Climate chaos will halve our wealth

I’ve been thinking of the costs of “staying in place” (in terms of consumption) while CC damages arrive since I read 2052 a few years ago (my review).

It works like this: CC means that free and useful ecosystem services (e.g., cleaning water, regulating temperatures) are turning into expensive and harmful ecosystem attacks (e.g., storms, floods, heat waves). The result is that (a) we are poorer for lack of what we used to get for free and (b) poorer still because we need to divert production aimed at consumption into production aimed at defense and recovery, a double-whammy.

So we need to run, faster and faster, only to stay in place.

This recent article from The Economist estimates that “the costs of climate change [to housing over the next 25 years]… may amount to almost a tenth of the value of the housing… or roughly $25trn.” The costs to agriculture, infrastructure, industry, goods and services, etc. should be added on top of that $25 trillion figure.

Fun facts: World GDP is now around $100 trillion. In 2014, scholars estimated that ecosystem services were worth $125 trillion per year based on 2007 data, and that the value those ecosystem services has already fallen by around $15 trillion. (A 2017 estimate gives $155 trillion, but note that the value per unit of ecosystem is rising with scarcity, i.e., as physically damaged ecosystems go “out of service.”)

So, at some point in the near future (I’d say next 10 years), we will be receiving a “net negative” flow of ecosystem services, which human produced GDP will not be able to replace, such that we are not just poorer (our benefits from GDP are smaller) but radically poorer.

Say that we gain net benefits from GDP and ecosystem services of $100T + $185T* or $285T now. If GDP grows by 3% per year and ecosystem services go to zero (remember they will be going negative) in 10 years, then our net benefits will be $134T + $0T, or $134T, a fall of more than 50 percent.

How will that go? Terribly, I am pretty sure. Here’s what TE says about the impact on property:

The impending bill is so huge, in fact, that it will have grim implications not just for personal prosperity, but also for the financial system. Property is the world’s most important asset class, accounting for an estimated two-thirds of global wealth. Homes are at the heart of many of the world’s most important financial markets, with mortgages serving as collateral in money markets and shoring up the balance-sheets of banks. If the size of the risk suddenly sinks in, and borrowers and lenders alike realise the collateral underpinning so many transactions is not worth as much as they thought, a wave of re-pricing will reverberate through financial markets. Government finances, too, will be affected, as homeowners clamour for expensive bail-outs. Climate change, in short, could prompt the next global property crash.

…and that’s just property.

I have been saying for quite some time now (since 2021, and in this paper) that CC is going to “shrink the pie” of economic production, i.e., reversing the positive trend that we’ve enjoyed since the beginning of the Industrial Revolution (200 years, to be conservative).

Consider the brutality of our fights right now, in a world with a growing pie. Now consider how those fights will worsen as the pie shrinks.

Shit’s gonna get ugly.

*The 2017 article estimates a 1.85:1.00 ratio of ecosystem services to GDP.

Addendum (18 Apr): This paper (via AH) estimates that global income (~GDP) will drop by 19% between 2024 and 2050 due to “baked in” CC (i.e., no matter what we do). That’s roughly  $19 trillion, and it’s only a “downpayment” on likely further decreases as mitigation continues to fail.

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Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

One thought on “Climate chaos will halve our wealth”

  1. A colleague asks: “How did you arrive at the idea that net negative flow from ecosystem services could be negative within 10 years?”

    Me: I made it up, but — taking 2034 as that date — the question is how fast damages from CC are arriving. Insurance companies are FREAKING OUT (examples: and from the US) and they are only covering a tiny fraction of total risks.

    The US has 330 million, or around 4% of the world’s population and its insurance industry is retreating. The same is/will be true in other rich countries. Then there’s uninsured risks in those countries as well as everywhere else on the planet. Some risks are not priced in markets, so I’d say that US insurers are covering, say, 1% of global risk.

    In 2022, disasters cost $165 billion in the US ( Extrapolating from 4%, that’s $3.96 trillion. (Damages at market prices massively overweigh the US and other rich places; damage to humans are MUCH WORSE in poorer countries— higher death, etc., so I am using US market prices for everywhere.)

    Meh, that’s only 4% of GDP, and 2.5% of ecosystem services, you say?

    That’s 2022, and we’re just getting started. When SLR starts to rumble, then we lose entire cities and islands — Jakarta, Miami, et al — which means exponential growth in damages. And then there are heat waves, crop losses, etc. that are not even covered by these insurance figures…

    When I started “Life plus 2 meters” I was alarmed… but the news (e.g., antarctic melting) has only got worse, year by year.

    So “10 years” is to try to be MORE pessimistic!

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