Impact of the Environment on the Economy

The environment’s impact on the economy is tricky to measure – the fact that there are obvious costs imposed on other people and the economy as a whole by pollution and other environmental damage isn’t debatable, but getting an accurate assessment of just how much those costs add up to is difficult.

The environment is a big indirect detractor from economic growth; its impact on health, resources, infrastructure, and government budgets result in serious negative consequences for the economy.  There are also a number of direct impacts.  The foremost of these is climate change – although determining exactly how much damage it causes is difficult, a (very) rough estimate of the global impact of climate change is a net present value of $20 trillion.  Since the US economy makes up almost a quarter of the global economy, we’d be absorbing roughly $5 trillion of that price-tag.  Theoretically, an investment of $2 trillion in mitigation efforts would prevent $12 trillion of that damage, for a total loss of $10 trillion in net present (on a global scale).  These are exceedingly rough estimates – the predictive climate models vary in how bad they expect things to get, and combined with the unreliability of economic models this makes it hard to pin down how much economic damage we can expect.

Nonetheless, if these estimates are even in the right neighborhood, we’re talking about damage to the US economy in terms of trillions of dollars over the next few decades, even if we take action to prevent the worst effects of climate change.  Extreme weather events are already costing us billions of dollars a year – according to NOAA, in 2012 there were 11 weather and climate events that exceeded $1 billion each in damages across the US; the cumulative damage from such events in 2012 was $110 billion (and 377 deaths).  NOAA has tracked such event’s occurrences for decades, and these costs have noticeably risen over the last thirty years.  How much of this can be attributed to climate change, and how much is due to economic growth providing juicier targets when disaster strikes, is still up for debate – but regardless of the answer to that question, the fact remains that there is a trend of increasing economic damage from weather events, and we must take steps to prevent such damage.

Smith & Katz, 2013

Leaving climate change aside, there are other direct ways in which environmental damage is harming our economy.  Thanks to our efforts over the last few decades to prevent serious environmental damage (besides climate change, obviously) the overall direct effect of non-weather-related environmental damage on our economy is currently much lower than it once was.  Still, we’re not exactly paragons of environmental stewardship.

Large-scale environmental disasters like BP’s Deepwater Horizon spill in the Gulf continue to happen every so often, despite fearsome laws being on the books to prevent their occurrence.  These events can deal crushing blows to local economies, and if they’re big enough they can make small dents in the national economy, too.

However, it’s the widespread, seemingly minor things that really cost us – air pollution, water contaminants, and a variety of other environmental problems.  Nationally, air pollution can be linked to over $75 billion annual damage (some groups have made estimates of up to $280 billion), mostly due to health problems caused by toxic chemicals and ultra-fine particulates.


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