3.5.7 Economic Impact of Environmental Challenges

The economic impact of environmental challenges can be enormous and is not confined to any single country, so joint action is needed.

Disease, pollution, resource shortages and climate change are major challenges that affect economies and are affected by them.  Their impact crosses borders: countries affect each other.  No country is immune from the possibilities of the rest of the world passing on diseases or swamping it in pollution.  And climate change affects the whole planet.

The economic impact of these four challenges is considered here:

●  The COVID-19 coronavirus pandemic had a huge economic impact around the world in 2020 as governments tried to save lives by shutting down parts of their economies.  A BBC article, Coronavirus: How the pandemic has changed the world economy, reported falling stock markets, rising unemployment, changing habits in shopping and travel, and increased pharmaceutical company profits.

●  Air pollution has also damaged people’s health.  As Rebecca Solnit wrote in The Guardian, There’s another pandemic under our noses, and it kills 8.7m people a year.  Although this is a bigger and older problem than COVID-19, it has received much less attention because people have become used to the pollution – whereas the impact of the newer disease was sudden and dramatic.

●  Resource shortages are potentially an economic problem but, as noted earlier (3.2.6), many can be resolved by finding substitutes or new sources of supply. That argument, however, doesn’t apply to water shortages.  It is possible to convert seawater to drinking water, but this can only be cost-effective for countries with hot climates and access to the sea.  And actions required to combat climate change are creating demands for scarce materials.

●  Climate change will render some parts of the world uninhabitable, as agricultural land turns to desert. Lack of Water [is] Linked to 10 Percent of the Rise in Global Migration according to the World Bank.  Populations might try to move to safety, or compete for resources.  Emigration might be the only option for people in some less wealthy countries unless something can be done to help them.  The impact of large-scale migration cannot solely be expressed in economic terms: it damages the lives of people who have to move, and it can put stress on the places they flee to.

The economic impact of environmental challenges is very severe for many developing countries, so they will need help in responding.  Action to solve global economic problems requires a joint approach, and individual governments commit to targets for implementation of collective goals.  The Millennium Development Goals have now been replaced by a UN Resolution: Transforming our world: the 2030 Agenda for Sustainable Development:

“The 17 Sustainable Development Goals and 169 targets which we are announcing today demonstrate the scale and ambition of this new universal Agenda. They seek to build on the Millennium Development Goals and complete what they did not achieve. They seek to realize the human rights of all and to achieve gender equality and the empowerment of all women and girls. They are integrated and indivisible and balance the three dimensions of sustainable development: the economic, social and environmental.

The Goals and targets will stimulate action over the next 15 years in areas of critical importance for humanity and the planet.”

This resolution was adopted by the UN General Assembly on 25 September 2015.

Climate change, largely caused by increased ‘greenhouse gases’ in the atmosphere, is the most difficult of the global economic challenges itemised above.  The sooner that the world manages to reach ‘net zero’ emissions – “no longer adding to the total amount of greenhouse gases in the atmosphere” – the lower the temperature increase will be.  As described in the following sub-sections, reaching net zero is a matter of urgency and there are choices to be made:

●  There should no longer be any controversy that the problem is man-made and that action is urgent ( People who oppose taking immediate action, for short-term economic and political reasons, are building up enormous economic problems in the medium to long term.  It is prudent to invest now, by government borrowing if necessary, to reap the later benefits of having moved quickly.

●  There is now broad agreement to try mitigate climate change, by cutting the rate of carbon emissions ( There is international cooperation in understanding the science and most countries have agreed to target dates for reaching net zero.

●  Some adaptation ( will be needed, to respond to the unavoidable changes in climate. Flood defences, for example, can protect low-lying parts of the world.  Ideally, people shouldn’t have to migrate.

●  Economic incentives are needed for the world to respond quickly enough to reduce carbon emissions ( The size of the green energy market is a big incentive for industry to invest, but other incentives such as carbon taxes are needed to persuade people to change their habits.  Governments can coordinate and accelerate the transition to net zero, and those which move fastest would gain competitive advantage by doing so.

●  Alternatives to fossil fuels are already available ( These include renewable power sources which vary with the weather, such as wind and solar.  Other renewable sources are more constant, such as hydropower, biomass, and geothermal energy.  And nuclear energy does not generate greenhouse gases.

●  Further innovations in the energy industry are possible ( Carbon capture and storage is possible, to clean up industries which still use fossil fuels.  There are new ways of storing electricity, to compensate for pauses in the supply of some renewable energy sources.  There will be increased roles for hydrogen and nuclear power; and there is the longer-term possibility of using nuclear fusion to generate almost unlimited amounts of electricity.

●  ‘Geoengineering’ – removing carbon from the atmosphere, or reducing the sun’s warming effect – can also help to reduce global temperatures ( Although this may be risky, it is going to be essential.

The most appropriate response to environmental challenges is partly a moral question (, but economics constrain what is possible and many of the decisions are political, as described later (6.7.5).



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This page is intended to form part of Edition 4 of the Patterns of Power series of books.  An archived copy of it is held at https://www.patternsofpower.org/edition04/357e.htm