As the consequences of global warming become more apparent and present today, research is also beginning to study what the impacts could be beyond just that of the environment. Climate change has now become an observable truth. The 10 hottest years on record globally have all been in the 21st century. As of right now, countries are beginning to pledge a move towards green energy with some of the more advanced economies already having made a significant shift. This is of course by no means sufficient, but it is a start.
The current goal is to limit the warming of the earth to 1.5 degrees Celsius by around the middle of the century. By doing this, it would be possible to avert the worst of the crises that climate change is due to cause. Even at this temperature, however, the environment will face problems. We know there will be problems in relation to human migration, as large populations will move inland from the coasts. As the ocean levels rise, their lives will come under threat and the only option they will have is to move to a higher altitude. A number of animal and plant species will suffer fatal consequences as well. Various seasonal processes are likely to be affected and ecosystems like coral reefs, coastal wetlands, etc. will experience severe damage.
The consequences on the environment will then go on to have subsequent effects on other aspects of life. A recent paper published by economists from the European Central Bank (ECB) studies the effects of climate change on inflation in advanced and emerging economies. They used a sample of 48 countries to estimate what rising temperatures could mean for a regions price level. The main effect would be through food prices, as food production would be impacted primarily during the summer in extreme heat. There would be less food available and as such the inflation would be caused by supply issues.
Other papers have also estimated that extreme weather conditions will have an overall negative impact on economic activity as well. Outdoor activities like construction, mining, etc. will become unfeasible when temperatures cross the 40 degree average mark. This means that there will be upwards inflationary pressure on prices across a number of goods.
The researchers believe that the majority of the movement in prices will follow the summer season especially in that of emerging economies. The summer will not only witness the most extreme weather, but emerging economies also tend to be closer to the equator. While high temperatures will also have a similar effect on prices in advanced economies, it will be to a lesser degree as their distance to the equator will mean that peak temperatures will be considerably lower than what we will see in emerging economies.
Central banks will have to be proactive when setting monetary policy to ensure that inflation doesn’t get out of control. On top of this, governments must also make sure that food supply isn’t severely affected. In emerging economies, food makes up a larger proportion of the consumer basket. It will be important to stock up on non-perishable food while also investing in artificial intelligence farming solutions which will help mitigate against the loss in productivity brought about by extreme climate.
One of the estimations made by the researchers is that inflation should only increase over the medium term. This means that food production and economic activity as a whole need not suffer beyond a particular period in the year. Advanced economies will possess a higher degree of resilience to food shortages but emerging economies will have to be prepared. If they fail to do so, the rise in inflation could extend beyond the medium term which will then lead to a fall in demand. There will be a danger within these economies of possibly entering into a recession in such a scenario.
We have now reached a point where governments will have to start actively planning for the inevitable. On the one hand, the main focus must be on limiting the damage as much as possible and the only way to do that is to shift to more renewable source of energy as quickly as possible. On the other hand, temperatures are rising. This will lead to certain outcomes that need addressing and the inflationary problem discussed in this article is only one such eventuality.