Daily Management Review

Climate Change Will Hit Economies of Rich Countries


"Always take a sweater with you. The best feature of our weather is the air conditioning” – one local businessman gives advice to foreigners coming to Singapore. The first Prime Minister of Singapore Lee Kuan Yew would agree with that – he believed conditioners were greatest invention of the XX century.

Another Singaporean politician once remarked that if there were no air conditioning, the local workers "would sit under the coconut trees" instead of working on high-tech factories. Singapore is quite rich state to cool their buildings. Neighboring Indonesia cannot afford it.

Economists used to think that the powerful air-conditioning system in the rich countries would help them to limit the negative impact of a higher temperature (global warming) on the economy.

A study, published last week in the journal Nature, casts doubt on this view.

Authors of the scientific work - Marshall Burke, Solomon Hsiang and Evard Miguel - believe that the economists in the past were on the wrong method of linear relationship between temperature and economic growth. Instead, one should consider the optimal temperature relying on fact, that excessive cold may harm growth just as excess heat.

They found that warmer-than-normal years are not dangerous for both rich and poor countries unless average annual temperature does not exceed 13 ° C. More hot weather begins to slow down the growth rate. This implies that global warming has effect on the economy. For example, Brazil temperature increase of 3 ° C would lead to a drop in industrial production by 3%.

Heat resistance of the rich countries is likely obliged to the fact that some of them (such as Germany and France) are situated in a cool climate area and therefore have a higher rate in warmer years. At the same time, other countries (such as America and Australia) are located in the hotter regions, and their economy is suffering from heat.

If we look at specific countries, in America, for example, one hot day (within the average temperature of 24-27 ° C over 24 hours) reduces the average income per person by 20%, according to the work report of the National Bureau of Economic Research. Very hot days (over 30 ° C) reduce earnings per person by 28%.

Similar conclusions have been made and published last year in Journal of Labour Economics’ study: American workers at a construction site in the industrial production and transport work less when the temperature rises above 29 ° C (an average of less than one hour per day).

The increase in the number of hot days requires more workers to complete a project or extra money payment for overtime. Sectors, where workers are exposed to the weather, employ 28% of America's workforce.

Countries can, of course, try to overcome the negative effect of warming, but artificial cooling air is expensive. In Singapore, conditioners consume 40% of the electricity used in buildings.

If we do nothing with global warming, the world is faced with an increase in power consumption by 83% by 2100, only because of the increased use of air conditioners, fans and refrigerators, according to a study published in the journal PNAS.

Global warming may cause harm to the rich countries not only through reduced productivity. In addition to high temperatures, climate change also leads to sea level rise and increased incidence of extreme weather (such as hurricanes). Because many big cities are located by seas, they have to build costly defenses against flooding.

However, even if the rich countries will be able to somehow protect themselves against global warming, they will still feel it for yourself indirectly: trade vulnerable to weather regions will fall sharply increase the number of refugees.