What is the Cost of Climate Change Inaction?

Skeptics of climate change often warn of the cost of reducing greenhouse gases. They cite job dislocation in fossil fuel industries, increased taxes and government debt as reasons to do nothing. Sure, there will be costs. But there will also be costs of not acting. And since we like to think of ourselves as rational actors, wouldn’t it make sense to make an informed prediction of what those inaction costs will be so we can put them in the balance?

It should be plain to all but the most stubborn climate change skeptic that, Houston, we have a problem. The Washington Post reported that Monday, July 22 through Thursday July 25, 2024, were the four hottest days scientists have ever recorded. Ever recorded.

It used to be fashionable for skeptics to bloviate endlessly about how all this is a natural spike in temperatures – nothing to get excited about and certainly nothing to spend a lot of money trying to fix. But that kind of talk is just being overwhelmed by the evidence. Take, for example, that these super high temperatures coincide with the highest levels of heat-trapping carbon in the atmosphere in 3 million years. Just a coincidence?

But back to the question at hand. Who best to make a clear-eyed prediction of the cost of climate change inaction than the insurance industry? After all, that industry is in the business of assessing risk and pricing it into their insurance products. It turns out that one of the largest insurance companies in the world – Swiss Re – has made just that prediction.

In 2021 Swiss Re issued a report entitled The Economics of Climate Change: No Action Not An Option. It predicted that by mid-century the average global temperature will be 2.0° to 2.6° C higher than in pre-industrial periods. That report concluded that global GDP will be 11–14% less by 2050 than in a world without climate change. To put this into perspective, U.S. GDP dropped around 29% during the Great Depression and by the same amount in the first quarter of 2020 during the pandemic shutdown.

The economic pain from climate change will not be from a single catastrophic event like the pandemic, but rather a steady decline driven by property losses resulting from extreme weather events, widespread health consequences, food insecurity, water distribution problems, inflation, a tightening of credit and business failures.

Doing what is necessary to reduce the effects of climate change – despite the cost – is not an easy political lift. It requires people to sacrifice today for a future benefit, something we are not good at. But the painful economic future predicted by Swiss Re isn’t so far ahead of us. It is within the lifetimes of most Americans today and certainly within the lifetimes of young voters.

We need to get serious.