Forget Ukraine, coronavirus, corporate greed and “supply chain issues”, when it comes to inflation the climate crisis is the real, lasting, worry, according to a new book, and one that’s only likely to get worse.
Climatenomics, by former White House reporter and director of Environmental Entrepreneurs (E2) Bob Keefe, is a narrative account of how the climate crisis is fundamentally altering not just the US but global economies.
Within its pages, Keefe lays out what he sees as the false choice between creating jobs and driving economic growth and protecting the planet, and how “supply chain disruptions” has become a euphemism for the effects of climate change.
“I don’t think people have realized that climate change is an economic issue now because it’s always been seen as an environmental, health or social issue,” says Keefe. “The fact of the matter is climate change is battering our economy.”
Political and monetary policy leaders hinted as much this week after the US treasury secretary, Janet Yellen, acknowledged that inflation had reached “unacceptable” highs, it hit a 40-year high of 8.6% in the year to the end of May. Two days later the White House said: “Our hemisphere is facing the devastating impacts and costs of climate change,” ahead of Joe Biden’s Summit of the Americas in Los Angeles.
Assessing the role of climate change on economies is one thing but, for now, most models merely assess the cost of climate-related disasters, not their underlying effect on inflation.
According to Keefe, citing National Oceanic and Atmospheric Administration (Noaa) figures, climate-related weather disasters cost the US economy more than $145bn in 2021 – a nearly 50% increase from last year. Over the last five years, they have cost $750bn. Since 1980 323 weather and climate disasters have cost $1bn or more, the total cost of these events exceeds $2.195tn.
Moreover, according to a report from the reinsurance firm Swiss Re last year, climate disasters could cost the US economy 10% of gross domestic product (GDP) – the broadest measure of economic health – by 2050. Globally, that figure rises to 18%. A 2018 National Climate Assessment (NCA) projects that rising temperatures and extreme heat are projected to decrease worker productivity by $221bn a year by 2090, and climate-related weather disasters are projected to cost the US $500bn a year.
Another study published in Environmental Research Letters in July last year, found long-term warming contributed $27bn to the losses covered by the US crop insurance program from 1991 to 2017, or just over 19% of the total. In 2012, the single costliest year, rising temperatures contributed nearly half of losses valued at $18.6bn.
While each of those relate to GDP and productivity, none specifically refer to inflation and inflationary pressure – prices rising over time – and are not factored into official government statistics released by the Bureau of Labor’s Consumer Price Index, which measures the changing prices of a basket of goods and services.
Yellen and the Federal Reserve chair, Jerome Powell, have faced criticism for initially describing inflation as a “transitory” problem that would resolve itself. Yellen has admitted that her initial evaluation of the economy was “wrong” and that she and Powell “could have used a better term than transitory”. She said that the “bulk of inflation” was related to imbalances in supply and demand.
But that, too, has climate component, says David Super, professor of law and economics at Georgetown University, who argues that climate change is largely ignored as an inflationary driver, in part because it is manifesting as a global problem in overt and covert ways that makes the direct inflationary impact hard to assess.
“Its impact is broad and systemic, so there’s no one item in the CPI that you can say reflects climate change. We can say that grain and gas-oil costs reflect the Ukraine war but you can’t do that with climate change because it affects so many things,” says Super.
Loss of timber and homes due to wildfires in the west might show up in housing construction costs, or the cost of retrofitting homes to guard against coastal erosion and flooding. “Right there you have several things that are either increasing demand or undermining supply,” Super points out. “And that’s just one small part of it.”
Similarly, supply chain issues frequently cited as inflationary may not simply be issues around China Covid lockdowns affecting manufacturing, but a range of issues from roads washing out or loss of crops due to extreme weather events and shifting weather patterns.
The CPI is focused on results, not causes. The responsibility to assess causes rests with the White House council of economic advisers or national cconomic council. Bodies that have attempted to come out with estimates that have been met with challenges to their data by climate deniers, resulting in paralysis.
“That has led to less eagerness to do estimations in areas where a lot of estimates would have to be made because there’s so little inclination to assume those estimates would be done in good faith,” says Super. “In the face of a well-funded climate denier industry, the estimates get turned into a sideshow.”
Shifting the climate crisis from an environmental to an economic issue is at the heart of what Climatenomics presents. What’s required, says Keefe, is an effort similar in scale to the shift from the industrial to the information age to renewable energy and with it, provisions to counter climate change’s increasing disruption.
“What we do know is that the economic cost of climate change, both from weather disaster and commodities costs, is taking an increasing toll on economies,” says Keefe.
But if one of the major inflationary forces is climate, it’s also one that can’t be tackled simply by central bankers adjusting interest rates.
According to Super, seeing climate change as an environmental issue – which it is – but not as an economic issue, which it surely is as well, is now in the process of changing. “The current round of inflation has widened people’s eyes to it,” he says.
“Sure, the pandemic and war on Ukraine are part of it, but I think this is a teachable moment that will allow people to see just how pervasive climate change is in affecting the way we live. We have framed the climate concern in extremely narrow ways – never a good idea with a complex social phenomenon or with something as all-encompassing as this.”