SUBJECT: ECONOMICS

Topic - Climate change & Economic growth:

Conflicts & Resolutions

1
 Table of Contents
I. Introduction....................................................................................................1
1. Climate Change...........................................................................................1
2. Economic growth & Energy usage..............................................................1
II. Why is it significant to achieve stronger Economic growth?.........................2
1. Growth supports people to overcome poverty............................................3
2. Growth generates employment....................................................................3
3. Growth fosters human advancement...........................................................4
4. Growth leads to better health and education...............................................4
III. Conflicts between Economic growth & Climate change............................5
1. Impact of Economic growth on Climate change.........................................5
1.1 Economic expansion vs. environmental resources...............................6
1.2 Economic growth has external costs.....................................................6
2. Affects of Climate change on Economic growth........................................7
2.1 Agricultural Sector................................................................................8
2.2 Infrastructure.........................................................................................9
2.3 Human productivity and well-being...................................................10
2.4 Financial markets and business...........................................................10
IV. How to Expand the Economy and cease change in climate?....................11
1. Systems that generate clean energy...........................................................11
2. Smarter urban planning.............................................................................12
3. Use of land in a sustainable manner..........................................................13
4. Smart water management..........................................................................14
5. Circular industrial economy......................................................................15
V. Energy utility company ‘Iberdrola’: Case Analysis.....................................16
1. Transition of Energy..................................................................................16
2. Transport and Infrastructure Electrification..............................................16
3. Renewable Energy's Champion.................................................................17
VI. Conclusion.................................................................................................18
VII. Bibliography..............................................................................................19

2
 I. Introduction
“Unprecedented technological capabilities combined with unlimited human creativity
have given us tremendous power to take on intractable problems like poverty,
unemployment, disease, and environmental degradation. Our challenge is to
transform this extraordinary potential to boost the economy without disturbing the
climate and environment.”

-  Muhammad Yunus, Social Economist

1. Climate Change
Climate change refers to unusual changes in various climatic factors caused by human
activity. The phenomena of climate change manifests itself in abnormal rises in
average temperature, shifting rainfall patterns, increased frequency, and intensity of
extreme events such as cyclones, and rising sea levels owing to glacier melting. It has
negative consequences for humans, ranging from a complete disruption of daily life to
a steady decline in living standards.1 The environment's contribution to the economy
is a multi-faceted phenomenon that encompasses a variety of channels via which the
environment aids the economy's operation.

As a result, various economists have attempted to decipher the nature and degree of
the effects of environmental change in general, and climate change in particular, on
the functioning of economies and overall human well-being over the past several
decades.

2. Economic growth & Energy usage

Energy usage and economic growth have a close relationship. The usage of energy
hastens the generation of greenhouse gases (GHGs). According to estimates,
developed countries are responsible for about 75% of all CO2 emissions. 2 These
findings suggest that economic growth is reliant on energy use, which degrades the
environment. Economic expansion, on the other hand, may result in an early period of
degeneration, however next on, because of the use of improved reduction technology
that may result in few progress in environmental quality. The rapid increase in

1
Naeem Akram, Is climate change hindering economic growth of Asian economies? (Vol. 19, No. 2, Asia-
Pacific Development Journal, 2012).
2
Ibid.

3
 Greenhouse gases in developing countries, particularly in growing economies like
India, Brazil, and China, has prompted major attention concerning the connection
between change in climate and growth of economy. Though some industrialized
countries may benefit immediately from climate change, it will be damaging in the
long term.

Furthermore, climate change's effects are not evenly dispersed. The poorest countries
and people will be the first to feel the negative effects of climate change, as there the
individuals are more sensible of the adverse effects of increasing levels of the sea and
their impact on crop production, people's health, fisheries, resources of water, and
biodiversity. A considerable percentage of the population in less developed nations is
dependent on climate-sensitive sectors, and the capacity to develop and implement
adaptation plans is limited.3 Nonetheless, these economies have to bear the costs of
promoting and implementing various mitigation solutions.

Notably, the long-term effects of mitigation will only be felt by future generations.
Similarly, disadvantaged communities in these nations are more exposed to
environmental dangers due to limited adaptation capacities.

To heighten their economy and minimize the poverty levels, developing countries are
required to increase their industrial expansion and improve the standards of living for
their people. As a result, GHG emissions rise, causing significant changes in the
climate. As a result, it is critical to perform a thorough investigation on Asian nations
so as to examine the consequences of shifting climate forms (a climate change gauge)
on the development of economy. Although statistics limits, the current research aimed
to evaluate the association between weather patterns and economic growth
empirically. 

II. Why is it significant to achieve stronger Economic

growth?
Economic growth is the most effective tool for decreasing poverty and raising living
standards in developing nations. Rapid growth is crucial to make speedier progress
toward the Millennium Development Goals. Growth has the potential to create
virtuous cycles of wealth and prosperity. Strong economic growth and job prospects

3
Ibid 1.

4
 encourage parents to invest in their children's education by enrolling them in school. 4
This might lead to the creation of a powerful and rising group of entrepreneurs,
putting pressure on the government to reform governance. As a result, strong
economic growth fosters human development, which in turn fosters economic growth.

However, identical rates of growth can have quite different consequences on poverty,
impoverished people's employment chances, and broader metrics of human
development depending on the circumstances. The degree to which the poor
participate in the economic process and share in its benefits determines the amount to
which growth eliminates poverty. As a result, both the rate and pattern of growth are
important in eliminating poverty.

“Historically nothing has worked better than economic growth in enabling societies
to improve the life chances of their members, including those at the very bottom.”

- Dani Rodrik, Harvard economist

1. Growth supports people to overcome poverty

As per a study that investigates the happenings and experiences of a broad array of
developing nations, accelerated and continued sustainable development is the sole
most vital strategy to eradicate poverty. According to the findings of these cross-
country research, a ten percent rise in a country's average income reduces poverty by
20 to 30 percent.5 A study on different countries and organizations of nations
validates the fundamental significance of development in ascertaining the pace at
which there can be a fall in poverty. For instance, a benchmark study of fourteen
countries in the 1990s showed that poverty diminished in eleven nations with robust
development and escalated in the 3 nations with weak or stationary development. A
1% increase in per capita income reduced poverty by 1.7 percent on average.6

2. Growth generates employment

Growth in the economy leads to more work opportunities and, as a result, a higher
demand for labour, the poor's primary and often sole asset. As a result, boosting
employment has been critical to achieving faster growth. Employment all over the
4
Oecd.org. 2021. Building Jobs and Prosperity in Developing countries.
5
Adams, R., Economic Growth, Inequality and Poverty: Findings from a New Data Set, Policy Research
Working Paper 2972, World Bank, February 2002.
6
Operationalising Pro-Poor Growth (OPPG) Programme (2005), ‘Pro-Poor Growth in the 1990s: lessons and
insights from 14 countries’.

5
 world has risen by approximately four hundred million following the initial 1990s.
Nearly all of the new works or jobs have been generated in developing nations, with
the countries India and China seeing the majority of the increase.

Low-skilled employees' real earnings have risen in tandem with global GDP growth,
indicating that the poorest workers have benefited from growing global commerce
and prosperity.7   Fears that increased globalisation and an influx of
transnational overseas investors would drive down pay were misplaced. Indeed,
evidence on foreign direct investment suggests that companies are drawn to nations
with greater labour standards, not lower ones.

3. Growth fosters human advancement

Poverty reduction is not the only benefit of economic prosperity. There is also strong
evidence of a favourable relationship between economic growth and broader human
development indicators. Materialism isn't the most important factor in economic
progress. Economic growth, according to Nobel Laureate Amartya Sen, is a critical
means of enhancing substantive freedoms that people cherish. These liberties are
significantly linked to higher living standards, such as increased chances for people to
be healthy, eat better, and live longer.8

Materialism isn't the most important factor in economic progress. Economic growth,
according to Nobel Laureate Amartya Sen, is a critical means of enhancing
substantive freedoms that people cherish. These liberties are significantly linked to
higher living standards, such as increased chances for people to be healthy, eat better,
and live longer.

4. Growth leads to better health and education

In terms of the Millennium Development Goals on health and education, there is
overwhelming evidence that higher earnings contribute to a better quality of life.
Infant mortality is reduced as income rises. India exemplifies the strength of this link,
with a ten percent increase in GDP associated with a 5 to 7 percent drop in infant
mortality.

7
Teal (2006), What Africa needs to do to spur growth and create well-paid jobs?
8
Sen A., (1999), Development as Freedom, Oxford University Press.

6
 Enrolment rates in primary and secondary schools are linked to higher levels of per
capita income. Per capita income has a major impact on educational outcomes such as
test scores and the rates at which children repeat a year of schooling or drop out.
Aside from the positive benefits on education and health, political, gender, and ethnic
oppression are often lower as a society becomes wealthy.

III. Conflicts between Economic growth & Climate

change
There can be two types of conflicting relations between economic growth and climate
change. The first one is where Economic growth hampers the climate and disturbs the
environmental balance. The second relation between them, which is the effect of the
previous relation is, where the climate change caused by economic growth, obstructs
the economic activities and growth itself.

“The climate crisis is both the easiest and the hardest issue we have ever faced. The
easiest because we know what we must do. We must stop the emissions of greenhouse
gases. The hardest because our current economics are still totally dependent on
burning fossil fuels, and thereby destroying ecosystems in order to create everlasting
economic growth.”

- Greta Thunberg, Environmental Activist

Economic Climate Economic

growth imbalance hindrance
1. Impact of Economic growth on Climate change
Growth in the economy is defined as an increase in actual output. As a result,
higher productivity and consumption are likely to result in environmental
consequences. Increasing consumption of non-renewable resources, increased
pollution, global warming, and the potential loss of environmental ecosystems are
all examples of the environmental consequences of economic expansion.9

9
Pettinger, T., 2021. Environmental impact of economic growth.

7
 1.1Economic expansion vs. environmental resources

This PPF curve depicts a swap between consumption and nonrenewable resources.

The opportunity cost suggests a decreased supply of non-renewable resources as
we increase our use.10

1.2Economic growth has external costs

Risen exhaustion of fossil combustibles results in pressing concerns like
deterioration of quality of air. As per the researchers and scientists, the
dissemination of CO2 has provided a way for global warming and variations in
weather. These all facts show that worldwide development and economic
enlargement is happening at the cost environment for a long term, which is going
to affect the future generation and the current generation as well.

10
Ibid 9.

8
 Carbon dioxide emissions per capita are depicted in this graph. Between 1960
and 2014, there was a sixty six percent increase in pollution per capita. As a
result of population expansion, overall emissions are also higher. From 1960
through 2014, the world experienced rapid economic expansion, which
continued despite the development of new technology. Rising sea levels,
unpredictable weather patterns, and considerable economic losses are all
consequences of global warming. Economic development causes
deforestation, which harms soil and makes areas more susceptible to drought.
Reserves are exhausted and the ecosystem is fallen as an effect of industrial
expansion. This can also have an adverse bearing on the economy's prospect
"bearing ability of biological arrangements."

2. Affects of Climate change on Economic growth

Climate change is one of the most serious challenges to economic stability, in
addition to its serious impact on the environment and people. Heatwaves make us
less productive and make us less able to work. Hurricanes, cyclones, and typhoons
wreak havoc on millions of people, leaving them penniless after sweeping their
communities away. Droughts reduce harvests, adding to the difficulty of feeding
the world's growing population, which is estimated to reach ten billion by 2050.11

11
Statista Infographics. 2021. Infographic: How Climate Change Will Impact The Biggest Economies.

9
 The economic consequences of climate change was the subject of a recent Moody's
Analytics study. The study looked at four alternative scenarios, each of which
included temperature increases of 1, 1.9, 2.4, and 4.1 degrees Celsius by 2100. For
example, under a 1.5°C warming scenario, global economic loss is predicted to be
$54 trillion in 2100, whereas 2°C will cost $69 trillion.12
In the most extreme scenario, a 4°C temperature increase, there would be winners and
losers. If this happens, India's GDP is expected to fall by 2.45 percent in 2048, the
most of any of the world's major economies. India suffers heavily from the heat stress
impact channel due to its smaller share of service industry employment. Negative heat
stress affects China as well, but it is not as severe as it is in India due to benefits from
tourist and agricultural activity. In the worst-case scenario, GDP growth in Canada,
the United Kingdom, Germany, France, and the United States would be very low.

Here are a few of the many ways that climate change will almost certainly have an
impact on our economy, both in direct and indirect ways.

2.1Agricultural Sector
It is commonly acknowledged that the consequences of global warming on
agriculture will harm developing countries more than industrialised nations. The
majority of underdeveloped countries are less adaptable than their wealthy
neighbours. The majority of them are in hotter places of the world, where

12
Ibid

10
 temperatures are already approaching or above thresholds where future warming
will reduce rather than boost agricultural output. Agriculture also makes up a
higher portion of developing economies than it does of developed economies.

Farming is impacted in many areas by the change in the climate. The effect of
excessive warming is decreased output as the plants increase their development
rate and end up producing very few grains. The capacity of crops to get moisture
and use it also gets hindered due to the temperature rise. When heats rise and
crops progress the process of transpiration, that is, when the plants from their
leaves drop higher moisture then soil speed up the evaporation.
The term Evapotranspiration is used for the mixed impact. Due to global warming,
an increment in the rain is also anticipated. A race between raised precipitation
and raised evapotranspiration is the net impact of the rise in temperatures on the
availability of water. The champion of the race is usually higher
evapotranspiration.

2.2 Infrastructure
Floods, droughts, wildfires, and strong storms all necessitate major infrastructure
repairs, including homes, roads, bridges, train tracks, airport runways, electricity
lines, dams, levees, and seawalls. According to a 2018 research, sea level rise
threatens nearly 4,000 miles of fibre optic cable, as well as data centres, traffic
exchanges, and termination points – the lifeblood of the global information
network.13

13
Climatehotmap.org. 2018, Global Warming Effects on the Economy.

11
 2.3Human productivity and well-being
Climate change-related disruptions in daily life can result in lost work and school
days, as well as harm to trade, transportation, agriculture, fisheries, energy
production, and tourism. Severe rainstorms and snowstorms can disrupt planting
and harvesting, because power outages, clog traffic, cause delays in transportation
travel, and make it difficult for people to go about their everyday lives. Climate-
related health concerns also impair production, such as when high heat prevents
building or when stronger allergies and increased air pollution result in lost work
and school days.14
Warmer temperatures and more precipitation will increase the danger of
waterborne and foodborne infections and allergies, as well as encourage the
spread of diseases like Zika, West Nile, dengue fever, and Lyme disease into new
areas. Extreme weather and natural disasters caused by climate change might
increase mental health problems. These health issues will have the greatest impact
on the most vulnerable populations, such as the elderly, children, low-income
communities, and communities of colour.

2.4Financial markets and business

The impacts of change in climate have a drastic effect on businesses and
companies all over the world in a variety of ways. There can be many severe

14
Ibid 13.

12
 effects of excessive temperature such as disruption in the activities of the supply
chain, destruction of factories, and other structures, and obstruction in
transportation as well. The rising cost of water is a direct cause of drought which
results in affecting the price of raw materials and production as well. Businesses
may be made to bargain with contingency in the cost of means for manufacturing,
transportation of energy, and support of insurance due to climatic change.
Resources such as tools of mining, coal, skiing in a place where snow is no longer
there, will lose their business.
A study named Project of Carbon Disclosure examined about seven thousand
companies or businesses in the year 2018 to evaluate the fiscal or economic
uncertainties from a change in the climate. According to this Report, out of five
hundred biggest businesses, a total of 215 firms lose an assessed 1 trillion dollars
because of the change in climate in the subsequent 5 years unless they take
preventative actions.15 For example, Alphabet Inc. will nearly surely have to fight
with rising data station costs for cooling. Increased rains and flooding in Southeast
Asia could disrupt Hitachi Ltd.'s suppliers. Climate change-related losses have
already hurt several businesses. A company that produces hard discs, Western
Digital Technologies, faced huge losses because of floods in Thailand that
obstructed their process of production.
Investment firms, insurance companies, and wealth managers who make the
mistake of assuming that the global economy will continue to rely on fossil fuels
risk experiencing rapid and severe losses on stranded or otherwise carbon-
sensitive shares, bonds, and other instruments. The current worth of these
transition-risk-related losses is estimated to be $20 trillion, according to one
estimate.

IV. How to Expand the Economy and cease change in

climate?
Despite the business community's initial scepticism, a growing number of research
and efforts suggest that actions to combat worldwide climatic change chance of a
lifetime of assuring development that is renewable and sustainable and boosting
progress of economy. According to an assessment published two years back,

15
Cho, R., 2019. How Climate Change Impacts the Economy. State of the Planet, Columbia Climate School.

13
 embracing determined environment work policies could create revenues of twenty six
billion dollars by the end of 2030, while also creating sixty five million of additional
employment besides lowering emanations of carbon.16
There is an urgent need for architectural reformation in 5 major areas to create a
healthy and advantageous development design for people:

1. Systems that generate clean energy

Emission reductions for the power scheme, along through digitised,
deconcentrated electricity providing methods, might provide contemporary energy
services to a billion additional people.
Electricity is critical to decarbonizing energy use through renewable energy in
order to develop a long-term, cost-effective energy framework. Electricity is the
energy vector that allows for a bigger contribution from renewable energy sources
while also drastically improving overall energy system efficiency.

Transportation is responsible for a quarter of worldwide CO2 emissions and the

majority of metropolitan pollution. Electrifying transportation using electric

16
Iberdrola, Environment variation changing the economics and civilization?

14
 vehicles, which improves energy use by increasing efficiency, is a highly effective
solution to handle both problems, which have a same cause.

2. Smarter urban planning

By 2050, communities that are more compact, connected, and coordinated will
save $17 billion and encourage economic growth by enhancing access to jobs and
housing. Every day, around one lakh and eighty thousands persons relocate to
urban areas. According to a report by OECD, the global population will touch
nine billion individuals near the year 2050, out of which seventy persons living in
urban areas.17
Various towns have chosen to systematically reuse and reconstruct themselves
digitally in answer to the world's extreme tests, such as growth in population,
contamination, management of water, paucity of resources, and fuel availability,
with urban areas spending over seventy five percent of the total planet's
generation of energy and disseminating eighty percent of release of greenhouse
gases.

17
Smart cities: the technological revolution reaches the cities.

15
 And they've done it by becoming smart cities, which rely on Technology to
efficiently and long-lasting handle every task from transportation to the usage of
energy and water resources, public spaces, and communication with their citizens.
The aim is to diminish the use of non-renewable energy, dissemination of CO2,
and enhance the living conditions of the inhabitants.

3. Use of land in a sustainable manner

A switch to more sustainable farming methods paired with strong forestry
protection could result in annual economic gains of roughly $2 billion. Food
produced in accordance with natural cycles, without the use of chemical pesticides
or synthetic or genetically modified fertilisers, and by rotating crops to use all
nutrients in the soil. This sort of agriculture encourages the development of native
species that are disease and pest resistant. 18Animals in livestock husbandry are
kept in a semi-free environment, and antibiotics and hormones are not allowed.

18
Ciesin.org. 2016. What is Sustainable Land Management?

16
 4. Smart water management
In areas with a water shortage, GNP could fall by up to 6% in 2050. 19 This could
be prevented by making more efficient use of water through technological
improvements and investment in public infrastructure.

Smart water management technologies can make the water delivery system more
resilient and efficient, lowering costs and increasing sustainability. Digital metres and
sensors, supervisory control and data acquisition (SCADA) systems, and geographic
information systems are examples of high-tech water solutions (GIS). Conventional
water and wastewater systems can be transformed into instrumented, interconnected,
and intelligent systems using smart technologies.

5. Circular industrial economy

Today, ninety five of the value of plastic packaging material is wasted after the first
use, amounting to up to 120 billion dollars each year. Policies that encourage more
circular and efficient material usage have the potential to boost global economic
activity while also reducing waste and pollution.20
The Global Commission on the Economy and Climate is urging public and private
sector leaders to take the following urgent steps in the next two or three years: put a
price on carbon and require companies to disclose climate-related financial risks,
accelerate investment in sustainable infrastructure, leverage the private sector's power

19
The World Bank. 2016. Climate-Driven Water Scarcity Could Hit Economic Growth by Up to 6 Percent.
20
Unido.org. 2016. Circular economy, UNIDO.

17
 by boosting innovation and increasing value chain transparency, and adopt a people-
centric focus to ensure equitability.21

V. Energy utility company ‘Iberdrola’: Case Analysis

‘Iberdrola’ is today a global energy leader, the number one producer of wind power,
and one of the world's largest electricity utilities in terms of market capitalization,
with a history spanning over 170 years. To tackle climate change and deliver a clean,
reliable, and smart economic model, we have accelerated the energy transition by two
decades.

1. Transition of Energy
‘Iberdrola’ is dedicated to leading the energy transition, a commitment it began 20
years ago and has helped the company become a renewable energy leader. “With a
goal of energising the economy, advancing innovation and technology, and improving
customer connectivity, the firm is putting in place its historic 2020-2025 investment
plan, which calls for a total investment of 75 billion euros by 2025, rising to 150
billion euros by 2030.” In the key renewable technologies, the plan calls for a large
increase in installed capacity.22

21
Ibid.
22
Iberdrola. 2021. We are investing €150bn between now and 2030 to maintain our leadership in the energy
transition.

18
The group is continuing to create partnerships in order to continue leading the
decarbonisation and reactivation of industry and the economy. Iberdrola's most recent
renewable energy partners include Total, and Shell, in addition to having inked long-
term clean energy purchase agreements (PPA) with significant firms such as Amazon,
Apple, Facebook, and Nike. It also signed green hydrogen agreements with BP,
Cummins and Diageo as well as promoting electrification and electric mobility
alliances with Volkswagen, and Renault.

Investment in a cleaner, more dependable electric system, maximising efficiency, and

supporting innovation are the cornerstones that have allowed Iberdrola to lead the
energy transformation.

2. Transport and Infrastructure Electrification

Iberdrola is committed to electrifying transportation and has launched a
comprehensive Sustainable Mobility Plan. It's also the first Spanish company to join
The Climate Group's EV100 initiative, pledging to electrify its entire fleet in Spain
and the UK by 2030.

Another key component is the decarbonisation of energy in buildings through the

encouragement of self-consumption and the use of heat pumps, which Iberdrola is
also researching. Iberdrola is collaborating with a variety of organisations, including
the Oxford Institute for Energy Studies External link, opens in new window to
examine all possible decarbonisation options and trends in the electrical sector in
order to stay informed and develop solutions.

3. Renewable Energy's Champion

Renewable energy will represent for more than half (51%) of Iberdrola's organic
investment: roughly 34.68 billion euros, according to the company's historic
investment plan for the years 2020-2025. “After obtaining 44 GW of installed power
in 2022, the group will be able to reach 60 GW in 2025 as a result of these
expenditures. This will result in a two-fold increase in present capacity, boosting
offshore wind energy to 4 GW by the end of the time and photovoltaic solar power to
16 GW by the end of the period.” With 26 GW of offshore wind and 14 GW of

19
 hydroelectric electricity installed in 2025, the business will maintain its leadership in
both fields.23

23
Ibid

20
Bar graph 1: Iberdrola to triple its installed renewable capacities by 2030.

Iberdrola has also announced the formation of a new green hydrogen business unit in
order to cement its position as a global leader in the field. It has also proposed 54
projects to the EU's Next Generation programme, which would result in €2.5 billion
in investments to reach an annual production of 60,000 tonnes of green H2. Green
hydrogen is a possible alternative for achieving rapid, medium-term decarbonisation
in the industries that use it and as a raw material, as well as for difficult-to-electrify
activities like heavy freight transport. As a result, by 2030, electrification of energy
needs will result in an increase of 85,000 green hydrogen tonnes.

VI. Conclusion
In this study, I have tried to explain the importance of Economic growth all around
the world. I have explained how climate change can affect the economic output. At
first, Economic growth hampers the climate and disturbs the environmental balance
and then the climate change caused by economic growth obstructs the economic
activities and growth itself. Further, it is also argued that it is possible to boost our
economies and to expand development without disturbing the environmental balance
which causes climate change. I have also provided the ways to carry on the endeavour
of economic growth without causing climate change with an example of ‘Iberdola’
which is continuously working for sustainable growth and development of various
renewable technologies.

21
22
 VII. Bibliography

1. Climate Change and Economic Growth by Robert Mendelsohn.

2. The economic impact of climate change by Richard S. J.

3. Is Climate change hindering Economic growth of Asian economies? By

Naeem Akram.

4. Climate change and Economic growth: Evidence from the last half

century by Melissa Dell, Benjamin F. Jones and Benjamin A. Olken.

5. Impact of Climate change on Economic growth: A case study of India by

Medhavi Sandhani, Anubhab Pattanayak and K.S. Kavi Kumar.

23