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And here's the forecast: you'll still miss the "economic corona" - Walla! Business


Economists argue that conventional estimates of the enormous damage that climate change is likely to cause to the global economy were in fact too moderate and that the impact is likely to be much more severe. So how can one still maintain optimism and seize the opportunity (before it is too late)?

  • Business

And here's the forecast: you'll still miss the "economic corona"

Economists argue that conventional estimates of the enormous damage that climate change is likely to cause to the global economy were in fact too moderate and that the impact is likely to be much more severe.

So how can one still maintain optimism and seize the opportunity (before it is too late)?


  • Climate crisis

  • financial crisis

Rachel Vox, Angle

Friday, November 27, 2020, 2:00 p.m.

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In the video: The economic cost of the climate crisis (angle)

The economic crisis that hit Israel and the world following the eruption of the corona in 2020 well illustrates the ability of a natural phenomenon to significantly affect our lives.

These unfortunate consequences raise many questions about the economic damage that is expected as a result of the exacerbation of the effects of a much broader and more severe phenomenon than the natural world: the climate crisis.

There is now a debate among economists as to what the extent of these damages will be, and claims are being made that they are likely to be much more significant than initially thought.

One of the most prominent voices in the debate is Prof. William Nordhaus, winner of the 2018 Nobel Prize in Economics. Nordhaus was the first to create a quantitative model describing the interaction between climate and economy, and he tries to estimate the expected economic price of the climate crisis as well as possible solutions. .

According to estimates presented by Nordhaus in an article published in 2018, after winning the Nobel Prize, if the average world temperature rises by 3 degrees Celsius, world GDP (gross domestic product, total value of goods and services produced - in this case, all countries of the world) will fall As a result, by about 2.1 percent - and a 6-degree rise will lead to a 8.5 percent drop in GDP.

However, in the opinion of other prominent economists, Nordhaus' estimates of the extent of the expected economic damage are too low.

"It can be said that most economists do not support Nordhouse's assessments," says Prof. Nathan Sussman of the Israel Democracy Institute, an economics expert at the Institute for Advanced Study in Geneva.

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All industries will be affected

The principle that guides the various assessments on the subject is cost-effectiveness.

Taking action against the climate crisis has, naturally, an economic cost.

From a purely economic point of view, taking such measures pays off only if their cost is lower than the cost of the economic damage that will be caused if they are not taken.

According to Australian economist Prof Steve Keane, Nordhaus' estimates suggest that taking action against the climate crisis will be economically viable only if and when global temperatures rise exceeds the 4-degree high.

In a recent article in the journal Globalizations, Cain argues that the economic benefits of taking action against the climate crisis are higher than Nordhaus estimated and that the economic damage of the crisis will be more significant than Nordhaus predicted.

According to Cain, one of the problems with Nordhaus' estimates is that he expects the industries responsible for 87 percent of world GDP not to be affected by the climate crisis, as they are not conducted outdoors but indoors or underground. This includes areas of practice such as manufacturing, transportation , Communications, Financing, Insurance, Real Estate (not located on the beach), Underground Mining, Retail and Wholesale Trade and Government Services.

According to Cain, this claim is fundamentally wrong, and all industries as far as they are concerned will be affected by the climate crisis.

He said the reason was that the impact of the climate crisis would not be limited to rising temperatures only: for example, extreme climatic events such as fires, floods and hurricanes are likely to worsen, which could severely damage closed buildings.

Will the poles melt in the summer in the coming decades?

(Photo: AP)

Sussman adds that the damage of the climate crisis could also lead to a financial crisis - that is, a situation in which financial institutions, such as banks, are harmed.

"When there is a flood, for example, houses that people have taken out mortgages to finance are destroyed and offices that companies have taken out loans for," he says.

"When the buildings are flooded, the banks that gave the mortgages and loans will not get the money back."

"When an economic crisis is accompanied by a crisis in the financial system, it is much more severe," Sussman explains.

This is because financial institutions can help a great deal in rescuing the economy from crisis, by taking steps such as lending to individuals and businesses and making investments - which are not possible when they are not functioning.

Cain also criticizes Nordhaus' assumption that the decline in global GDP following the climate crisis will be moderate and gradual. Of the summer sea ice in the Arctic and extensive thawing of land ice in Greenland and Antarctica which according to many studies may occur as early as the next few decades.

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And what about the drop in energy costs?

Reducing the effects of the climate crisis is not the only economic benefit of solar energy and other environmentally friendly technological developments

According to Sussman, taking action against the climate crisis today has not only a great benefit, but also a significantly lower cost than in the past.

“In recent years, the cost of using solar energy, including its installation and maintenance, has dropped dramatically, and today it is much cheaper than fossil fuels,” he says.

According to him, there has also been tremendous progress in the development of technological solutions that make it possible to store solar energy so that it can be used even on cloudy nights and days.

"Nordhouse, and other economists who made forecasts until 4-3 years ago, did not anticipate this cost reduction," Sussman says.

Beyond that, reducing the effects of the climate crisis is not the only economic benefit of solar energy and other eco-friendly technological developments, and they allow their users to enjoy additional benefits, for example thanks to saving money.

For example, an electric car is more energy efficient than a car that runs on an internal combustion engine, methods from the world of green construction allow savings in heating and cooling costs and the use of bicycles creates local employment (like shops and bicycle garages) and is also beneficial to health.

Also, following the move to electric transportation, reducing air pollution from transportation in city centers is expected to save the public and governments many health expenses (medications, hospitalization days, lost work days and early mortality), due to expected respiratory and cardiovascular morbidity.

The use of solar energy can also allow private users to sell surplus electricity to the grid for a fee (for example, residents of the southern periphery in Israel, which is rich in sunlight), and provide electricity from the roof in developing countries, where in many cases there is no electricity grid. .

"Economists have reduced in their forecasts the economic benefit of switching to green energy," Sussman says.

According to him, these economic benefits are also very relevant to Israel.

"I heard in one of the government ministries the statement that the Europeans will take care of the climate and we will take care of the Iranians, that is the attitude. But the new studies show that the green policy is good for us beyond environmental benefits."

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Of course, not everyone will benefit from the transition to green energy - fossil fuel industries, for example, will experience losses from reducing or stopping the use of oil, coal and natural gas (and according to Sussman, they also have a very strong lobby trying to prevent such moves).

"Even so, looking at the company as a whole, this move is worthwhile, and you can use the profit from it to compensate those who have a negative interest - to tell them, 'Take money and go, start another business,'" says Sussman.

According to Sussman, the severity of the damage expected if the climate crisis continues to worsen must not be underestimated, and action must be taken to prevent it.

"When it comes to climate, it is better to be careful than complacent, because with nature it is impossible to negotiate," he concludes.

The article was prepared by "Angle - the news agency of the Israeli Association of Ecology and Environmental Sciences".

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Source: walla

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