Climate Change Will Take Away Your Money

Addressing it will cost you less.

Photo by Jp Valery on Unsplash

Let’s look at the cost of mitigating climate change, about which much has been written.

The European Commission's long-term strategy "A Clean Planet for All" strategy posited a cost of 2.8% of GDP, while the IEA projected a need for 3% of GDP investment until 2050 to combat climate change effectively. The world's GDP is about $101 Trillion (nominal, 2022). That means what is needed to mitigate climate change is about $3 trillion per year.

Thought experiment time!

For this fund little thought experiment, let us assume that world leaders actually act on tackling climate change (ecological overshoot not included here, but there is overlap). Where is that money going to come from?

The answer of course is to go where the money is.

A.       Billionaires

The 2024 annual Forbes list of the world's billionaires found a record 2,781 billionaires with a total net wealth of $14.2 trillion.

B.       Oil and Gas Companies

In 2023, several major oil companies reported substantial profits:

• Exxon Mobil: $36 billion

• Chevron: $21.4 billion

• Shell: $28.25 billion

• TotalEnergies: $21.4 billion

• Saudi Aramco: Expected to surpass $100 billion

But there is a better way to get the money:

C.      Oil and gas Subsidies

According to the IMF, global fossil fuel subsidies were $7 trillion in 2022 or about 7.1 percent of global GDP. Explicit subsidies (undercharging for supply costs) are only 18 percent of the total subsidy, while nearly 60 percent is due to undercharging for global warming and local air pollution.

The money is right there. Take half of those subsidies (or less for starters) and increase the amount every year so that we get to the 3 trillion amount we need, and wind down those subsidies.

Here is how it could work:

 Year One:

20% of 7 Trillion in Subsidies  = 1.4 Trillion

            1 Trillion from world billionaires = 1 Trillion

               .3 Trillion from global oil and gas companies.

Year Two:

25% of 7 Trillion in Subsidies  = 1.75 Trillion

            1 Trillion from world billionaires = .95 Trillion

               .3 Trillion from global oil and gas companies.

That subsidy percentage goes up each year.

The amount billionaires pay each year will go down if certain milestones are met.  

Let me know if there are other money pits out there that I haven’t considered that we should look at. Here are some we could look at, but I didn’t include to keep the math simple:

-            Debt forgiveness for Global South

-            Eliminate coal subsidies

-            Trim global defense budgets

-            Sell some of the Vatican’s art collection

What is the cost of doing nothing?

If we are going to spend all this money in the interest of a thought experiment, we should look at what would happen if we don’t do anything, or carry on with business as usual.

I’m not going to talk about human cost. That will be immense and unimaginable for most people. There will be increased famine, forced migration, unnecessary deaths, human and animal habitat destruction, flooding, burning, and lack of water.

I’ll talk about dollar costs here.

A 2017 study in Science estimated that for each increase of 1 degree Celsius (1.8 degrees Fahrenheit) in global warming, the GDP of the United States will decline by about 1.2%. If climate change was limited to 2 degrees Celsius, the U.S. would avoid about $1 trillion in climate damages by 2050, and $8 trillion by 2100.

A 2020 paper, Temperature variability implies greater economic damages from climate change, paints a more dire picture. The authors estimate about $8 trillion in savings if the Paris targets are met.

A 2018 working paper by economists at the Federal Reserve of Richmond estimated that a 1°F increase in summer temperatures would reduce state-level economic growth by about 0.2%. Over time a business-as-usual would cost the U.S. over $2 trillion more than meeting the Paris targets by 2050, and a very significant $50 trillion more by 2100.

A 2024 paper recently published in the journal Nature, showed that doing nothing to mitigate climate change will ultimately cost 6 times as much as taking action now.

If it is clear the cost of inaction is so high, why isn’t action happening?

As I broke down at the beginning of this essay, the money is there. The people with the money won’t want to give it up, but the money is there.

The incentives for those who need to decide to get this money and use it to save themselves are unbelievably perverse. We are all incentivized to think of our immediate comfort and well-being and highly discount the apocalypse just over the hill.

It is increasingly clear that such a myopic worldview will not only cost us our safety, and even our lives, but our wealth.

What reason is there left not to act?

Let me know if you have a good one.

I don’t.