Climate Change Is a Tax, and Rates Are Going Up

BAKERSFIELD, CA - FEBRUARY 6: A dog hangs around an abandoned farmhouse on February 6, 2014 near Bakersfield, California. Now in its third straight year of unprecedented drought, California is experiencing its driest year on record, dating back 119 years and possible the worst in the past 500 years. Grasslands that support cattle have dried up, forcing ranchers to feed them expensive supplemental hay to keep them from starving or to sell at least some of their herds, and farmers are struggling with diminishing crop water and whether to plant or to tear out permanent crops which use water year-round like almond trees. About 17 rural communities could run out of drinking water within several weeks and politicians are pushing to undo laws that protect several endangered species. (Photo by David McNew/Getty Images)
Source: David McNew/Getty Images

Many people, particularly in the United States, are having a hard time coming to terms with the concept of climate change. But whether you believe the science or not, there’s little doubt that the world is undergoing some fundamental changes — and there are, and will continue to be, huge costs to dealing with the fallout.

With the exception of increasingly frequent severe weather and superstorms, most of us — especially middle-class, working adults — don’t spend an awful lot of time worrying about climate change. But that may change soon as scientists find more and more evidence that warmer average temperatures are going to start taking an economic toll.

A new study released by Tatyana Deryugina and Solomon M. Hsiang from the National Bureau of Economic Research claims that the hotter the world gets, the more expensive every day life will become. Specifically, the researchers draw a comparison between declining economic activity and how high the temperature is on a given day.

By comparing and contrasting economic and climate data from the past 40 years, the study comes to the conclusion that for every degree warmer than 59 Fahrenheit, the country’s economic input decreases by about 1%. As the Associated Press puts it, that means that on a 77-degree day, the average individual’s income drops by $5, as opposed to a day that ended up with a high of 57 degrees.

“While extraordinary achievements in science, technology, politics, and social institutions over the last millennia have lifted modern economies to levels never before achieved, we find that these forces are constantly in opposition to at least one environmental factor, temperature, that continuously slows down economic progress,” the study says. “Personal income per capita increases slightly as temperatures rise from cool to moderate, then declines approximately linearly at temperatures above 15◦C (59◦F). Relative to a day with an average temperature of 15◦C (59◦F), a day at 29◦C (84.2◦F) lowers annual income by roughly 0.065%.”

To reframe the paper’s findings, if climate change continues down its current path and temperatures continue to rise, the impact on the economy could reach into tens of billions of dollars annually.

Source: Pew Research
Source: Pew Research

As far as middle and lower-class Americans are concerned, is this reason for panic? Well, it’s definitely reason for concern. Americans are still greatly divided on the subject of climate change, with Pew Research reporting that only 61% believe there is solid evidence that the Earth is warming. If hotter days start taking chunks out of people’s paychecks, however, that number will likely jump. Also, we might see the willingness to be complacent while more and more greenhouse gases are released into the atmosphere dissipate.

“Hot temperatures are very bad for the economy,” study co-author Tatyana Deryugina, a professor of finance at the University of Illinois, told the Associated Press. Other academics and scientists, including Chris Field, a researcher at the Carnegie Institute and the head of a United Nations climate change science panel, have been quick to laud the study. “It may take some time for the community to reflect on the methods to decide if they are as effective as they seem, but my first impression is that this study provides unique insights into the big-picture consequences of temperature variation for income,” Field said.

Of course, there has been some criticism of the study as well. While there is room for error, it will take some time for economists and researchers to dig into the data and account for any missed variables or estimations that may be off. Either way, it’s hard to think that as the world undergoes turbulent and fast-acting changes to the climate, there won’t be some heavy economic tolls as a result.

Source: NOAA
Source: NOAA

There are other important things to take into account when reading the paper. For one, the study has yet to be peer-reviewed, which might uncover additional flaws or shortcomings in the researchers’ work. While it’s not a given that there actually are any flaws, it’s still important to take into consideration that there is plenty of room for the findings to be challenged.

The other thing to keep in mind when pondering these findings is how the economic impact of warmer temperatures would actually manifest itself in day-to-day life. Naturally, a warmer afternoon wouldn’t cause an employer to stop leaving five dollars off employees’ paychecks. Instead, the increased costs, or lost earnings, would come as a result of other, more hidden expenditures.

Running an air conditioner for a longer period of time, for example, has additional costs associated with it. So does buying additional liquids to stay hydrated. It’s not a simple matter of seeing your paycheck shrink. What’s truly at play is a sort of economic friction that comes as a result of higher temperatures.

The study does point at an apparent ‘sweet spot’ for economic activity — an average daily temperature in the mid to high 50s Fahrenheit, which would actually put the afternoon temperature somewhere in the 70s. According to data from the National Oceanic and Atmospheric Administration, 2014 saw the hottest summer on record. That includes August being the 354th consecutive month with a global average temperature above average. That’s not a good sign for economic activity, considering the parallel the aforementioned study has drawn.

If this study’s conclusions are to be taken at face value, it appears that climate change may get to the forefront of the middle class’s mind as soon as it starts reducing daily income.

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