Climate crisis ‘hitting our economy’ and driving inflation, says new book | Inflation

Forget Ukraine, coronavirus, corporate greed and ‘supply chain issues’, when it comes to inflation, the climate crisis is the real enduring worry, new book says, and one that will only grow aggravate.

climatonomicby former White House reporter and director of Environmental Entrepreneurs (E2) Bob Keefe, is a narrative account of how the climate crisis is fundamentally changing not just US but global economies.

In its pages, Keefe exposes what he sees as the false choice between creating jobs, driving economic growth and protecting the planet, and how ‘supply chain disruptions’ have become a euphemism for the effects of change. climatic.

“I don’t think people have realized that climate change is an economic issue today, because it’s always been seen as an environmental, health or social issue,” Keefe says. “The fact is, climate change is hitting our economy.”

Political and monetary leaders hinted as much this week after US Treasury Secretary Janet Yellen acknowledged that inflation had reached “unacceptable” heights, hitting a 40-year high of 8.6% over the year at 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 simply assess the cost of climate-related disasters, not their underlying effect on inflation.

According to Keefe, citing figures from the National Oceanic and Atmospheric Administration (NOAA), climate-related weather disasters cost the US economy dearly. over $145 billion in 2021 – an increase of almost 50% compared to last year. Over the past five years, they have cost $750 billion. Since 1980, 323 weather and climate disasters have cost $1 billion or more, the total cost of these events exceeds $2.195 billion.

In addition, according to a report by reinsurance company Swiss Re last year, climate-related disasters could cost the U.S. 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 expected to decrease worker productivity by $221 billion a year by 2090, and climate-related weather disasters are expected to cost US$500 billion per year.

Another study published in Environmental Research Letters in July last year found that long-term warming contributed $27 billion to losses covered by the U.S. crop insurance program from 1991 to 2017, just over 19% of the total. In 2102, the costliest year, rising temperatures contributed nearly half of the losses valued at $18.6 billion.

Although each relates to GDP and productivity, none specifically refer to inflation and inflationary pressure – prices rise over time – and are not taken into account in official statistics. published by the Bureau of Labor’s Consumer Price Index, which measures the price movement of a basket of goods and services.

Yellen and Federal Reserve Chairman Jerome Powell have been criticized for initially describing inflation as a “transientproblem that would resolve itself. Yellen admitted that her initial assessment of the economy was “wrong” and that she and Powell “could have used a better term than transitional.” She said “most inflation” was linked to supply and demand imbalances.

But that, too, has a climate component, says David Super, a professor of law and economics at Georgetown University, who argues that climate change is largely ignored as an inflationary driver, in part because it manifests as a global issue openly and covertly. which makes it difficult to assess the direct inflationary impact.

“Its impact is broad and systemic, so there is no element of the CPI that you can say reflects climate change. We can say that grain and diesel costs reflect the war in Ukraine, but you can’t do that with climate change because it affects so many things,” says Super.

The loss of timber and houses due to wildfires in the west could show up in housing construction costs or in the cost of renovating houses to guard against coastal erosion and flooding. “Right there you have several things that increase demand or undermine supply,” Super points out. “And that’s just a small part of that.”

Similarly, supply chain issues frequently cited as inflationary may not simply be issues related to China Covid lockdowns affecting manufacturing, but a range of issues such as drying up of roads or loss of crops due extreme weather events and changing weather conditions.

The IPC focuses on results and not on causes. Responsibility for assessing causes rests with the White House council of economic advisers Where national economic council. Agencies that have attempted to produce estimates have faced challenges to their data from climate deniers, resulting in paralysis.

“This has led to less eagerness to make estimates in areas where a lot of estimates should be made because there is so little tendency to assume that those estimates would be made in good faith,” says Super. “Faced with a well-funded climate-denying industry, estimates turn into a sideshow.”

Turning the climate crisis from an environmental issue to an economic one is at the heart of what Climatenomics presents. What’s needed, says Keefe, is an effort of a scale similar to the shift from the industrial age to the information age to renewable energy and with it, provisions to counter growing disruptions from climate change.

“What we do know is that the economic cost of climate change, both weather disasters and raw material costs, is increasingly weighing on economies,” Keefe says.

But if one of the main inflationary forces is the climate, it is also a force that central bankers cannot tackle simply by adjusting interest rates.

Viewing climate change as an environmental issue – which it is – but not as an economic issue, which it surely is, is changing, according to Super. “The current cycle of inflation has widened people’s eyes,” he says.

“Of course the pandemic and the war on Ukraine is part of that, but I think it’s a teachable moment that will allow people to see how much climate change is affecting the way we live. We We’ve framed climate concern extremely narrowly – it’s never a good idea with a complex social phenomenon or with something as global as this.

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