Later this century, sometime towards my teenage son’s late middle age, climate change might torch 50 percent of the world’s GDP. I’ll say that again. Sometime around 2070–2090, climate change could be doing so much damage to ecological and human systems, and the links between them, that the global economy could contract by half. (For comparison: the U.S. economy shrank by roughly 30 percent in the Great Depression.)
This projection may sound exaggerated to the point of being implausible. Yes, two entire regions of Los Angeles burned to the ground last week. Yes, preliminary estimates of the cost of this one disaster range from $40 to $250 billion. But U.S. GDP is roughly $27 trillion; global GDP $107 trillion. Wouldn’t the U.S. and world economies be orders of magnitude more gigantic by 2070? Surely climate change couldn’t wipe out all that wealth?
According to the UK Institute and Faculty of Actuaries, it could. Actuaries are mathematicians who assess economic risk for banks, insurance companies, and governments. The Institute and Faculty of Actuaries (IFoA) is the professional association that regulates actuaries in the United Kingdom; it traces its roots to the nineteenth century. It’s hardly an environmental advocacy group, let alone a radical one. Yet last week it released a study in collaboration with scientists at the University of Exeter showing that economists have severely underestimated the potentially catastrophic economic costs of global heating. Again, worst-case scenario, we lose 50 percent of GDP this century.
Even understanding the credentials behind the study, many people will still find this figure implausible. Why is that? Humanity is entering a climate regime that has no precedent in our species’ history. The last time there was this much CO2 in the atmosphere, the oceans were so much higher that the eastern coastline of what would become North America ended about one hundred miles west of where it is currently. The Arctic, now largely a frozen wasteland, was a lush pine wood populated by giant camels. And our economy is adding greenhouse gases to the atmosphere faster than any other phenomenon in geological history has ever done. It is absurd to imagine that severely damaging the climate would not severely damage the economy, which relies on a stable climate, even in the coming decades.
Many people—both policymakers and private citizens—seem to assume that economic growth will just continue as the planet heats up and the climate breaks down. But that belief is based on nothing—it’s a quasi-religious form of faith. It upholds two doctrines above all: that the economy is separate from nature and that technology can do all the work of ecosystems. This faith is the basis for all mainstream economic modeling about climate change: In those models, economic growth is “exogenous,” or just assumed. As the actuaries at the IFoA noted, economic climate modeling relies on “the assumption that an economic recession is impossible no matter how severe climate shocks become.”
Hardly any economics research actually probes this assumption. As the Congressional Research Service puts it, “this field of study into the economic effects of climate change is relatively small [and] the relative dearth of studies makes it challenging to reach specific ‘mainstream’ conclusions about economic impacts.” The little research that exists downplays, in its models, the historical evidence for the damage that heat does to growth rates by adjusting the models with a variable for adaptation, which factors in future politics and technologies that are believed will reduce that damage. But given that adpatation has so far not meaningfully reduced climate impacts in aggregate, according to one comprehensive review of the data, the decision to include that variable expresses not much more than economists’ counterfactual belief in the transcendentpower of human ingenuity. This means that mainstream economic ideas about the relationship the biosphere and the economy are founded on assumptions, conjectures, and stipulations that have contradictory evidence, or no evidence, to back them up.
Of course, you can read the economic history of the twentieth century as a kind of evidence for the belief that GDP, barring some relatively minor recessions, will always rise up and to the right over a longer period, and that human beings will always develop technologies to solve our problems. But you can use that history as evidence for the future only if you downplay the impacts of climate change to the point of creating disinformation—only if you lie by omission, in other words, about what might happen. Indeed, that is what the actuaries at IFoA implicitly accuse climate economists of doing. The study notes that mainstream economics underestimates the danger of climate change because it largely excludes from its models “the impacts of climate tipping points, climate-driven extreme events, human health impacts, resource or migration-driven conflict, geopolitical tension, nature-driven risks, or sea level rise.” To leave these impacts out of economic models, the study notes, is “analogous to carrying out a risk assessment of the impact of the Titanic hitting an iceberg but excluding from the model the possibility that the ship could sink, the shortage of lifeboats, and death from drowning or hypothermia.”
Our economy looks impervious to climate change because economics, finance, and governments deliberately separate or “decouple” our ecology and the economy in their calculations: The value of what is known as “nature” and the costs of its destruction are not included in the prices we pay for things. What happens to the climate system—to everything the economy cordons off as “nature” or “natural resources”—are considered “externalities.”
In economic jargon, the word “externalities” signifies costs that are not borne by the entity imposing them. This word is a little too on-the-nose in suggesting the way the costs of climate change are placed outside the economic analysis of what human beings do on this planet. Yet, as the IFoA actuaries put it, “prosperity and economic health are intertwined with and dependent on the Earth system.” Without accounting for the Earth system, our economy functions more like a Ponzi scheme in which we incrementally steal a livable climate from the future and call it GDP growth.
The quasi-religious faith that economic growth will just continue is baked into not only climate economics, but also climate policymaking. So-called “mitigation pathways,” models that game out cost-effective policy options, also assume economic growth as a given. Mitigation will be cheaper in the future than it is now, these models stipulate, because as the economy grows everyone will be richer in the future and thus society will be more able to afford to decarbonize. Delaying the phase out of fossil fuels therefore appears cost-effective. Yet as this new study shows, the guarantee of future economic growth, if we don’t phase out fossil fuels, is just a fantasy.
The core information driving international climate politics has so far been founded on nothing—on air. On the central belief of Capitalism, our secular religion, that growth is inevitable, and that with intelligent investment and innovation alone we will achieve immortality by leaving the future better off than the past. What this new economic research—not just the IFoA study, but this one, this one, and this one—suggests is that we have been worshipping false gods. As the actuaries warn, current economic climate-change models “do not recognize that there is a risk of ruin.” These models, they say, are not fit to inform decisionmaking, for they are not even “roughly right,” but “precisely wrong.” The truth is we must phase out fossil fuels and stop adding greenhouse gases to the atmosphere in order to sustain the conditions for prosperity and stave off the ever-growing risk of ruining the world for the next generation—including our very own children.
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