Forget Ukraine, the coronavirus, corporate greed and “supply chain issues” when it comes to inflation, the climate crisis is the real, ongoing concern that’s only likely to get worse, according to a new book.
Climatenomics, by Bob Keefe, former White House reporter and director of Environmental Entrepreneurs (E2), is a narrative of how the climate crisis is fundamentally transforming not just the US, but the global economy.
Throughout his pages, Keefe lays out what he sees as the wrong choice between creating jobs and fueling economic growth and protecting the planet, and how “supply chain disruptions” have become a euphemism for the effects of climate change.
“I don’t think people have realized that climate change is an economic issue today because it has always been viewed as an environmental, health or social issue,” says Keefe. “The fact is that climate change is affecting our economy.”
Political and monetary leaders hinted as much this week after US Treasury Secretary Janet Yellen admitted inflation had reached “unacceptable” highs, hitting a 40-year high of 8.6% by the end of May. Two days later the White House said, “Our hemisphere faces the devastating effects and costs of climate change,” ahead of Joe Biden’s Summit of the Americas in Los Angeles.
Assessing the role of climate change for economies is one thing, but at the moment most models only assess the cost of climate-related disasters, not their underlying impact on inflation.
According to Keefe, citing figures from the National Oceanic and Atmospheric Administration (NOAA), climate-related weather disasters will cost the US economy more than $145 billion in 2021 — a nearly 50% increase from the previous year. In the last five years they have cost $750 billion. Since 1980, 323 weather and climate disasters have cost $1 billion or more, the total cost of these events exceeds $2.195 trillion.
Furthermore, according to a report by reinsurance company Swiss Re last year, climate-related disasters could cost the US economy 10% of gross domestic product (GDP) by 2050 – the broadest measure of economic health. Globally, that number rises to 18%. . A 2018 National Climate Assessment (NCA) estimates that rising temperatures and extreme heat are expected to increase worker productivity by $221 billion by 2090.
Another study, published in the Environmental Research Letters last July, found that long-term warming contributed $27 billion to the losses covered by the US crop insurance program from 1991 to 2017, or just over 19 % of total. In 2102, the most expensive single year, rising temperatures contributed nearly half of the $18.6 billion worth of losses.
While all relate to GDP and productivity, none relate specifically to inflation and inflationary pressures – prices rise over time – and are not accounted for in the official government statistics released by the Bureau of Labor Consumer Price Index, which is the changing prices of a basket of goods and services.
Yellen and Federal Reserve Chair Jerome Powell have been criticized for initially describing inflation as a “temporary” problem that would resolve itself. Yellen has admitted that her initial assessment of the economy was “wrong” and that she and Powell “could have used a better term than transitory.” She said that “most of inflation” is related to imbalances in supply and demand.
But even that has a climate component, says David Super, a professor of law and economics at Georgetown University, who argues that climate change is largely ignored as a driver of inflation, in part because it is manifesting itself overtly and covertly as a global problem that makes it difficult to assess direct inflationary effects.
“Its impact is wide-ranging and systemic, so there is no point in the CPI that could be said to reflect climate change. We can say that the cost of grain and gas oil reflects the war in Ukraine, but that’s not possible with climate change because it affects so many things,” says Super.
Loss of timber and homes due to wildfires in the west can be reflected in housing costs or the cost of retrofitting homes to protect against coastal erosion and flooding. “Right there, there are several things that either increase demand or undermine supply,” Super points out. “And that’s just a small part of it.”
Similarly, supply chain issues that are often labeled as inflationary may not just be issues related to the China and Covid lockdowns affecting manufacturing, but a range of issues such as road wash-off or crop losses due to extreme weather events and changing weather patterns.
The CPI focuses on outcomes, not causes. Responsibility for evaluating the causes lies with the White House Council of Economic Advisers or the National Economic Council. Bodies that have attempted to release estimates have faced challenges to their data from climate deniers, leading to paralysis.
“As a result, in areas where a lot of estimates would need to be made, there is less desire to estimate because there is so little inclination to believe that those estimates are being made in good faith,” says Super. “Given a well-funded climate denial industry, the estimates become a byproduct.”
Shifting the climate crisis from an ecological to an economic problem is at the heart of what Climatenomics presents. What is needed, says Keefe, is a similar effort to transitioning from the industrial to the information age to renewable energy and, with it, action to counteract the increasing disruption from climate change.
“What we do know is that the economic costs of climate change, both from weather catastrophes and from commodity costs, are taking an increasing toll on economies,” says Keefe.
But if one of the key inflationary forces is climate, it is also one that cannot be easily addressed by central bankers adjusting interest rates.
According to Super, the view of climate change as an environmental problem – which it is – but not as an economic problem, which it certainly is, is currently in transition. “The current round of inflation has widened our eyes to this,” he says.
“Sure, the pandemic and the war against Ukraine are part of it, but I think this is an educational moment that will allow people to see how far-reaching climate change is affecting the way we live. We have framed the climate problem very narrowly – never a good idea with a complex social phenomenon or something as all-encompassing as this.”
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