Executive Summary
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The impact of climate change on business—or the monetary value of the costs that may be incurred by affected parties and the benefits that they may accrue—is difficult to assess with any degree of precision.
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The Stern Review and the United Nations Intergovernmental Panel on Climate Change (IPCC) have reported the results of running complex computer models that integrate climate science and economics with the aim of predicting the economic impact of climate change far into the future.
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There is no agreement concerning the appropriate discount rate or the monetary value of effects where market prices are not available.
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Uncertainty also surrounds the rate, and carbon-intensiveness, of the growth of the world economy for decades and even centuries ahead, while the hypothesis of anthropogenic climate change itself continues to be controversial.
The Global Impact of Climate Change on People
The standard approach to assessing the economic impact of climate change on business requires giving a monetary value to the costs that may be incurred by those affected and the benefits that may accrue to them.
The most comprehensive attempt to do this is the Stern Review (2007), commissioned by the UK government, which predicts severe impacts from an average global temperature rise of 2–3°C within the next 50 years or so. These impacts include an increased risk of flooding from melting glaciers, followed by disruption to water supplies, affecting up to one-sixth of the world’s population, mainly in the Indian subcontinent and parts of China and South America. In higher-latitude areas, such as Northern Europe, agricultural yields may increase with a temperature increase of 2–3°C, but declining yields, especially in Africa, could leave hundreds of millions of people without sufficient food. Increased mortality from heat-related deaths and the spread of tropical diseases is predicted, although there will be fewer deaths from exposure to cold. With warming of 3–4°C, thermal expansion of the oceans is predicted to cause rising sea levels, which could lead to inundation of low-lying coastal land, displacing “tens to hundreds of millions” of people. The risks are greatest for Southeast Asia (Bangladesh and Vietnam), small islands in the Caribbean and the Pacific, and large coastal cities, such as Tokyo, New York, Cairo, and London. Extreme weather events may become more frequent.
Case Study
What Would This Mean for Business Activity in, for example, the United States?
If predictions such as those reported by Stern prove to be accurate, business will be forced to adapt to changes in climate. Adaptation would involve a range of measures of varying cost. In the United States, temperature increases of up to 2–3°C might cause the wheat belt to shift northward into Canada; US farmers in the Midwest would have to plant new crop varieties, a fairly routine adjustment. In northern areas, winter deaths from exposure to the cold would fall and tourism might increase. Further south, the melting of snow could make the water supply to California and the Mississippi basin more erratic, causing more acute problems for agriculture. Deaths from exposure to heat and the cost of air conditioning and refrigeration would increase. At higher temperatures, southern parts of the United States would see an increased risk of extreme weather events, requiring substantial investment to defend low-lying cities, such as New Orleans and New York, from flooding.
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