IPCC: How climate change will stunt economic growth

As temperatures warm from climate change, risk to crops, water supplies, biodiversity and oceans multiplies. For the business community and investors, climate change will also hit growth, according to the latest report from the Intergovernmental Panel on Climate Change (IPCC).

The report found that the impacts will be felt by every sector of the economy and are relevant to all investors, financial services and businesses. Decisions made by private sector investors and financial institutions will have a major influence on how society as a whole responds to climate change.

"This report is essential reading for businesses everywhere," says Neil Adger from the University of Exeter UK and a chapter author of the IPCC's Fifth Assessment report. "If you want to understand the risks of climate change — to natural resources, to the insurance sector, to agriculture and food — the IPCC report paints the big picture. The insurance sector, for example, faces uncertainty in setting premiums, and major risks when wild weather damages property, people and assets. Understanding such risks within businesses, large and small is important work."

This is the second of three reports on the causes, consequences of and possible solutions to climate change. The first part of the report released in September was unequivocal that humans were the dominant cause of climate change since the middle of the last century. This second report is equally grim reading, with very few positive impacts projected under a changing climate at this speed.

After much debate, it was concluded with certain caveats that 2 degrees Celsius of warming would cause economic losses between 0.2 percent and 2 percent of global income. However, the IPCC says the economic models on which these numbers depend "vary in their coverage" of economic sectors, "depend on a large number of assumptions, many of which are disputable," and do not "account for catastrophic changes, tipping points and many other factors."

While describing the 0.2 percent to 2 percent figure as "incomplete," it concludes that losses "are more likely than not to be greater," rather than smaller, than this range. The U.N. panel also says there are large differences between and within countries — some will be affected much more significantly than others.

"When you really look at where we are with the modern science, I think those 0.2 percent to 2 percent numbers at 2.5 degrees are really old fashioned," says Chris Field, IPCC working group co-chair. "They don't include a lot of what we understand about the way climate change impacts work and about the way a multi-stressor threat multiplier can lead to damages. They don't capture a wide range of processes that are likely to be important, and they don't acknowledge the diversity of values."

Increased pressure on food production

From fish in the ocean to rainfall patterns, things are changing and not always for the better. The quantities and quality of fresh water available will lessen in dry regions and increase in high latitude. The current rate and magnitude of ocean acidification is faster than any event within the last 65 million years.

Climate change is a major factor in the decline of pollinators like bees, and warming will impact crop yields in temperate and tropical regions. While some individual areas may see increased yields in the short term, overall climate change is likely to reduce yields of staple crops, such as wheat, rice and maize, with most showing a decline by 2050 by as much as 25 percent. At the same time, demand for food will grow.

Areas suitable for the cultivation of coffee, tea and cocoa, which support millions of smallholders in more than 60 countries, will significantly shrink. It's likely the quality of coffee and other foods will decline, too.

As per recent examples, droughts in Russia in 2010 and the U.S. in 2012 led to major crop failures, a spike in prices and social unrest. The 2010-11 food price spike is estimated to have pushed around 44 million people below the basic-needs poverty line across 28 countries.

Ripples throughout the global economy

Climate change will have impacts that for many businesses, may not be in the forefront of primary concerns. But looking towards a stable and consistent workforce, climate change will increase displacement of people over the coming century. Impacts can also create rivalry between nations over natural resources and the risk of conflicts.

Estimates of the impacts of climate change on worker productivity, assuming current work practices, primarily through heat stress, indicate that productivity has already declined during the hottest and wettest seasons in parts of Africa and Asia. With more than half of afternoon hours projected to be lost to the need for rest breaks in 2050 in South East Asia, we may see up to a 20% loss in global productivity in 2100 under a business-as-usual scenario.

The physical impacts of climate change include increased risks to population centers and assets in coastal zones from sea-level rise and storm surges. Agricultural commodity prices will likely be higher and more volatile due to changes in agriculture patterns.

A large proportion of species face increased extinction risk, and although some will adapt to new climates, those that cannot adapt sufficiently fast will decrease in abundance or go extinct in part or all of their ranges. Many terrestrial, freshwater and marine species have already shifted their geographic ranges, seasonal activities, migration patterns, abundances and species interactions in response to ongoing climate change.

The report also says that redistribution of marine fisheries catch potential toward higher latitudes poses risk of reduced supplies, income and employment in tropical countries, with potential implications for food security.

In order to limit global temperature increase below 2 degrees Celsius above pre-industrial levels, there will need to be significant investment required in the energy supply sector accompanied by a significant shift away from fossil fuels towards low carbon sources, such as renewables and nuclear.

This report also acknowledges that a certain amount of warming is already locked in because of past emissions, and that in some instances, there is no way to escape the effects of climate change. Some countries are already feeling the economic pinch of climate change.

"Asia is the most vulnerable continent to climate change, but it is not just developing countries in the region which are affected," says Kimiko Hirata, international director of the Kiko Network, a Japanese NGO. "Japan is already experiencing climate change and faces severe risks if action is not taken. Japan imports about 60 percent of its food from overseas, thus climate impacts, like poor crops yields in other countries, will boost the price of food here — with inevitable negative consequences on our economy. This is not an issue somewhere far away, but an issue for us here."

But more than all of this, the IPCC report drives home to businesses and individuals our responsibility and action in doing something about the climate challenge over the coming decades. As the IPCC's own press release (PDF) states, "The world, in many cases, is ill-prepared for risks from a changing climate ... There are opportunities to respond to such risks, though the risks will be difficult to manage with high levels of warming."