How Does Climate Change Affect Global Economy?

Table of Contents

II. Introduction

III. Causes of climate chanGe
1. Anthropological Reasons
1) Energy Sector
2) Traffic
3) Lumbering of (Rain)-Forests
4) Industrialized Agriculture
2. Natural Reasons
1) Melting of the Ice

IV. Effects of climate change On Global Economy
1. Different Kinds Of risks for Companies
1) Physical Risks
2) Reputational Risks
3) Transitional Risks
2. Effects of climate change itself
1) Water Scarcity
2) Natural Disasters
3) Changes in Vegetation Periods
4) Rise of Water Level in the Ocean
3. Effects of Actions to Regulate climate change on Global Economy
1) Governmental Activities
2) Reputational Activities

V. Summary

VI. Sources
1. Books
2. Brochures and Essays
3. Websites

II. Introduction

“There’s one issue that will define the contours of this century more dramatically than any other, and that is the urgent threat of changing climate.”

Barack Obama

“Climate Change increasingly poses one of the biggest long-term threats to investments”

Christiana Figueres

These two quotes from very famous politicians show that climate change is not only a topic for science fiction movies or Greenpeace any more, but has reached a relevance for even economy and politics.

As the melting of the ice or a slightly rising sea level does not have huge economical impacts yet, there are already some natural catastrophes like the hurricanes Katrina or Sandy and storm floods in Japan after the earthquake in 2011 that influence global economy yet, we still do not think of them as early impacts of global warming but as unfortunate coincidences.

III. Causes of climate chanGe

Due to climate change as a huge – and widely discussed phenomenon nowadays, there are many different theories why there is a global warming.

Although there are some opinions stating global warming as pure invention of leaders and economy, most scientists present sound evidence for a climate change happening. In fact, the development of temperatures on earth for the last 130 years clearly shows raising temperatures in each additional year.

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Illustration 1 https://www.dr.dk/nyheder/viden/miljoe/nasa-varmeste-august-i-136-aar

Climate change is mainly driven by the greenhouse effect.

When solar radiation reaches the earth a part of the energy is absorbed by the land (especially dark surfaces) and a part of it is reflected towards space again (especially by bright surfaces). When heat radiates from earth to space again, some of it is blocked by greenhouse gases in the atmosphere of earth. So, more heat is kept in the atmosphere.

Due to this effect life was able to evolve on earth. Otherwise the temperature would be much too low, leaving the earth with a lack of liquid water – an impossible habit for life.

As humanity produces more and more greenhouse gases since industrialization we take huge influence on this phenomenon. Due to raising CO2 levels in the atmosphere of about 40% since industrialization, there is much more heat kept in the earth’s atmosphere.

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Illustration 2 https://pixabay.com/de/treibhauseffekt-ökologie-regelung-146552/

1. Anthropological Reasons

Anthropological reasons for global warming are influences on the world’s climate made by humans. That is why these contributions to climate change are the only ones human beings can regulate by changing their behavior.

1) Energy Sector

As the energy sector burns huge amounts of fossil resources like oil or coal, the plants emit a lot of greenhouse gas.

About half of the CO2 emissions in Germany are produced by the energy sector.

2) Traffic

In 2012 there were 600 million cars registered in the world. Although that means that only every 12th human inhabitant of the world is a driver of a car, traffic has a huge effect on the composition of the earth’s atmosphere.

One may think that cars have a huger effect on the world’s climate than most of us have a guilty conscience, being too lazy to walk to the baker every morning, and taking the car instead. About 20% of the EU’s CO2 emissions are due to traffic. Considering that most people in the western world drive cars and the fact that there are less cars in the southern hemisphere and Asia, the percentage of total CO2 emissions should be globally less than 20%.

3) Lumbering of (Rain)-Forests

Rainforests get cleared because of various reasons:

-using wood to produce expensive furniture
-using fertile soil for plantations
-using land as pasture for cattle

Not only does burning down these forests exhaust 20% (!) of the CO2 emissions worldwide, it also destroys natural CO2 storages that take CO2 out of the atmosphere.

4) Industrialized Agriculture

Industrialized agriculture contributes to the greenhouse effect with three different types of gases:

-Carbon dioxide from clearing of forests
-Laughing gas from fertilizer
-Methane from livestock farming

2. Natural Reasons

1) Melting of the Ice

Ice as a bright surface reflects more sun rays than darker surfaces like oceans or land. The more ice there is on the earth’s surface, the less warm it gets.

Unfortunately, ice is melting nowadays due to the warming of both - atmosphere and oceans. In consequence a vicious circle is established that makes it even harder to stop the warming of the earth.

IV. Effects of climate change On Global Economy

1. Different Kinds Of risks for Companies

1) Physical Risks

The risk of destruction due to extreme weather conditions, can influence business, customers, suppliers or business partners.

2) Reputational Risks

When companies have business practices that are not environmentally friendly, they will be judged by consumers, so that the challenge to sell their products frequently enough will be greater for them.

3) Transitional Risks

When companies do not recognize economic signals that hint towards an economically friendly society and a change in the basic conditions of their business, there is the risk, that they will not be able to adopt fast enough towards the changing circumstances

2. Effects of climate change itself

1) Water Scarcity

a. Explanation

Changes in climate are also causing changing water circles, raining conditions and evaporation. This results in very different impacts throughout the world. Especially in the south of China and the US, in the Middle East and the Mediterranean there will be significantly less water in the future.

Right now 2% of the earth’s population is suffering from absolute water scarcity. If temperatures are rising by 3°C, 10 % of human beings will be affected by total water scarcity. Though this is not just an effect of climate change, but also of growing populations in warmer regions and stagnating or declining populations in colder regions.

b. Effects for States and Regions

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Illustration 3 http://www.focus.de/wissen/natur/katastrophen/bedrohliche-vision-studie-prophezeit-in-diesen-laendern-wird-das-wasser-bald-knapp_id_4909041.html

Especially countries in the equatorial regions like North Africa, the Middle East and South East Asia will be affected by water scarcity due to global warming, because of the already high temperatures and a lack of water. Considering that there are mostly developing countries in these regions, one can say that water shortages will restrain the necessary economic development there.

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Illustration4jhttp://www.climate-service-center.de/imperia/md/content/csc/-warnsignalklima/Warnsignal_Klima_Kap3.2_3.2.10_Peterson.pdf

Asia – especially South East Asia - takes out most water due to irrigation and they will also take out more water due to their rapidly growing economies in the future. Combined with the predicted and current water scarcity their economy will suffer the most from water scarcity in the future.

Generally, one can say that rich and humid countries will not be impacted from water scarcity as much as poor and arid regions, because they do not have water issues yet. Moreover, only 30-40% of the taken water is consumed in these contries, while 60% in Asia and 70% of the taken water in Africa are finally consumed.

Although the resource of water is not traded directly, due to low water prices in comparison to other liquid goods, thus water is traded virtually throughout the world. This is already a consequence of differences in the amount of water resources in the world.

So countries having less water are importing more products that contain or consume water during production instead of producing them themselves. In the other way around they are also exporting more products that need less water in relation to other countries.

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