A warming planet could wreck the economy

Rick Newman

There’s broad agreement that climate change can cause stormier weather, rising sea levels and more flooding in coastal areas. But economists are beginning to think a warming planet can also cause job losses, recessions and even a tumbling stock market.


President Obama and dozens of other world leaders are gathered in Paris this week to hammer out a plan to reduce carbon emissions and slow the warming of a planet that’s 1.7 degrees (Fahrenheit) hotter than it was 135 years ago, when scientists took the first global temperature readings. A big part of the challenge will be finding ways to enforce carbon-reduction targets various nations agree to, and to help poor countries highly vulnerable to the effects of climate change—think Bangladesh or Indonesia—pay for reforms they can’t afford.

But climate change could also have a bigger impact on the economies of the U.S. and other developed nations than many experts have thought up till now. Two researchers at Columbia University, Geoffrey Heal and Jisung Park, argue that a moderately warmer planet could produce an economic downturn as bad as the Great Recession that battered the economy from 2007 to 2009. If the worst global warming prediction—a temperature spike of about 10°F by the year 2100—were to materialize, the result could be a depression that rivals or exceeds the devastation of the 1930s, which bankrupted much of America.

Rising temperatures, in fact, may already be slowing U.S. economic growth while depressing wages and living standards. Most research on the economic impact of climate change examines catastrophic events such as storms or droughts, but economists have also started to study small but sustained changes in temperature. And it turns out workers are notably less productive when there’s “thermal stress”— temperatures considerably hotter or colder than average.

A 2012 study of productivity at 64 U.S. auto plants during a 10-year period found that extreme heat—defined as six or more consecutive days with a high temperature of 90° or more—cut production by about 8%. Workers got tired faster, or just performed worse overall. Air conditioning seemed to mitigate the production slowdown caused by a heat wave, but not eliminate it completely. And unlike some lost production, which is simply made up at a later date, output lost during a heat wave may be production that simply gets lost for good. Not surprisingly, lost output caused by extreme heat was highest in southern states and lowest in northern ones.

Such results are surprising because rich countries like the United States are supposed to have technologies like air conditioning and management practices such as flex-time staffing meant to neutralize the effect of extreme weather. But apparently those advantages still leave employers vulnerable to weather-related distress. It’s not clear that white-collar industries such as accounting, retailing or software would be as sensitive to heat waves as manufacturing, but the more temps rise, the more they will strain A/C units, raise the cost of keeping workers cool and strain those who work outdoors. “Quite simply, the hotter we are, the less effective we are at any task we tackle,” Heal and Park write.

There’s a lot of other evidence showing that hotter-than-average temperatures raise the death rate, impede growth in developing countries and give companies an incentive to locate facilities away from hot climates. Heal and Park put data from different studies together and came up with this rule of thumb: For every temperature increase of 3°F or so in hot regions, productivity falls by 3% to 4%.

That leads to some alarming extrapolations. A temperature rise of 2°F over a relatively short period of time would disrupt productivity enough to push the U.S. economy back into a 2007-style recession, with millions of job losses and a stock market almost certain to track the economy downward. If temperatures were to rise by 10°F by the end of the century, it would cause a cutback in productivity and output akin to the devastations of the 1930s.

Those are just extrapolations, of course, and they may not account for new ways humans adapt to rising temperatures or new technology that addresses the problem. And it’s always possible confabs such as the one in Paris actually work, and we somehow manage to slow or reverse global warming. Sooner or later, your paycheck may depend on it.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.

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