How Climate Change Impacts the Economy?

In 2018, the Fourth National Climate Assessment warned that climate change will threaten the U.S. economy if we don't reduce greenhouse gas emissions and adapt to it. Extreme weather, rising sea levels and warmer temperatures will cause damage to property and infrastructure.

We are seeing the economic effects of climate change already. Morgan Stanley estimates that climate disasters have cost North America $415 million in the past three years. This is largely due to wildfires, hurricanes, and other natural hazards.

economic effects of climate change

These are just a few of the many ways climate change could affect our economy in a direct or indirect way.

  • Human productivity and health

Increased warmth and precipitation will increase the risk of foodborne and waterborne diseases. It can also encourage the spread of insects like Zika, West Nile and Lyme disease to new areas. Mental health problems can also be exacerbated by extreme weather or climate-related natural catastrophes.

  • Businesses and the financial market

Businesses will be affected by climate change and its effects around the world in many ways. Extreme weather can disrupt transportation and cause damage to factories and supply chains. Drought can make water more costly, which could impact the production and cost of raw materials.

What individuals should do to protect themselves

When deciding where to invest and spend their money, individuals should consider the impacts of climate change. Even though a particular risk might not be included in prices, it could change quickly, leading to a huge redistribution in wealth. 

It's best to avoid moving to wild areas, as they are more susceptible to wildfires. Do not move to an area at risk of flooding or purchase real estate in this region. Purchase flood and fire insurance to diversify your investments.

Governments should proactively think about the risks their communities face before disaster strikes. They should be investing in resiliency measures such as hardening infrastructure, improving water resources, building redundancy into important systems, moving people out of harm’s way and improving health care services.