter tourism and diminish revenue in areas that rely on outdoor recreation.

  • Fisheries: Ocean acidification and warming waters harm fish populations and disrupt commercial fisheries, impacting livelihoods and food security.

Costs of Adaptation and Disaster Response

  • Investing in Resilience: Building seawalls, adapting infrastructure, and developing drought-resistant crops require significant investments, diverting funds from other areas of the economy.

  • Disaster Relief: Governments and communities bear the cost of rebuilding after floods, storms, and wildfires, creating budget pressure and potentially diverting resources from essential services.

Indirect Economic Effects

  • Reduced Productivity: Heat stress and health impacts from air pollution decrease worker productivity, especially for outdoor industries such as construction and agriculture.

  • Increased Insurance Costs: The rising frequency and severity of extreme weather events push up insurance premiums, imposing additional costs on businesses and homeowners.

  • Market Volatility: Climate change uncertainties can lead to instability in financial markets and affect investments, potentially hindering long-term economic growth.

Exacerbating Inequality

  • Disproportionate Impact on Developing Countries: Nations with fewer resources to adapt often suffer the most extreme consequences, perpetuating cycles of poverty and limiting economic development.

  • Vulnerable Communities Within Countries: Even in developed countries, low-income and marginalized communities often face greater exposure to climate risks and reduced capacity to recover, widening socioeconomic gaps.

Articles Read

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Cho, R. (2019, June 20). How climate change impacts the economy. State of the Planet. https://news.climate.columbia.edu/2019/06/20/climate-change-economy-impacts/

ET Online. (2013, September 15). Here’s how climate change is shaping the future of Tourism. The Economic Times. https://economictimes.indiatimes.com/news/new-updates/heres-how-climate-change-is-shaping-the-future-of-tourism/articleshow/103683154.cms?from=mdr

FAOUN. (2018). Impacts of climate change on fisheries and Aquaculture. Food and Agriculture Organization of the United Nations. https://www.fao.org/3/i9705en/i9705en.pdf

Jones, B., Duncan, K., & Hanson, M. (2017, August 3). The net economic impacts of California’s major climate programs in the inland empire. UC Berkeley Labor Center. https://laborcenter.berkeley.edu/the-net-economic-impacts-of-californias-major-climate-programs-in-the-inland-empire/

Naik, G., & Lord, R. (2021, October 1). Corporate physical assets increasingly in harm’s way as climate change intensifies. Corporate physical assets increasingly in harm’s way as climate change intensifies | S&P Global. https://www.spglobal.com/esg/insights/corporate-physical-assets-increasingly-in-harm-s-way-as-climate-change-intensifies#:~:text=Physical%20assets%20with%20fixed%20locations,the%20utilities%20and%20materials%20sectors.

Orange County Economic Forecast. OC.Gov. (2021). https://dot.ca.gov/-/media/dot-media/programs/transportation-planning/documents/data-analytics-services/transportation-economics/socioeconomic-forecasts/2021/2021-pdf/orange-profile-a11y.pdf

Tol, R. S. J. (2009). The economic effects of climate change. Journal of Economic Perspectives. https://www.aeaweb.org/articles?id=10.1257%2Fjep.23.2.29

US EPA. (2024). Climate Change Impacts on Agriculture and Food Supply. EPA. https://www.epa.gov/climateimpacts/climate-change-impacts-agriculture-and-food-supply#:~:text=Climate%20change%20is%20expected%20to,soil%20and%20depleting%20soil%20nutrients.&text=Heavy%20rains%20can%20also%20increase,oceans%2C%20lakes%2C%20and%20streams.&text=This%20runoff%20can%20harm%20water%20quality.

White, A., & Feldman, J. (2022, September 19). Physical climate risks: 6 things portfolio managers need to know. sustainalytics.com. https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/physical-climate-risks-6-things-portfolio-managers-need-to-know