How Climate Change Could Lead to Economic Collapse: What You Need to Know

In 2018, William Nordhaus, an economist from Yale, received the Nobel Prize for his Dynamic Integrated Climate-Economy (DICE) model. This model aimed to link the global economy with the costs of climate change. The goal was to find an ideal carbon tax that could offset climate damages while keeping the economy stable.

When I first reviewed the model, I criticized its approach to damage, particularly how it underestimated the risks of climate change. Nordhaus used a smooth equation, which overlooked possible tipping points. These are severe changes that could occur, like the Arctic melting completely or massive methane releases from thawing permafrost. My view was that allowing temperatures to rise to 3.5 degrees Celsius would be a significant mistake.

Now, after seven years, it’s clear I was mistaken. The economic damage from climate change is already far worse than Nordhaus predicted. In fact, the cost of taking action to combat climate change has turned out to be negative.

To illustrate, Bloomberg Intelligence recently reported that climate disasters cost the U.S. nearly $1 trillion in the last year, about 3% of the GDP. This came largely from skyrocketing home insurance costs and costly disasters like hurricanes and wildfires. Since 2017, home insurance premiums have doubled. Such expenses not only reflect damage but also hinder economic growth by pulling funds away from other essential areas.

However, it’s important to note that this data is specific to one country and one year. Still, the statistics show that climate-related spending often comes at the expense of consumer spending elsewhere.

Regarding the costs of climate action, we can look at recent political attempts to roll back climate efforts. A Yale analysis projects that if efforts to reverse current climate policies succeed, the cost to American households could rise significantly, leading to increased energy expenses and job losses in the clean energy sector. The support for renewable energy is evident; it’s now the least expensive energy source available.

Renewable technologies have become more affordable, with lithium battery prices dropping 47% since 2018 and solar panel costs decreasing by 35%. This growth in green technology could boost economies for years to come while outdated energy practices, like coal, continue to be a drain on resources. Ignoring this shift only serves to limit future progress.

Nordhaus updated his DICE model in 2023, taking some critiques into account, but it still underestimates the impact of warming. He acknowledges that the damage from a 4°C rise isn’t accurately reflected in his model, yet even his revisions suggest only a minimal economic hit—far from the realities we see today.

Typically, economists believe all policies come with trade-offs and that environmental regulations hinder growth. However, in the case of climate change, this isn’t accurate. If we had embraced climate initiatives back in the 1980s, when scientists like Carl Sagan and James Hansen were warning us, we would be in a much better position today—healthier, wealthier, and more secure.

The situation demands urgent action. As climate impacts escalate, we can’t afford to ignore the economic potential of a green transition. Supporting clean energy is not just a moral choice but a financial opportunity that can work for everyone.

Source link

Energy & the Environment,Climate Crisis,Economic Policy,home insurance,infrastructure,Ryan Cooper,Donald Trump