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The Climate Series

Laurence Chandy, the Principal Advisor for economics at UNICEF, recently wrote an influential article about the impacts of climate change for the Carnegie Endowment for International Peace, an international affairs think tank based in Washington DC. The article, titled “Economic Development in an Era of Climate Change”, examines how climate change is changing economic development throughout the world. As Mr Chandy admits, climate change and economic development are at odds with one another to a certain degree; lifting billions out of poverty entails greater consumption and industrialisation, which will inevitably impact the climate. That is why the United Nations’ Sustainable Developments Goals contain a dual agenda that addresses both people and the planet when setting its long-term goals. As Mr Chandy posits, the “cooler heads” believe that climate change and economic development goals are inherently compatible, and that investments into greener energy will drive economies, not undermine living standards. Mr Chandy’s work is impressive, and we will not be able to cover and dissect all the arguments therein, but this series will provide an overview of the main takeaways.

Mr Chandy argues that climate change will force three major changes:

  1. a reappraisal of the causes of and prospects for development,
  2. the rebirth of the economics of transition, and
  3. a reformulation of the problem development is trying to solve.

The article concludes by asking what these changes could mean for international security and for the community of national and global actors who set policy and strategy in this field.

Part 1: The Causes and Prospect for Development

Before diving into climate change, Chandy addresses the age-old macroeconomic question: why are some countries richer than others? Many brilliant minds have attempted to uncover the “deep determinants” that decide how a nation’s economy performs over the long run. The experts have determined that these determinants fall into two main categories: geography and institutions. After all, geography dictates a nation’s economy in terms of agricultural performance and trade proximity. Institutions, on the other hand, are man-made; they are the rules and norms that govern society, although these rules and norms are not always internally sourced. There have been extensive debates about whether geography or institutions play a greater role in a nation’s long-term economic prospects, and it seems that the preponderance of data supports institutions. But as Chandy points out, climate change may be altering the playing field.

Average temperatures are especially impactful on agricultural yields, the physical and cognitive performance of workers, energy demand, and frequency of crime/unrest/conflict. According to data spanning 1950-2000, an average temperature increase of 1°C in a given country and year causes average per capita income to fall by 1.4%. Even though the temperature shift may have only lasted one year, the detrimental economic effects lasted for years after, thereby affecting a nation’s long-term economic performance. These effects are even more pronounced in nations that already have warm climates, as rising temperatures elicit drastic productivity decreases. Since most poor countries already have relatively higher average temperatures than rich countries, those countries are the most threatened by climate change.

Extreme weather events also have massive impacts on a nation’s economic performance. Droughts, sea level changes, and fires are all just as relevant as average temperature. If climate change modifies the frequency and intensity of weather shocks, which often halt or reverse periods of strong growth known as “growth episodes”, those episodes will grower fewer and farther between. Weak institutions are often what cause periods of strong economic growth to end, so poor countries have tougher paths to recovery after any shock, weather or otherwise. Mr Chandy does point out one silver lining: energy is getting much cheaper. If there is an abundance of cheap energy in the near future because of technological advances/renewables, this abundance will decrease the cost of business in poor countries while improving living standards. But for poorer countries to take advantage of these advances, they will need to invest in renewable infrastructure and access to renewable tech.