Global economy and climate change
Global economy and climate change
The global economy and climate change are two interrelated processes of globalization. As the economy grows, so do factors associated with climate change, which can both drive and impede economic growth.
Background
The global economy is the result of a process of increasingly global economic integration that began in the sixteenth century. European powers spread capitalism to colonies that provided cheap labor (including enslaved people), abundant natural resources, and vital new markets for goods and services. The expansion of European capitalism led to the export of industrialization in the nineteenth and twentieth centuries. The United States worked to reorganize the global economy following the instability of the early twentieth century that culminated with World War II. This reorganization was negotiated at Bretton Woods, New Hampshire, in 1944. The International Monetary Fund (IMF) and the World Bank were created at the Bretton Woods Conference. The General Agreement on Tariffs and Trade (GATT) was signed in 1947. Together, these institutions and agreements were designed to include as much of the world’s people and territory as possible under a global capitalist economy. The Soviet Union and China limited this vision at the time. Members of the former Soviet Union and China have since become vital actors in the global economy.
Economic Globalization
The global economy represents a central process of globalization. As such, it increases economic interdependency. Economic globalization is made possible through advances in information and transportation technology. With the rise of technology, many of the world’s countries have become interconnected through complex networks of economic production and consumption.
Economic globalization is composed of many actors. Countries legalize rules regarding international economic transactions. Multinational corporations dominate international economic production and the global trade in goods and services. International financial institutions finance the global flow of goods and services and provide money capital for foreign investment.
The Global Economy and Climate Change
The spread and growth of the global economy increases the energy intensity of the world’s countries. The increase in the volume of exchange of goods and services, over greater distances, increased the use of fossil fuels. More people drive more kilometers in automobiles and fly longer distances in airplanes. More people use increasing amounts of electricity, most of which has been produced by fossil fuels. Aside from efforts in some areas to transition, through economic diversification, away from carbon-intensive industries and toward alternative options for energy production, the expansion of traditional global economic activity largely requires a continuing increase in the consumption of fossil fuel. The consumption of fossil fuel is the major factor causing climate change.
Economic globalization increases the human transformation of the environment. Deforestation results from the human need for lumber for construction and land for agriculture. Rising living standards lead to increased construction and the increase of the consumption of meat. Deforestation decreases the earth’s ability to remove carbon dioxide from the atmosphere. Increased meat consumption increases the concentration of the greenhouse gas (GHG) methane in the atmosphere.
Problems associated with the global economy and climate change have gained the attention of powerful actors within the global economy. The IMF and the World Economic Forum (WEF) agree that climate change, if left unchecked, is likely to destabilize the global economy. A report, produced by the major insurance company Swiss Re in 2021, estimated according to a conducted stress test that the global GDP could suffer a loss of 18 percent by 2050 if no mitigating actions are taken and temperatures increase by 3.2 degrees Celsius; the same report estimated that the global GDP could still experience a loss of 14 percent if some mitigating actions are taken, with temperatures increasing by 2.6 degrees Celsius. This could lead to a global economic depression and violent conflict. Climate change could dissolve global economic networks, creating shortages of vital economic inputs, leading to global economic decline.
Political Economic Theory and Climate Change
The impact the global economy has on climate change is addressed by theories of political economy. One’s adherence to a particular theory greatly impacts the way one interprets the relationship between the global economy and climate change. For example, neoliberal economic theorists argue that global markets will distribute the technologies needed to address climate change. New technologies, such as wind generators, photovoltaic solar panels, hybrid automobiles, and fuel cells will circulate across the globe under free market capitalism. Liberal institutionalist theorists agree with neoliberals about technological transfer. They argue, however, that the global economy requires active public management to address climate change. Liberal institutionalists cite the importance of cooperation among countries to address climate change. This cooperation is best realized in the form of international governmental organizations and agreements, such as the 1997 Kyoto Protocol and the 2015 Paris Agreement. In 2020, as global greenhouse gas emissions had continued to rise, the company Systemiq, which works with businesses and policymakers to make sustainable economic systems, produced a report acknowledging progress in some global economic areas since the Paris Agreement while also stressing that more efforts were needed. According to Systemiq, the competitiveness of low-carbon economic solutions had rapidly increased since 2015, with low-carbon solutions being competitive in sectors representing around 25 percent of emissions in 2020. The report also emphasized projected global job growth connected with net-zero economies, with one estimate showing that more than thirty-five million net jobs could be added globally by 2030.
Some theorists argue the global economy is unsustainable. These theorists propose dramatic transformations for the economy. Ecological economists argue environmental problems such as climate change are symptoms of the earth no longer being able to assimilate human economic activity. Ecological economists argue that the global economy is unsustainably depleting Earth’s natural capital at an ever-increasing rate. This condition cannot last indefinitely, because the earth is a finite system. Ecological economists argue the global economy must attain an optimal scale or face devastating consequences.
Context
The global economy has created unprecedented opportunities and problems for humanity. The global economy has created unprecedented wealth, but it has also increased social instability while contributing to environmental problems such as climate change. Climate change transcends the ability of individual countries to create solutions. To confront climate change, countries of the world will have to cooperate at unprecedented levels. Rich countries will have to promote policies to help poorer countries address climate change. Those living in rich countries and enjoying energy-intensive lifestyles have little right to demand economic sacrifices from poorer countries.
Humanity faces a serious economic paradox with climate change. In order to remain stable, the global economy must grow. However, to address climate change, this economic growth must be achieved while diminishing the factors responsible for climate change. Given a global economy that is based on the combustion of fossil fuels, this has proven to be no easy feat. The global economy and climate change are interconnected but contradictory functions. As the global economy grows, the dangers of climate change increase. As the dangers of climate change increase, global economic growth is threatened. This relationship is critically important and offers no easy solutions.
Key Concepts
capitalism: an economic system in which the means of production are privately owned and operated with the goal of increasing wealthcommodity: anything that has commensurable value and can be exchangedeconomic interdependency: a state of affairs in which the economic processes of a group of nations are mutually dependentglobalization: the worldwide expansion and consequent transformation of socioeconomic interrelationshipsindustrialization: the process of transformation from an agrarian society based on animal and human labor to an industrial society based on machines and fossil fuelsliberal institutionalism: a school of thought that focuses on cooperation between countries derived from agreements and organizationsneoliberalism: a school of economic thought that stresses the importance of free markets and minimal government intervention in economic matters
Bibliography
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Daly, Herman E. “Sustainable Growth: An Impossibility Theorem.” In Valuing the Earth: Economics, Ecology, and Ethics, edited by Herman E. Daly and Kenneth N. Townsend. Cambridge, Mass.: MIT Press, 1996.
Ervin, Justin, and Zachary A. Smith. Globalization: A Reference Handbook. Santa Barbara, Calif.: ABC-CLIO, 2008.
The Paris Effect: How the Climate Agreement Is Reshaping the Global Economy. Systemiq, Dec. 2020, www.systemiq.earth/wp-content/uploads/2020/12/The-Paris-Effect‗SYSTEMIQ‗Full-Report‗December-2020.pdf. Accessed 28 Dec. 2021.
"Strengthening Community Forest Rights Is Critical Tool to Find Climate Change."World Resources Institute. World Resources Institute, 23 July 2014. Web. 20 Mar. 2015.
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"World Economy Set to Lose up to 18% GDP from Climate Change If No Action Taken, Reveals Swiss Re Institute's Stress-Test Analysis." Swiss Re, 22 Apr. 2021, www.swissre.com/media/news-releases/nr-20210422-economics-of-climate-change-risks.html. Accessed 28 Dec. 2021.