Climate Cancer Is Not Going Away (3 min read)

Last weekend saw the UK’s hottest day of the year, and there is a chance that the coming summer could even see new records being broken. As a Londoner, this sounds quite appealing – no need to go on holiday. But at the same time, we know this is partly due to climate change. Such weather extremes are being reached across the world. They have hit record levels in the US and worldwide weather-related insurance events are climbing year after year (see first, third and fourth of charts).

It’s a cancer

This paradox of enjoying the change in climate change, but knowing this is not normal suggests we need to re-name “climate change” to something more alarming. My proposal would be “climate cancer”. This makes it clear that the world is experiencing a chronic, unhealthy condition, and carbon is the atmospheric carcinogen.

Environmental policy tightening

What does climate change (cancer) mean for the global economy and markets? Perhaps the clearest consequence is in environmental regulations policy, especially in Europe. Last year, Europe significantly tightened car emission standards, which had a clear and negative impact on the economy, notably Germany’s. At the same time, there has been a clear consumer shift towards wanting to buy electric and hybrid engine cars. The auto sector performance in stock markets has dire as a result (see second chart). European politics has also been affected with green parties starting to replace Social Democrat parties as the dominant force on the left. This will pressure governments to implement more environmental tightenings.

China’s green push

China has been tightening its environmental regulations too. This has partly slowed its economy. This may not wholly be due to climate change concerns, however, as Chinese policymakers have articulated these policy changes are a response to concerns about water and soil quality issues as well as stifling pollution. But the one area where there is an explicit climate change focus is the green energy sector, in which China aims to be the world leader. They have been investing heavily in the transmission networks of this sector both in China and outside (Africa, Latin America).

US loosening policy

The US, meanwhile, has been loosening environmental regulations, which may have boosted short-term growth in the economy at a time when Europe and China have been tightening. This has largely been the result of President Trump’s policies to de-fang the EPA and provide support to carbon sectors such as coal and oil.

Tangible sectors to be hit

At the industry level, academic work has found climate change will negatively affect sectors with significant physical capital and low-skilled workers, like mining, oil and gas extraction, construction, and utilities1. Meanwhile, sectors less heavily affected are thought to be those with intangible capital and high-skilled workers, like retail, services, and communications. Meanwhile, the Federal Reserve has found that more extreme seasons also negatively affect the real estate, insurance, and agricultural sectors. 2

The Bottom Line

Policymakers in various parts of the world are responding to climate change (cancer), so we need to start identifying shifts in environmental policy as well as the more usual monetary, fiscal, and credit policy changes. Some sectors like the auto sector have already been hit, but others like insurance, construction, and utilities are likely to follow. Needless to say, we are only at the beginning of observing the real economy effects of climate change (cancer).

US Weather Extremes Close to Century Highs

Climate extrmes June 3

Global Auto Sector Struggling

Auto sector June 3
ECB natural events insuarnce June 3

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1 “What Do Capital Markets Tell Us About Climate Change?”, Bansal, Kiku, Ochua, 2016. Vulnerable sectors include mining, oil and gas extraction, construction and utilities. Less vulnerable are retail trade, services and communications.

2 “The Impact of Higher Temperatures on Economic Growth”, Colacito, Hoffman, Phan, Sablike, Richmond Federal Reserve, 2018

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