Leonardo Badea, PhD: Prospects for economic development in the face of climate change imperatives

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Climate change is a huge challenge for humanity to adopt a new style of sustainable development and also a great opportunity to shape the society of the future based on more balanced and inclusive growth. It is more than a choice, it is our duty to future generations.

By Leonardo Badea, Deputy Governor of the National Bank of Romania

Unfortunately, although we act very quickly to reduce CO2 emissions and all other forms of pollution that increase greenhouse effects, it probably won’t be fast enough to reverse the upheavals we have already caused to our planet. This implies that some of the negative effects on the environment are unlikely to decrease but rather increase for many years to come. They are already inducing significant changes in the functioning of most economies around the world.

Even though we are already aware of the impact of these changes on our daily routines, we can only imagine a small part of the long-term transformations induced in the way we work, live or our family finances (expenses of health at the expense of groceries, utilities, travel and recreation, etc.). If people could fully understand the huge financial costs that they will have to bear individually in the future (not very far away) due to the climate impact on all economic activities, they would probably better understand how much the effort they need is low. do today to recycle and reduce pollution.

For the past few years, economists have been discussing the risks of climate change at the macroeconomic level with two perspectives in mind: physical risks and transition risks. Additionally, at least for the past decade or so, they have shown that weather is important for social and economic outcomes (Dell et al. 2014, Carleton and Hsiang 2016). Unfortunately, most of these risks have already become mere realities and not probable events. We are already facing huge economic losses from disasters caused by gradual warming, flooding, sea level rise, high frequency, severity and correlation of extreme weather events. Losses come either in the form of property, infrastructure or crop damage, disease, injury and loss, business disruption and declining productivity, or massive human migration and security threats (Swiss Re Institute, 2021). At the same time, efforts to reduce pollution generated by economic activities have increased costs for businesses and consumers and in some cases even made entire organizations or products / activities unachievable, with negative impact. about jobs in those particular fields.

Inflationary pressures can arise from a decline in the domestic and international supply of commodities or from productivity shocks caused by weather events (Batten, Sowerbutts and Tanaka, 2020). Based on current developments, we can anticipate that agricultural products may become more expensive in the future due to the negative implications of climate on crop and livestock productivity if we fail to reduce pollution and invest significantly in better (digitally activated) technologies. The cost of producing utilities (especially energy, water and wastewater) will likely increase to accommodate the increasing expenses related to reducing the environmental footprint). Packaging and transportation costs for broad categories of groceries, consumer staples and durable goods are also expected to increase due to the use of more environmentally friendly materials, technologies and energy sources. of the environment but also more expensive. The same impact will likely be visible on travel costs.

At the same time, weather events induced by climate change can potentially lead to significant financial losses, decreased wealth and lower GDP. Rising sea levels and temperatures, droughts (and associated fires), floods and storms will reduce tourism in areas that are economically dependent on income from related activities. The quality of life in some dense urban centers may suffer, causing people to move to other areas, with a negative impact on certain categories of businesses and jobs in the service and real estate sector. of these urban areas. The overall negative impact on economic growth and purchasing power can lead to further increases in inequalities and social tensions.

According to a report published by British charity Oxfam (2021), the world’s seven richest countries could lose trillions each year over the next three decades from the catastrophic results of climate change, while the impact on the poorest countries could be even greater. At the same time, the World Bank (2021) estimates that an additional 132 million people around the world could fall into extreme poverty by 2030 due to climate change. The challenges associated with climate change are intensifying in low- and middle-income countries due to poverty, inadequate development and heavy dependence on natural resources (Rogelj et al., 2016).

The effects of climate change on populations are often more pronounced in areas and among populations that are already vulnerable. This is why the fight against climate change must be combined with measures to help the most vulnerable and to tackle other global challenges such as poverty and inequality.

At the same time, however, there is great potential to develop green projects that will improve the structure and content of global economies. According to the principles of responsible management, aiming for the good management of a company implies that we must respond to the interests of all stakeholders: not only the owners of capital but also the employees, the suppliers, the customers and finally, the local community. .

There are at least seven major areas of development that could help reduce the impact of our economic activities on the planet’s ecosystem:

  1. The financing of green projects must benefit from advantageous conditions and in combination of dedicated public funds and private issues of bonds or other sources (bank credit, financing of international organizations).
  2. The infrastructure must undergo major changes, to adapt to new requirements because in addition to the already known need to develop naval, road, air and rail networks, certain vulnerabilities have been highlighted by the Covid-19 pandemic . The switch to electrification of road transport also involves the development of power plant networks.
  3. The automotive industry is expected to accelerate the large-scale introduction of feasible, long-range electric models. These new models do not yet meet all consumer needs in terms of accessibility, reliability and especially autonomy.
  4. There are several new clean industries based on digitization and new technologies. We are already talking about a virtual ecosystem in which new services and products are developed. However, these must adhere to strict standards in terms of security and confidentiality.
  5. National education systems and private organizations involved in educational activities for all age groups and professions must continue to invest in changing collective mentalities. Although citizens are much more aware of the importance of protecting the environment and maintaining unpolluted habitats, this process needs to be accelerated and should also be supported more intensely by the work of international bodies with strategies, analyzes and proposals to promote sustainable development that respects the environment. behavior of individuals, families and communities.
  6. The circular economy still offers many opportunities for sustainable development based on new models of organization of economic activities with minimal negative impact on the environment.
  7. The health of the population is influenced by the level of climate change, the possible spread of contagious diseases, but also the security of citizens due to the intensification of natural disasters. Therefore, health and pharmacy remain one of the most important sectors where research and investment must continue at an accelerated level. National medical systems, as well as private networks of health care providers, must continue to develop their services and increase accessibility both in terms of proximity and cost.

Lately, both international organizations and civil society have been concerned about speeding up the adoption of measures to combat climate change.

One of the EU’s responses has been to put climate change at the top of its political agenda through the European Green Deal published in December 2019 by European Commission President Ursula von der Leyen. The main objective of the European Green Deal is to make Europe the first climate neutral continent by 2050. This recognizes the fact that the impact of climate change will become unmanageable if we, as a society, do not take action. immediate and decisive measures, including economic measures. and regional aid plans, already underway at EU level (The European Green Deal aims to make Europe the first neutral continent in terms of negative environmental impact by 2050).

Rethinking subsidies to fossil energy producers could play an important role in reducing CO2 emissions. One way to deal with this difficult issue (given its impact on large categories of vulnerable consumers) is to condition them on the effective implementation of transition plans to reduce emissions in accordance with the 1.5 degree objective (Subran and Thallinger – World Economic Forum, 2021).

The fight to preserve a healthy environment for future generations also has an important economic component. Measures to stimulate sustainable economic development by encouraging cleaner production, transport and distribution of goods and services, as well as lower taxes for companies that reduce pollution are needed more than ever. We are at a turning point in the transformation and development of the economy due to several catalytic factors, among which the pandemic crisis is very important. We can’t really understand today’s economy if we can’t imagine what it will likely look like tomorrow, and all of our current actions must be aimed at developing the world after tomorrow. It is not easy, but it is essential!

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