Climate change poses bigger threat to business than pandemic, says economist

As the world emerges from the pandemic, business faces an even bigger threat from climate change, according to a leading economist speaking on a QBE Resilience webinar. As the UK economy emerges from the pandemic, it faces a number of challenges including weak consumer demand in the short term and climate change in the longer term, according to Trevor Williams, a visiting professor at the University of Derby and former chief economist at Lloyds Bank Commercial Banking. However, tackling climate change will mean some difficult decisions for governments and businesses, and will require carbon emissions to be priced into products and services, he said. The world faces the challenge of climate change just as it recovers from two, almost back-to-back, one-in-100-year economic crises – namely the 2008 global financial crisis and the pandemic, explained Williams. While the UK economy is rebounding from the pandemic faster than it did after 2008, the impact will linger due to economic scarring and a patchy vaccine rollout globally. Some 134 vaccines per 100 people have been administered in high-income countries, compared with just five in 100 in low-income countries, said Williams. The UK economy is now growing but it is still smaller than it was pre-pandemic, he continued. The UK economy shrunk by 10% in 2020, and is expected to grow about 6% this year and next. This would amount to a “paltry” average growth rate of 0.9% over the three years, said the economist. UK growth is expected to slow to just over 2% in 2023 and 1% in 2024. In particular, the UK faces stagnation in household disposable income and real earnings at a time of rising inflation, noted Williams. On the current trajectory, living standards could be about 30% lower by 2027, compared with the pre-financial crisis growth rate, he said. This cost-of-living issue is one reason why the Bank of England has been reluctant to increase interest rates, he added. As growth in the UK economy slows, the country will also face the challenge of dealing with climate change. Williams believes the recent Glasgow COP26 negotiations made progress, but existing pledges to cut emissions would result in warming of at least 2°C. He thinks wealthier countries need to do more to cut emissions. Reducing carbon emissions cannot be equally shared between countries, explained Williams. The US and Europe account for 50% of total global emissions, down from 75% a few decades ago, reflecting the growing importance of China and India. These two countries each account for about 36% of the world’s population, but just 15% of global emissions. “Developing countries cannot, and will not, shoulder the burden of cutting emissions,” he said. Williams suggests the answer is to tax polluters, placing a more significant burden on those who have historically contributed the most to climate change, and less on those that are currently high emitters but are not primarily responsible for the increase in global warming to date. As yet, carbon emissions are not priced into products and services, but carbon pricing or emissions trading systems will be required, he said. Carbon pricing would be relatively simple to implement and the revenues raised could be used to replace fossil fuel taxes and/or invested in climate technology, said Williams. Such a system would deter emissions, while at the same time enabling the costing and pricing of risk, he said. Just one fifth of global emissions are covered by carbon pricing or emissions trading systems, and the price of carbon per tonne is about $3, when it needs to be at least $75 per ton to keep global warming to below 2°C, said Williams.

Climate change poses bigger threat to business than pandemic, says economist

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