The drastic swings in weather across the United Kingdom are reflective of the broader spectrum of global warming that the world is currently experiencing. Rising temperatures across the world even prompted a debate in the House of Lords this June on how the government intended to prepare itself for the “inevitable impacts of climate change”. The ‘inevitability’ of the natural disasters that are to befall as the result of what can only be referred to with the cheerful euphemism of ‘industrial mismanagement’ can be surmised to be the cause of the conversation taking on an adaptationary, rather than preventative approach.
As temperatures rise, weather patterns will become more and more difficult to predict, making it difficult to mitigate its effects on our societies, our politics and our economies, all of which have the potential to feed into and off each other. Of chief interest today is the potential of climate change to impact the economy in the UK.
Predictions made by the Met Office
The Met Office, the national meteorological service, predicts that climate change will affect the future of the country in several different ways. For one, the Office predicts that in the future, UK would be affected by:
- Wetter and warmer winters
- Drier and hotter summers
- As well as more frequent and intense extreme weather patterns.
These changes are expected to affect the country’s economy as well.
The following describes a few key economic changes.
Increased food costs
According to the National Climate Change Committee, climate change is expected to impact food production and distribution systems worldwide. The disruption in these systems is expected to result in high food-related inflation, estimated by the Committee to be as high as 20%. In addition to the inflationary pressure in general, food-related inflation can be expected to widen social divisions and create deeper differences between the different economic classes.
Loss of labour productivity due to extreme weather
Perhaps the impact of climate change most often talked about is the human impact of climate change. There is an economic element to this human impact as well. Working in extreme heat, for example, can be expected to cause lethargy, fatigue, muscle cramps, loss of concentration, and heat stroke, causing losses in productivity due to unendurable work conditions and health issues.
Damage to infrastructure
The possible damage to infrastructure is perhaps a less obvious economic impact of climate change. Global warming results in rising sea levels due to melting glaciers, placing public and private infrastructure in coastal areas at risk of flooding, erosion, and ultimately, landslides into the rising water, resulting in an overall decrease in natural capital. Infrastructure situated further inland is not exempted from the effects of climate change either. The extreme heat alone, for example, increases the risk of buckling rail tracks, sagging cables, softening tarmac, to say nothing of the potential damage of expanding steel and glass built into existing infrastructure. Rising heat levels also affect the integrity of freshly mixed concrete, putting future infrastructure at risk of damage.
The private sector feels the heat of climate change
Real-world effects show that climate change has moved beyond a mere conceptual crisis – it has now entered corporate financial statements as well. In the US, Walmart now lists possible climate change effects as part of its operational risks in its annual financial reports. Potential costs that could affect the massive retailer are categorised as physical risks (due to adverse weather conditions, related natural disasters, and the like) and transition risks (due to regulatory and/or technological changes). Disney is another massive corporation that is already planning for the future impact of climate change on their financial performance. In the section allocated to record its ‘business, economic, market and operating condition risks’, Disney describes climate change as part of a ‘variety of uncontrollable events that may reduce demand for or consumption of their products and services, impair the company’s ability to provide their products and services, and increase their costs or reduce the profitability of providing their portfolio of products and services”.
The macroeconomic picture
As has been already mentioned, the economic impact of climate change goes beyond the impact on individual businesses, however large the corporations themselves may be. The aggregate impact on these businesses has multiple effects on the economy of the country as a whole. Research published by the Climate Impact Lab as far back as 2015, for example, projected that climate change would reduce average global incomes by roughly 23% by the year 2100. Given that the rate at which global warming is increasing and the industrial impact on climate change has accelerated since 2015, it is safe to assume that this number is an underestimation.
In China, the cost to the economy caused by a heat wave was estimated to be 1.36% of the total GDP in 2020. While there is a lack of comparable data for the UK, it is estimated to be close to 0.4% of the total economic output given a 2℃ increase in the warming trajectory.
Meeting the economic stress caused by global warming
The UK registered its highest temperatures for the year on 9 September, recording a provisional high of 32.7℃ in Heathrow, according to the Met Office. It beat a high of 32.6℃ recorded in Wisley Surrey on 7 September. However, the Met Office also forecasts drops in temperature in the wake of yellow thunderstorm warnings that promise to end the heatwave in the country.
Although the heatwave is not expected to last long, the economic fallout of climate change will likely only increase in the years and decades to come. These future developments will also likely add pressure on government expenditure as the state shoulders the responsibility of stabilising faltering public infrastructure and subsidising relief efforts. In addition to curbing their own environmental footprint, the private sector has a responsibility to aid these efforts in every way possible.
The need for economic resources to fight climate change will be higher than ever, which is why corporations are tasked with fuelling further sustainable growth even amidst the climate change fallout. Tax revenues for the government are also at risk of decreasing if sustainable economic growth is not maintained. It is therefore necessary that businesses take the necessary action to mitigate the effects that climate change-related weather events have on their businesses to cushion the UK’s economy against the adverse effects of weather events. There is already a severe need for the development of national policies to safeguard both businesses and people from climate change as well as updated health and safety manuals that reflect the needs of the hour.
One of the chief economic impacts of high temperatures, for example, is the impact it has on human productivity. Considering that high temperatures make it harder to work, high temperatures typically cause low productivity as well as resulting in health issues for workers. According to a study conducted by the International Labour Organisation, it is estimated that over 2% of all working hours will be lost annually by 2030, due to rising temperatures. However, despite rising risks, the UK is still to put policy protections in place to protect workers from having to work in hot temperatures. As with most issues, the most vulnerable in our communities will be exposed to the economic effects of rising temperatures the most as well. Productivity losses due to heat, for example, tend to occur at a greater frequency in jobs where wages tend to be lower than the average, typically in blue-collar jobs.
The economic fallout from extreme heat will only continue to rise over time. Weather events such as heat waves tend to be seen as localised events: however, these events increase in their magnitude and frequency at a rapid pace. Economies that refuse to evolve beyond practices that were formed to suit conditions that are now firmly in the past will likely find it difficult to endure the heat.
(Theruni Liyanage)