How Climate Change can lead to RECESSION

The headline seems like a paradox, economic recession was conventionally thought to be beneficial for the environment.

Preliminary research predicted a relationship between economic growth and carbon emissions, so as production fell, so too would the emissions.
According to the Stern report of UK (2007), there is a strong correlation between economic growth and increased carbon emissions, approximately 0.9% increase in emissions for every 1% increase in growth.

But the global recession of 2008 reversed this logic, Economic contraction had been particularly pronounced in emissions intensive industries, industrial production in United States was down by 13% in March 2009, with declines concentrated in manufacturing and construction (US Federal Reserve Reports 2009)

Japanese exports fell over 40%, these trends predicted emissions to fall considerably for the year 2009.

How wrong were these predictions!

Crunching Numbers: Losses due to climate change
As per a study published in Time magazine, called ‘Estimating economic damage from climate change in the United States’ (the original scholarly research literature is available at

‘The combined value of market and nonmarket damage across analyzed sectors—agriculture, crime, coastal storms, energy, human mortality, and labour—increases quadratically in global mean temperature, costing roughly 1.2% of gross domestic product per +1°Celsius on average.’

The study assumes greenhouse emissions continue on their current trajectory, with average global temperatures rising between 2.6°Celsius and 4.8°Celsius by the turn of the century.

Since 1980, extreme weather has cost $1.6 trillion. Data from Munich Re, World’s largest reinsurance firm, states that, California wildfires were worth $24 billion in losses. Insurance firms will eventually have to raise premiums for tackling losses due to extreme weather phenomenon.

That could make insurance unaffordable for most people.

Report from the United States Congressional Budget Office, estimates annual losses from damage linked to hurricanes and flooding at $54 billion under current conditions, which, to be honest, are deteriorating every passing day.

Research from the San Francisco Federation claims, adverse impact from climate change, would shave off one third economic growth rates, by the end of this century, for the United States alone.

Industries Hit Directly

World Employment and Social Outlook 2018 estimated that climate change threatens 1.2 billion jobs. Industries most at risk are agriculture, fisheries, and forestry. Natural disasters have already cost 23 million working life years since 2000.

Although, efforts to stop climate change, would create 24 million new jobs by 2030.  A silver lining, to this rather grim cloud

As per 2017 U.S. Department of Defence reports, climate change is a “direct threat” to their national security, as rising sea levels and unpredictable weather patterns endanger 128 US military bases.

During heat waves across Europe and Americas, food prices rise, corn and soybean yields plummet; these crops feed cattle and other meat sources. This causes beef, milk, and poultry prices to surge, leading to sharp decline in worker productivity, particularly for outdoor jobs, further increasing food prices.

2019 study found that a warming ocean has pushed global fish yields down 4% since 1920. That equates to about 1.4 million metric tonnes. In the North Atlantic and Sea of Japan, that decline is 35%. That affects Atlantic cod, haddock, and herring. Species are threatened with extinction. Affecting 3 billion people worldwide, relying on fish for their primary source of protein. Affecting the $100 billion fishing industry and the 56 million people employed.

Drought, shifting rain patterns and extreme weather destroy crops and leads to food insecurity. The World Food Program found that almost half of Central American immigrants left because there wasn’t enough food.

As per data shared by United Nations High Commissioner for Refugees, since 2008, extreme weather has displaced 22.5 million people. Immigrants are leaving flooded coastlines, drought-stricken farmlands, and areas of extreme natural disasters.

By 2050, estimated 700 million people would be forced to emigrate.

Housing Market Hit? (Again)

As per the Washington Post, “Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee almost $7 trillion in mortgage-related debt, 33 percent more than before the housing crisis, according to company and government data.”

“In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to data from the Urban Institute,” the Post reported.

New York Times meanwhile paints an even more macabre picture: The climate risk to the housing market has echoes of the subprime mortgage crisis of 2008, between $60 billion and $100 billion in new mortgages are issued for coastal homes each year.

This would hit even worse than the 2008 economic crisis, something that was a domino effect due to predatory private mortgage lending and unregulated markets of the housing sector.

Imagine that coupled with rising insurance premiums of real estate? Or constant threat of elevated temperatures, leading to extreme climate patterns, which are getting even more difficult to predict?

Rising Temperatures Have A Direct Impact On GDP?

Estimations suggest if temperatures only rose by 2° Celsius, global gross domestic product would fall 15%. If temperatures rose to 3° Celsius, global GDP would fall 25%. If nothing is done, temperatures will rise by 4° Celsius by 2100. Global GDP would decline by more than 30% from 2010 levels.

That’s worse than the Great Depression, where global trade fell 25%. The only difference? Great Depression ended, this catastrophe on our hands seems never ending.

Joint research by International Monetary FundUniversity of Cambridge and University of Southern California found persistent increase in average global temperature by 0.04 °Celsius per year, barring major policy breakthroughs, is set to reduce world real GDP per capita by 7.22% by 2100.

How Are Investors Reacting?


Not just scientists and researchers are paying attention to the weather. Global investment managers are also wary of the potential consequences.

Late last year, a group of 415 investors with $32 trillion in assets-under-management (Shroders) issued a joint call to action on climate.

To quote the warning:

“Without greater action, Schroder’s, which is a signatory to the statement, point to long-run temperature rises of around 4°C, with $23 trillion of associated global economic losses over the next 80 years. This is permanent economic damage three or four times the scale of the impacts of the 2008 Global Financial Crisis, while continuing to escalate.”

Is There A Solution?

Government intervention, for once, based on reliance on scientific temperament, rather than paying lip service to lobbyists from fossil fuel conglomerates, would certainly go a long way, in enforcing strong climate friendly legislatures that forces industries to alter their course.

United nations, through their Paris Agreement, have set a global temperature rise limit of 2°C above pre industrial levels for this century. About 175 world leaders signed the agreement on Earth day, 22nd April 2016, by far the largest number of countries to sign an agreement on a single day. There are now 186 countries that have ratified the Paris Agreement.

Perhaps, Hope prevails?

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