Putting a price on the «eco-crunch»
From the moment global markets were hit by probably the worst financial crisis of our lifetime, environmental groups have been keen to point out that an «eco-crunch» is
likely to hit us even harder – just how hard is the subject of a new report.
So far, the comparisons between the financial and environmental crises have been qualitative. «The consequences of a global ecological crisis are even graver than the current
economic meltdown», said Jonathan Loh of the Zoological Society of London at last week’s release of the WWF Living Planet Report.
A couple more reports are expected to be published in the coming weeks with similar messages. Ask exactly how much worse and the answer is vague.
Estimating the cost of both crises is fraught with uncertainties. In 2006, economist Nicolas Stern rocked the world by putting a price tag on climate change. Not acting to reduce
emissions and adapt to the effects of climate change could cost the global economy £2.3 trillion, he said.
«He may have been right – who knows – but Stern had a huge communication effect», says Nick Johnstone, an economist with the Organisation for Economic Co-operation and
Development (OECD), which produced the new report, titled Costs of Inaction on Key Environmental Challenges (2008).
Johnstone and his team compiled existing research on air and water pollution, climate change, groundwater management, industrial hazards and natural disasters in an attempt to do for a
range of environmental problems what the Stern Report did for climate change alone.
They reviewed studies that estimated the costs of not doing anything to address each one of these problems.
But there is no apocalyptic figure of predicted financial doom this time. Climate change is an outlier, explains Johnstone. It is unique among environmental problems – with the possible
exception of ozone pollution – in the fact that its effects are truly global. Other problems are virtually impossible to generalise. The economic impacts of losing biodiversity will be
very different in the Amazon forest and on the Great Barrier Reef.
Some of the costs identified by Johnstone and his team include:
– Dealing with the health and welfare effects of air pollution from 10,000 major sources of air pollution in the US costs the nation up to 2.8% of GDP
– Air pollution costs China about 3.8% of GDP in health impacts
– Natural disasters cost the poorest countries more than 13% of their GDP
– Not meeting international commitments for water and sanitation – governments have pledged for instance to halve the proportion of the global population who do not have access to
safe water by 2015 – could cost $128.9 billion per year
– Inefficiently managing the east Atlantic bluefin tuna stock could cost the global fisheries industry up to $3 billion in lost profits
All of these costs, along with many more, would have to be generalised world-wide and added up to come to a final estimate of the cost of environmental damage.
Financial bargaining chip
«I don’t know of anyone who has credibly drawn a line around the potential impact [of the credit crunch] and quantified it», says Chris Atkins of Standard and Poor’s, a
leading credit rating company.
The US government in September agreed on a $ 700 billion bail-out plan – or 5.3% of its GDP of its financial system. Meanwhile, Goldman Sachs has estimated that about $1.15 trillion
dollars in loans and mortgages are at risk of not being repaid. But the bank said itself that its figures should be handled with caution. «They could either be too optimistic or
too pessimistic», it said.
Johnstone says the purpose of his report is to give ministers some bargaining chips. Air pollution decreases agricultural yields, and increases hospital bills, the amount of sick leave,
and primary care costs.
If an environment minister wants to bring in measure to reduce air pollution, he says, it is far more compelling if they can tell their treasury that the initiative will reduce national
health bills and taxes.