Climate change can wipe out more in global financial assets than the current size of the Indian economy. A new study estimates that direct destruction of assets by a rise in the sea level and freak storms, as well as earnings losses due to high temperatures and drought could cost the world $2.5 trillion by 2100.
Given our present emissions trends, the earth is all set to get warmer by four degrees Celsius above pre-industrial temperatures. We might manage to restrict that rise to three degrees Celsius if all nations fulfil the pledges they made before the Paris Climate Summit last December.
The study using economic modelling pegged all global non-bank financial assets at $143 trillion. Researchers checked how much of this might be destroyed or submerged due to climate events if we continue spewing carbon into the atmosphere in a “business as usual” manner and came up with an estimate of 1.8% of these assets or $2.5 trillion. However, if the world does manage to mitigate emissions according to the agreement reached at Paris in December and restrict warming to two degrees Celsius, the bill will be slightly reduced, but still a hefty $1.7 trillion. In the worst-case scenario, the bill could go as high as $24 trillion.
The study was conducted by a collaboration of researchers from the London School of Economics and Political Science, the ESRC Centre for Climate Change Economics and Policy and the Grantham Research Institute published in the peer-reviewed Nature Climate Change journal.
The Guardian quoted Prof Simon Dietz of the London School of Economics, the lead author of the study, as saying: “Our work suggests to long-term investors that we would be better off in a low-carbon world… Pension funds should be getting on top of this issue, and many of them are.”
Numbers in perspective
How much is $2.5 trillion really? It’s only half of the stock market value of global oil and gas drilling companies. It’s possibly only one-third of the world’s hidden wealth, which according to Gabriel Zucman, author of The Hidden Wealth of Nations: The Scourge of Tax Havens, is $7.6 trillion (individual assets in tax havens.)
But it’s more than what the Indian economy that supports a billion people is worth. India’s gross domestic product crossed $2 trillion in 2014 and is expected to reach the $2.5 trillion mark in 2021.
$2.5 trillion is also the amount that Prime Minister Narendra Modi has said that India will need by 2030 to reduce growth in its fossil fuel pollution. In declaring national targets to mitigate climate change last October, India laid out an ambitious plan to install 175 gigawatts of renewable energy by 2022 and, in doing so, increase its power consumption from non-carbon sources to 40% from 30%. By 2030, India has also promised to reduce carbon pollution by 33%-35% from 2005 levels.
In the last 14 years, India alone has had to foot a bill of $51 billion due to extreme weather events like major floods, cyclones, drought, heat and cold waves, according to an assessment last year by researchers at the Indian Institute of Technology-Gandhinagar, the Indian Institute of Management-Ahmedabad, and the think-tank, Council on Energy, Environment and Water. This assessment said India will need $1 trillion by 2030 to adapt to climate change.
The 187 countries that have made climate pledges will have to spend about $13.5 trillion to meet those goals. To keep global warming from exceeding 2 degrees Celsius, the world will have to spend at least $3 trillion more, according to estimates by the International Energy Agency.
All estimates of loss and risk due to climate, of course, depend on how good our climate models are. In a new analysis, scientists have put together for the first time a 1,200-year-long record of water availability, rainfall and drought across Europe, North Asia and North America. This work, also published in Nature, shows that the northern hemisphere had large variations of rainfall and drought in this period.
Current climate models, the research team said, might overestimate the wet and dry climate extremes in the 20th century, an indication of how climate models need to be tightened to better predict rainfall for the 21st century.
Yet another analysis by climate pioneer James Hansen, however, contends that climate models underestimate risks from storms and a rise in sea level because they operate with a time lag. In March, Hansen published a paper with 18 of his colleagues showing how the world may see an abrupt shift in climate in just a few decades and how we might begin to see devastating superstorms and sea level rise far before the end of the 21st century. Hansen’s warning is based on analysis of feedback loops of the melting polar ice caps and how they might shut down ocean currents that dissipate heat around the world. The sooner these climate impacts are felt, the more money the world will have to spend to recover from them. And let’s not even talk of the impact on human life.