- Published: 14 December 2018 14 December 2018
Hot on the heels of an alarming major climate report from the United Nations, climate change economist William Nordhaus was awarded the 2018 Nobel Memorial Prize in Economic Sciences along with technology specialist Paul Romer.
For a long time, the economy and climate change prevention were thought to be mutually exclusive. However, the Yale University economics professor’s pioneering work provided a blueprint for a future where the two factors intersect and thrive together. Nordhaus’ stake in the issue began as early as 1972, when he wrote a paper that aimed to provide answers to the questions “how good are measures of output currently used for evaluating the growth of economic welfare?” and “does the growth process inevitably waste our natural resources?” Built on the premise that acknowledges nature and economic activity as constraining factors to each other’s development, The Academy credits Nordhaus for designing the first simple but dynamic and quantitative models of the global economic-climate system. It paves the way for other researchers to simulate how the economy and climate can evolve together under various potential situations, such as the effect of policy actions.
The intersection of climate change and our economic future
By recognising Nordhaus’ work, the committee is making it clear that the conversation on our economic future is no longer possible without considering the dire costs of the global climate change crisis. Of course, economic stability in an increasingly volatile and globalised world is, in itself, a challenge. The economic calendar on FXCM shows how different national and global events can affect currencies and economies every single day. These do not work in a vacuum, and can have far-reaching effects for members of the global economy. But perhaps no other event can be as overarching, or as dire, as climate change. What we see on the news doesn’t even begin to grasp its entire gravity, but recent events can help paint a picture.
Since the Industrial Revolution, global temperatures have increased by a full 1 degree Celsius. This change is characterised by intensifying heat waves, increased sea levels in the Arctic, ruthless rainfall, and much more. Recent calamities like Hurricane Florence, droughts, and wildfires have contributed to making 2017 the costliest year for natural disasters so far — clocking in at least $306 billion worth of damage for the US economy. Here in the UK, The Independent reports that costs could reach as high as £2.2 billion in 2050 for a flood similar to those experienced in the winter of 2013/14, which had cost us £1.3 billion in damaged property. Moreover, 2.5 million homes will be seriously at risk of flooding. And it’s only going to go further south from there. Should temperatures rise by as little as .5 degrees Celsius more, the IPCC estimates a £42 trillion hit on the global economy by 2100. It’s an expensive drag on our economy, immediately invalidating all claims that climate change isn’t an economic concern.
The key to fighting climate change
The numbers don’t lie, so it is disconcerting that many politicians continue to ignore these worrying signs. This is especially critical in the world's largest economy, the US, where the debate has been rife with misunderstanding and the head of state blatantly dismisses the signs as fiction. Though policymakers acknowledge the need to address climate change, Nordhaus stresses the need for education and making people understand the dire problem that lies ahead. On the other hand, the rest of the missing formula lies in establishing a united front against the real enemy that is climate change. “I think we understand the science. I think we understand the economics of abatement. We understand pretty much the damages,” Nordhaus said in a statement published by Bloomberg. “But we don’t understand how to bring countries together. That is where the real frontier work is going on today.”