Global Economies Feeling the Heat from Climate Change (WEF Summaries)

Economic assessments of climate risks and the potential returns from mitigation and adaptation emerged as salient themes at the World Economic Forum (WEF) in Davos, Switzerland.

A number of speakers made the point that it is important to calculate the massive risks associated with climate change. We are already seeing that climate change is systemically disrupting the global economy and the situation is destined to get far worse if we do not significantly reduce global carbon emissions.

As explained by several economists, we do not have to make the false choice between combating climate change and growth. We can both grow our economy and act on climate change.

The climate economist Lord Nicholas Stern, delivered a powerful presentation at Davos. His speech was rendered in a language that the business community and investors can understand. Stern makes the point that addressing climate change affords room for “better” growth. He explained the hidden cost of burning fossil fuels and extolled the virtues of renewable energy.

Although the price of oil is currently very low, we have seen tremendous volatility in the market valuation of fossil fuels. Against the backdrop of this volatility the cost of renewables has been steadily decreasing.

“Very serious economic analyses have shown that we have alternative energy sources and
that at a relatively modest cost – about 1 or 2% of global GDP – we could take measures to decrease the risk [of climate change] very significantly,” said Nobel Prize winning Professor Mario J. Molina at the WEF.

The economics of climate change mitigation is not only about decreasing the risks it is also about generating a very major for each dollar invested. As Jim Yong Kim pointed out, in the next decade, the potential return on aggressive investments inefficiency and clean transport alone could amount to US$ 1.8 – 2.6 trillion.