Stiglitz and the WEF: Making the Connection between Climate Change and Economics

Tina Gerhardt Jan 30, 2013

The World Economic Forum wrapped up in Davos this weekend. Why is the WEF vital for climate change? As Greenpeace's Kumi Naidoo put it, "to appeal to the most powerful that they have to move beyond an obsession with preserving a system that drives economic inequality, environmental destruction and violence."

Naidoo continues: "Voices for change are mounting: earlier this month, Nobel Prize-winning economist Joseph Stiglitz said that the financial costs linked to climate change represent the biggest threat to global economy."

In his widely circulated article, "The Post-Crisis Crises," Joseph Stiglitz argues that "in the shadow of the euro crisis and America's fiscal cliff, it is easy to ignore the global economy's long-term problems." But, he continues, "While we focus on immediate concerns, they continue to fester and we overlook them at our peril." And, he argued, "The most serious is global warming."

The costs associated with global warming related extreme weather have already impacted deeply the US economy. A recent study by Munich Re found that North America has been most affected by weather-related extreme events in recent decades from 1980-2011: the overall cost totaling $1,060 billion (in 2011 values).

In 2012, extreme weather events, such as Hurricane Sandy, wildfires and drought, have forced costs on an already struggling US economy.

Hurricane Sandy is estimated to have cost New York City at least $154 million in over-time and $134 million to provide emergency services and recovery and relief programs; and it cost insurance companies up to $25 billion in claims. But much of the storm's losses, in property damage or labor hours lost, are not covered by insurance. As of January 10, 2013, the following funds had been approved in New York to help families and communities recover, according to FEMA: $838,883,227.54 to assist individuals and households; $742,851,828.25 for housing; and $96,031,399.29 for needs assistance.

The 2012 drought, the most severe and extensive US drought in at least 25 years, led to wildfires in numerous states, including Oklahoma and Colorado. According to a December 2012 report of the United States Department of Agriculture (USDA), the drought affected about 80% of the US's agricultural land and are forecast to hit consumers in 2013, mostly in meat and dairy consumption.

Additionally, as a result of the drought, the Mississippi River's water levels dropped 20 feet below normal, making shipping more difficult. This drop led US Senator Dick Durbin (D-IL) to call a special meeting in December, 2012 to discuss solutions. As US Representative John Shimkus (R) put it at the meeting, "We do not really value something until we risk losing it." They have since increased again as a result of rains but contractors also deepened the channel since the meeting in December 2012.

These extreme weather related financial impacts occur in tandem with a global economic downturn, which has plagued developed economies since 2008.

Taking protective measures against subsequent impending extreme weather associated with global warming, Stiglitz argues, will also protect against further financial costs.

Stiglitz, in a 2012 talk, asked "Can we afford to do this? We can't afford not to do it! The obvious reason in the long-term is the environment. But it is also something we cannot afford not to do something about in terms of the economy."

In particular, Stiglitz argues that we need to move away from fossil fuels to renewable energies. It will be expensive but it will be an investment that will help to stimulate the economy and it will provide long-term economic development.

In an interview, Kristen Sheeran, Director, Economics for Equity and the Environment Network (E3) at Ecotrust, said that she agrees with Stiglitz's basic arguments: "Our reliance on fossil fuels and neglect of renewables is a result of how our economy is structured but it doesn't have to be that way. We can redirect our existing resources, capital, technology and production, towards a sustainable model."

For example, "Rather than put people to work building new pipelines, we could put them to work in renewable energy industries. Because Keystone XL Pipeline might create jobs while the pipeline is being built, but then the majority of those jobs will disappear. The renewable industry, by contrast, has solid long-term societal and environmental benefits, as Danny Kennedy argues in Rooftop Revolution. The same goes for retrofits and across the spectrum for environmental and green energy."

Sheeran argues that "one needs to consider value in the long-term: the dollars saved, the jobs generated and the environment protected, whether one invests in say retrofitting a home on a personal level, or building a bike lane, on a local level."

Sheeran and E3 works for sustainable solutions on a regional and local scale. E3 outlines this approach in their recent report Resilience and Transformation.

Some might take issue with Stiglitz's argument when he argues that "retrofitting the global economy for climate change would help to restore aggregate demand and growth."

But Stiglitz has stated elsewhere that he seeks not to achieve an increase in the Growth Domestic Product. (He has weighed in previously on the issue with Amartya Sen and Jean-Paul Fitoussi: Measuring our Lives: Why GDP Doesn't Add Up.)

Daphne Wysham, fellow at the Institute for Policy Studies, agrees that one needs to look beyond GDP. The Genuine Progress Indicator (GPI), she argues, considers both economic and environmental factors.

In an interview, Wysham said, "In the age of accelerating climate change, business as usual is dead. Whether it is in regards to fuel consumption or other forms of consumption. So how do we measure progress? That is a question states are beginning to answer with the Growth Progress Indicator."

"At the state level, the GPI allows policy makers to better assess the costs and benefits to the economy and the environment, taking into account costs that are often externalized, to the local environment, to people's health, etc."

"One needs to ask 'growth of what and for what?'", she continued. "Is it growth in sectors of the economy, such as renewable energy, which is good for the economy, health and environment, that enhances overall societal well-being? Or is it growth that is good for only one of those things. Because on a national level, after a certain point, economic growth does not increase enhance well-being."

"What's unique about the GPI," Wysham continued, "is that it tries to go toe to toe with GDP, taking into account what GDP measures but also other factors." Wysham is working with various states to implement the GPI. In May, Vermont passed legislation, establishing a GPI for the state. Maryland put in place their GPI in 2009.

Ross Jackson, by contrast, is working at the international scale to ensure as much can be done as possible to avert climate change. In his book, Occupy World Street, he lays out a plan for radical economic reform, in order to ensure a sustainable environment. After working in global finance – according to the book's introduction, penned by Hazel Henderson – to reject "the unreality of global finance and the neoliberal economy system behind it," and co-founded the Gaia Trust to promote a more sustainable world.

In an interview, Jackson said, "We are clearly overloading the eco-system. Recent figures say we are 50% above the biocapacity of the planet – based on 2008 figures. Economic growth is certainly no solution. The major problem driving this environmental devastation is cheap oil. So the question is: How do we get a higher price on oil, so that we can stimulate the private sector to invest in renewable energy sources?"

"One possible way forward," Jackson proposes, "is for just one nation to adopt ecological economics as state policy." What does that mean? "Well, there are many policy aspects to consider. But we can break them into two major categories (1) new external policies that can re-establish control over the domestic economy and (2) new domestic reforms."

"Re-establishing control over the domestic economy is key," Jackson argues. "Right now, under the WTO rules, one has to accept products with lower environmental standards than those of domestic firms. We need to reclaim the sovereign right to place tariffs or bans. This means, among other things, leaving the WTO, which does not allow such sovereignty."

Domestically, Jackson advocates a shift to renewable energy as quickly as possible. In his estimation, leveling the playing field is pivotal to ensuring increased renewable energy.

Sheeran said she couldn't agree with that more but added "But if you look at the US, we have the capacity to remove the fossil fuel subsidies and to level the playing field internally, domestically."

Furthermore, she added, fossil fuel subsidies not only have domestic but also global consequences. For example, she added, "if we begin to export some of our boom in natural gas, and sell it on the global market, it will bring down gas prices in, say, China, where natural gas is currently expensive. This may affect the pace of renewable energy creation in other countries. So our domestic subsidies do have global impacts."

Thus, while international negotiations and the White House continue to dither on ratifying an internationally binding climate treaty, at the international, the state and regional level plans for solutions that move beyond the gridlock are already afoot.

A version of this article was originally published on

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