Climate Change, Both an Economic Threat and Economic Opportunity

Climate Change, Both an Economic Threat and Economic Opportunity

Climate Change, Both an Economic Threat and Economic Opportunity

With the threat of climate change getting increasingly dire every year and the global economy already in a prolonged slump, the cross-current effects between the climate and the economy seem to be getting stronger. This can be both a positive and a negative thing, and the opportunity cost of climate change action only grows year on year. 

While the earth is a shared resource of all people, and everyone will be affected negatively by climate change, the magnitude of this impact could vary from place to place. Developing countries in the Global South are especially vulnerable to this, as, in general, they have fewer resources to tackle such problems and are more dependent on agriculture, unimproved water sources and carbon-intensive exports than rich countries. However, they also have the most to gain from sustainability efforts and would benefit greatly from proactively investing in sustainability and climate awareness. 

While climate change will affect every aspect of the economy, there are some sectors that are especially vulnerable and which require special attention to avoid catastrophe. These include the core sectors of health, agriculture and water, which have knock-on effects on almost every part of society.

Natural Disasters and Human Health

Natural disasters such as floods, cyclones, heatwaves and droughts are becoming more and more common as well as unpredictable, wreaking havoc across farms and cities, especially in the developing world, which is ill-equipped to deal with such crises. The increasing frequency of such disasters means that larger and larger sums of money need to be spent on prevention and relief, which saps capital from the broader economy and makes the lives of those on the economic fringe very precarious.

Climate change also wreaks havoc with human life expectancy and productivity in myriad ways. Rising temperatures increase the risk of malaria and other insect-borne diseases, already a serious problem in most tropical countries. Similarly, the paucity of quality water sources could increase the risk of waterborne diseases breaking out. It has been demonstrated that a 1-degree rise in temperature could lower productivity by as much as 2%, a figure which extrapolated globally equates to around 80 million jobs. 


Agriculture is the economic sector which is most vulnerable to climate change, with farm productivity levels projected to drop sharply in coming years, especially in the Global South. This has serious implications for nutrition, exports, food security and rural development, and serious work needs to be undertaken promptly to build resilience in agriculture systems. 

Added to this is the fact that agriculture is itself a large contributor to climate change, in the form of deforestation, animal husbandry, pesticides and fertiliser overuse and large water demands, and this becomes a vicious loop which could trap developing countries in a cycle of poverty and crisis. 

While some emerging technologies could mitigate the impact, such as vertical farms, lab-grown meat, crops genetically modified to withstand new climate conditions, and alternate food sources, these are still either in the process of development or too expensive for most countries to adopt on a mass scale. Large investments are needed to develop water systems, reduce chemical dependence and improve yields to prevent climate change from disrupting the primary sector of the economy.

Water Stress

Water stress is a serious issue already, and it is only predicted to grow in importance in the coming years. The United Nations has warned of a serious chance of ‘water wars’ breaking out between countries for this most important resource. Flashpoints include Central Asia, which is slowly turning into a desert, China and India over the Himalayan rivers, Egypt and Ethiopia over the Nile, and Southeast Asia

Large amounts of water are a necessity for almost every aspect of the economy, including agriculture, manufacturing, energy, tourism and general consumption. With climate change causing rivers to dry up, rainfall patterns becoming increasingly erratic, and groundwater levels dropping due to overuse, the world is headed for a serious water shortage if drastic steps are not taken now. 

Meanwhile, floods, such as the devastating ones in Pakistan last year, are also becoming more common, rendering millions homeless, halting all economic activity, and reducing future productivity through soil erosion and salinisation. Rising sea levels threaten to inundate some of the world’s most important cities, such as New York, Amsterdam, London, Tokyo, Shanghai and Mumbai.

Some technologies have been touted as a silver bullet for this problem, such as desalination plants, but by and large, these are too expensive and energy-intensive to solve the issue by themselves. Countries need to form a multilateral body to negotiate water-sharing treaties, improve water treatment facilities, and share river management responsibilities if calamity is to be averted. 

The Transition Economy

While there has been much debate about the costs decarbonisation and sustainability initiatives will impose on businesses, and how this affects competitiveness, it should also be noted that the green transition is also a tremendous, once-in-a-generation economic opportunity. A report by the Carbon Disclosure Project estimates new business prospects could be well over $2.1 trillion. Combined with the opportunity cost of inaction, the economic case for a green transition is undeniable.

These opportunities include the buildout of renewable energy infrastructure such as wind turbines and solar panels, EV manufacturing, public transit, green architecture, carbon capture and sequestration, and new products, such as lab-grown meat, resilient GMO crops, and new forms of energy storage. Developing countries even have the opportunity to ‘leapfrog’ a technological generation and so avoid ruining their environments like industrialised countries have done while simultaneously securing great improvements in efficiency, productivity and living standards.

Whether climate change is seen as a threat or an opportunity, dealing with it is an imperative that cannot be delayed any longer. Countries that foresee the threat and work proactively have an immense opportunity in front of them to improve efficiency and sustainability and prosper in the 21st century, while on the other hand, places that do not take action face the threat of disaster and even total collapse. However, in the end, a concerted and united effort is needed by states, businesses and consumers the world over if economic growth and development are to be sustained in the coming years. 

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