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Climate change could cost US economy billions – Yale Climate Connections

Hundred dollar bills

A newly-published peer-reviewed analysis of climate change impacts across broad sectors of the U.S. economy provides what may be the most comprehensive economic assessment to date of those costs.

The April report in the journal Nature Climate Change is a condensed version of the Environmental Protection Agency’s 2017 Climate Change Impacts and Risk Analysis report. That analysis was used to help inform the Fourth National Climate Assessment Report published in late 2018.

Written by two EPA professional staffers – but with the standard caveat that it represents their views, and not necessarily those of the agency – the research addressed in the April report considers two global warming scenarios: Representative Concentration Pathway (RCP) 4.5 and 8.5, numbered to correspond to the global energy imbalance (in Watts per square meter) created by the increased greenhouse effect in the two scenarios.

RCP4.5 would lead to about 2.8°C (5°F) warming of global surface temperatures above pre-industrial levels by the year 2100. Limiting global warming to that degree would require more aggressive international climate policies than are in place today, but would nevertheless miss the 2015 Paris climate agreement targets of 2, and ideally of 1.5, degrees C. Continuing emission under the RCP8.5 approach would lead to about 4.5°C (8°F) warming by the end of the century, which is close to a worst-case scenario in which international policies do not slow global fossil fuel use and carbon pollution.

The Nature Climate Change analysis – by EPA scientists Jeremy Martinich and Allison Crimmins – examines 22 different climate economic impacts related to health, infrastructure, electricity, water resources, agriculture, and ecosystems. The bottom line conclusion: by the year 2090, impacts on those 22 economic sectors in the U.S. would cost about $224 billion more per year if we follow the RCP8.5 pathway than if we achieve the RCP4.5 pathway. The authors’ report comes with an important caveat:

only a small portion of the impacts of climate change are estimated, and therefore this Technical Report captures just a fraction of the potential risks and damages that may be avoided or reduced when comparing the alternative scenarios.

Asked to comment on the new research, economist Frank Ackerman, who was not involved with writing the report, said it is “entirely consistent with the broader hypothesis that climate change, if unmitigated, will have large negative impacts throughout the economy before the end of the century.” Impressed with the large number of impacts analyzed, Ackerman, formerly with Tufts University and now principal economist at Synapse Energy Economics, in Cambridge, Ma., said the report would have benefited had the authors been able to use a consistent base year and discount rate in evaluating all of the different impacts.

How much do we value life?

Health impacts account for about three-quarters of the $224 billion per year total cost difference between the two scenarios. More than one-third of that total is attributed to an increase in heat-related deaths.

To estimate the increased health effects costs, the authors reviewed research detailing extreme heat deaths in 49 American cities that account for about one-third of the U.S. population.

In the high-emissions RCP8.5 scenario, about 9,300 more people in those 49 cities would die each year as a result of increased heat. With adaptation efforts like installing extensive and costly air conditioning, the number of deaths could be limited to 4,300.

In the lower-emissions RCP4.5 scenario, heat-related deaths would increase by about 3,900 per year (5,400 fewer than in RCP8.5), but could be limited to 1,300 with adaptation (3,000 fewer than in RCP8.5).

Those findings raise a thorny question: How to quantify the value and the cost of those lost lives?

The researchers, in their April report, address that question by incorporating the “value of a statistical life” (VSL), which EPA describes in a 2010 guidelines document as follows:

VSL is a summary measure for the dollar value of small changes in mortality risk experienced by a large number of people. VSL estimates are derived from aggregated estimates of individual values for small changes in mortality risks. For example, if 10,000 individuals are each willing to pay $500 for a reduction in risk of 1/10,000, then the value of saving one statistical life equals $500 times 10,000 – or $5 million. Note that this does not mean that any single identifiable life is valued at this amount. Rather, the aggregate value of reducing a collection of small individual risks is, in this case, worth $5 million.

EPA currently uses a VSL of $10 million, which this study’s authors adjust to $15.2 million for 2090. Their report thus estimates that saving 5,400 lives per year in 2090 in RCP4.5 as compared RCP8.5 is valued at $82 billion per year. Including adaptation efforts such as installation of extensive air conditioning, the difference of 3,000 lives yields an additional $46 billion cost for RCP8.5 as compared to RCP4.5, plus the added costs such as those associated with installing the necessary infrastructure like city-wide air conditioning.

Of course, any estimate of the value of life is ethically fraught. The challenge is that humans tend to most easily visualize and focus on economic impacts, but it’s difficult to quantify the costs of many climate change consequences like lost health and lives, trauma and suffering, or species extinctions and reduced biodiversity.

That dilemma brings to mind for some a comment that Robert F. Kennedy made in 1968 about the metric of Gross National Product: “It measures everything in short, except that which makes life worthwhile.”

Health, infrastructure, and other costs

The projected warming will lead also to 910 million more lost labor hours per year in 2090 in RCP8.5 than in RCP4.5 – a difference worth about $75 billion per year. This impact is highest in the Southeast ($24 billion in additional annual lost labor), Midwest ($16 billion), and Southwest ($11 billion), where temperatures are hottest.

Every U.S. region will suffer the economic impacts of climate change, a new study finds. Click To Tweet

Infrastructure is the second-costliest category of climate impacts. Under high-emissions scenario RCP8.5, an additional $26 billion of American coastal property would be lost annually toward the end of the century. That contrasts with the lower-emissions RCP4.5, plus an extra $12 billion per year in road damages. Higher electricity demand for cooling will cost an extra $5.8 billion per year. Flooding will cost an extra $3.8 billion per year, and an additional $2.2 billion in winter sports recreation will be lost in the high-emissions scenario. Lost freshwater fishing will cost another $1.4 billion annually.

One interesting aspect of the April analysis is that the economic impact on the agricultural sector is relatively small, with a nationwide cost difference estimated at $1.3 million per year more in 2090 under scenario RCP8.5 than under RCP4.5.

The Martinich-Crimmins report does not take into consideration impacts of worsening extreme weather events on crops, and it therefore underestimates agricultural losses. The research anticipates that although yields will decline for most staple crops – especially for barley, corn, cotton, and rice, but with the exception of wheat – farmers will adapt by using more farmland, changing the crops they grow, and increasing prices. As a result, most of the climate change impacts on the agricultural sector would be passed on to food consumers, in effect, to everybody.

“There are no regions that escape some mix of adverse impacts,” the authors conclude in their analysis. “Lower emissions, and adaptation in relevant sectors, would result in substantial economic benefits.”

Their study shows that limiting global warming to less than 5°F by the end of the century would save the United States a total of about $10 trillion from these 22 climate impacts as compared to an unabated 8°F warming, in addition to saving hundreds of thousands of American lives over those decades.

Big numbers those, dwarfing the billions that one-time Illinois Republican Senator Everett Dirksen is perhaps mistakenly said to have called “real money.” And that is in the context of the authors’ reminder that “this Technical Report captures just a fraction of the potential risks and damages that may be avoided or reduced” when comparing the two climate change growth scenarios … neither of which would achieve the higher of the two higher temperature global surface temperature averages that are at the heart of the 2015 Paris Climate Agreement agreed to by nearly 200 countries worldwide.

Editor’s note: This piece was revised April 29 to reflect new position for economist Frank Ackerman.

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