A changing climate threatens our
productivity and effectiveness and, unchecked, could lead to an endless
recession.
By Geoffrey Heal, Jisung Park
While we applaud the federal
government for taking a stand on one of the most important issues of our time,
we believe the most pressing issue of climate change is economic.
An emerging body of research suggests
that rising temperatures are eating into our productivity right now, in part
due to the fact that human beings haven’t evolved to operate well at climatic
extremes. If we continue to move at our present pace, the possible future
economic impact is equivalent to an endless Great Recession.
Quite simply, the hotter we are, the
less effective we are at any task we tackle.
What has been less understood is just
how significant the impact of extreme temperatures on productivity can be.
Emerging work suggests that it may be substantial. A 2012 study covering all
General Motors plants in the U.S. found that output dropped by 8 percent during
weeks in which temperatures exceeded 90°F for six days.
This is perhaps the most surprising of
the plant-level studies, as most would expect a high-tech industry like auto
manufacturing to be immune to the weather. Another study, in India, found that
plant-level productivity among Indian manufacturers declined by roughly 3
percent per degree Celsius (1.8°F) above twenty-five degrees C (77°F).
Quite simply, the hotter we are, the less effective we are at
any task we tackle.
These findings also hold for entire economic
sectors including agriculture, transportation and tourism. In the Caribbean and
Central America, industrial output drops by 2.5 percent per degree Celsius
increase in summer temperature, controlling for the impact of storms and other
correlated weather events.
In our own research, we complemented
these small-scale studies with cross-country research, and confirmed worldwide
that temperature increases in hot and poor countries lead to a sharp drop in
productivity, on the order of 3-4 percent per degree Celsius (or 2.5-3 percent
per degree Fahrenheit).
If the more extreme predictions turn out
to be accurate, temperatures could rise by as much as 6 degrees centigrade by
the end of this century, leading to a huge drop in productivity in hot regions,
nearly 20 percent.
A drop in productivity of only 4.3
percent, corresponding to a temperature increase of 2°C or less, would lead to
a drop in output on the same scale as the massive recession of 2007 – 2009.
The direct economic impact of these
productivity losses pales in comparison to the overall price tag of a
business-as-usual approach to climate change.
The most significant of those costs are
likely to derive from extreme weather events, like the drought in California,
now stretching into its fourth year, which cost the state $2 billion in 2014
alone. Just as importantly, many of the most significant costs—like mass
extinctions and wholesale destruction of entire ecosystems—can’t be monetized.
Even limiting ourselves to the ledger of
strictly economic costs and benefits, however, the absence of these
productivity losses from our present models indicates that we are likely
gravely underestimating the final costs of climate change.
Fortunately, we can begin to prevent
these productivity losses by making sure that the hotter parts of the world are
provided with adequate carbon-free electricity for air conditioning.
Using carbon-free electricity is exactly
where the Obama administration’s proposal propels us and the return on
investment could be significant in economic and human terms. Of course, none of
these things will be easy, or cheap, but it is clearer than ever that the
highest cost is the cost of doing nothing.
Geoffrey Heal is Donald C. Waite
Professor of Social Enterprise at Columbia Business School and Professor of
Public and International Affairs noted for contributions to economic theory and
resource and environmental economics. Jisung Park is a PhD Candidate in the
economics department at Harvard University.
The Daily Climate is an independent,
foundation-funded news service covering energy, the environment and climate
change. Find us on Twitter @TheDailyClimate or email editor Brian
Bienkowski at bbienkowski [at] EHN.org