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Home > Operations Management Best Practice > The Impact of Climate Change on Business

Operations Management Best Practice

The Impact of Climate Change on Business

by Graham Dawson

Executive Summary

  • The impact of climate change on business—or the monetary value of the costs that may be incurred by affected parties and the benefits that they may accrue—is difficult to assess with any degree of precision.

  • The Stern Review and the United Nations Intergovernmental Panel on Climate Change (IPCC) have reported the results of running complex computer models that integrate climate science and economics with the aim of predicting the economic impact of climate change far into the future.

  • There is no agreement concerning the appropriate discount rate or the monetary value of effects where market prices are not available.

  • Uncertainty also surrounds the rate, and carbon-intensiveness, of the growth of the world economy for decades and even centuries ahead, while the hypothesis of anthropogenic climate change itself continues to be controversial.

The Global Impact of Climate Change on People

The standard approach to assessing the economic impact of climate change on business requires giving a monetary value to the costs that may be incurred by those affected and the benefits that may accrue to them.

The most comprehensive attempt to do this is the Stern Review (2007), commissioned by the UK government, which predicts severe impacts from an average global temperature rise of 2–3°C within the next 50 years or so. These impacts include an increased risk of flooding from melting glaciers, followed by disruption to water supplies, affecting up to one-sixth of the world’s population, mainly in the Indian subcontinent and parts of China and South America. In higher-latitude areas, such as Northern Europe, agricultural yields may increase with a temperature increase of 2–3°C, but declining yields, especially in Africa, could leave hundreds of millions of people without sufficient food. Increased mortality from heat-related deaths and the spread of tropical diseases is predicted, although there will be fewer deaths from exposure to cold. With warming of 3–4°C, thermal expansion of the oceans is predicted to cause rising sea levels, which could lead to inundation of low-lying coastal land, displacing “tens to hundreds of millions” of people. The risks are greatest for Southeast Asia (Bangladesh and Vietnam), small islands in the Caribbean and the Pacific, and large coastal cities, such as Tokyo, New York, Cairo, and London. Extreme weather events may become more frequent.

Case Study

What Would This Mean for Business Activity in, for example, the United States?

If predictions such as those reported by Stern prove to be accurate, business will be forced to adapt to changes in climate. Adaptation would involve a range of measures of varying cost. In the United States, temperature increases of up to 2–3°C might cause the wheat belt to shift northward into Canada; US farmers in the Midwest would have to plant new crop varieties, a fairly routine adjustment. In northern areas, winter deaths from exposure to the cold would fall and tourism might increase. Further south, the melting of snow could make the water supply to California and the Mississippi basin more erratic, causing more acute problems for agriculture. Deaths from exposure to heat and the cost of air conditioning and refrigeration would increase. At higher temperatures, southern parts of the United States would see an increased risk of extreme weather events, requiring substantial investment to defend low-lying cities, such as New Orleans and New York, from flooding.

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Further reading

Books:

  • Lawson, N. An Appeal to Reason: A Cool Look at Global Warming. London: Duckworth, 2008.
  • Nordhaus, W. D. The Challenge of Global Warming: Economic Models and Environmental Policy. New Haven, CT: Yale University Press, 2007.
  • Singer, S. F., and D. T. Avery. Unstoppable Global Warming: Every 1500 Years. Lanham, MD: Rowman & Littlefield, 2006.
  • Stern, N. The Economics of Climate Change: The Stern Review. Cambridge, UK: Cambridge University Press, 2007.

Articles:

  • Beckerman, W., and C. Hepburn. “Ethics of the discount rate in the Stern Review.” World Economics 8:1 (2007): 187–210.
  • Brittan, S. “On climate change and good sense.” Financial Times (February 9, 2007).
  • Byatt, I., et al. “The Stern Review: A dual critique. Part II: Economic aspects.” World Economics 7:4 (2006): 199–232.
  • Carter, R. M., et al. “The Stern Review: A dual critique. Part I: The science.” World Economics 7:4 (2006): 167–198.
  • Tol, R. S. J., and G. W. Yohe. “A review of the Stern Review.” World Economics 7:4 (2006): 233–250.

Reports:

  • Goklany, I. M. “Death and death rates due to extreme weather events: Global and US trends 1900–2006.” In Civil Society Report on Climate Change. London: International Policy Press, 2007, pp. 47–60. Online at: www.csccc.info/reports/report_20.pdf
  • House of Lords. “The economics of climate change.” HL Paper 12-1, Select Committee on Economic Affairs 2nd Report of Session 2005–06. London, 2005.
  • Intergovernmental Panel on Climate Change, Working Group 1: The Physical Science Basis of Climate Change, 4th Assessment Report (IPCC WG1 AR4 Report), “Summary for policymakers.” IPCC Secretariat, c/o WMO, Switzerland, 2007. Online at: ipcc-wg1.ucar.edu/wg1/wg1-report.html
  • Reiter, P. “Human ecology and human behaviour: Climate change and health in perspective.” In Civil Society Report on Climate Change. London: International Policy Press, 2007, pp. 21–46. Online at: www.csccc.info/reports/report_20.pdf
  • US Climate Change Science Program (CCSP), Annual Report to Congress. Our Changing Planet: The US Climate Change Science Program for Fiscal Year 2009. Online at: www.climatescience.gov/infosheets/ccsp-8

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