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When rising sea levels shake up the economy

Rising ocean levels have already cost billions. But this is only the beginning. The future consequences of this phenomenon will depend on how fast and how much affected countries and industries can adapt. © iStock

Up to $290 billion. This is the cost of hurricanes Harvey and Irma that hit the West Indies, the Caribbean and the United States this summer, equivalent to 1.5% of the US gross domestic product (GDP). For US meteorologist Michael Mann, the impact of these typhoons was made worse by rising sea levels associated with human activity.

“Sea level rise as a result of climate change has increased more than 15 cm over the last few decades, which means that the storm surge is seeping farther and farther into coastal cities,” Mann, a climate science professor at Pennsylvania State University, wrote in the Washington Post. The increased devastating power of hurricanes is just one of the consequences of sea level rise on the global economy.

The average sea level could rise up to a metre by 2100, as a result of sea ice melt and the expansion of seawater due to global warming, according to the Intergovernmental Panel on Climate Change (IPCC). For the United States alone, rising sea levels could cost 1% to 2% of the national GDP and up to 5% of the GDP in vulnerable regions such as Florida.

“These estimates could be far too low, since recent observations have shown a rapid thawing of glaciers in Antarctica and Greenland. This could lead to sea levels rising higher and faster than expected,” said Jonathan Harris, researcher at the Global Development and Environment Institute at Tufts University in the United States. “Such a scenario would have catastrophic effects that would be far worse than the destruction from hurricanes like Harvey.”

Coastal regions and islands are the most vulnerable. “We’ve already spent billions of dollars to protect coasts from flooding on the east coast of the US and the Gulf of Mexico,” said Harris. “Including loss of property, the total costs for these regions could reach several thousand billion dollars.

According to a recent estimate, 1.9 million coastal houses, the combined value of which is $882 billion, could be destroyed by 2100 in the United States. ” These estimates are based on a moderate sea level rise. “An extreme rise of 1.8 m to 3.6 m resulting from thawed ice from West Antarctica, which is now a very real possibility, would be far more devastating,” warns the specialist.

A World Bank study published in 2013 on the 136 biggest coastal cities in the world predicts that the annual costs for flooding in these cities could increase from $6 billion to $1,000 billion by 2050 if new adaptation measures are not taken in the meantime.

By putting in place protection systems (pumps, embankments, etc.) the balance could be reduced to $63 billion per year. The World Bank study is based on a sea level rise of 20 cm by 2050, which is a moderate scenario.

Threat of opportunity?

That said, these numbers should be taken with a pinch of salt, because the effects of sea level rise on the economy are very difficult to predict. They vary based on the extent of global warming and the speed of ice melt and sea level rise, but also the ability of countries and industries to adapt, persevere and innovate. Furthermore, it’s not enough to simply estimate costs. One must also take into account the potential benefits of the investments made for this phenomenon.

The impact of hurricanes is particularly difficult to calculate. “There are three theories regarding their long-term effects,” explained Rob Dellink, economist at the Organisation for Economic Cooperation and Development (OECD).

First, damages are never compensated. Second, reconstruction generates income that counterbalances damage. Third, replacing old infrastructure with new, more efficient construction could even accelerate growth. It all depends on the local context, the ability to rebuild the right way, the responsiveness of the local government and the organisation of the insurance market.”

Annual flood costs for large coastal cities could reach $1,000 billion by 2050

Insurance is another aspect that adds to the complexity of determining the economic consequences of rising sea levels. Each year, natural disasters become more and more expensive. In 2016, insured damage from natural disasters around the world cost $54 billion, compared to $38 billion the year before, according to Swiss Re, the world’s largest reassurer.

With the hurricanes this year, the current financial year could be even worse. “Global warming could bankrupt our industry,” said Frank Nutter, president of the US reassurance association. But where some anticipate the fall of the industry, which would have significant repercussions on the rest of the economy, others see potential new growth.

“Currently, only one-quarter of investment projects around the world are insured for climate events,” said Mikaa Mered, professor of economics and geopolitics of the Arctic and Antarctica at the ILERI School of International Relations in Paris. “That means that the remaining 75% aren’t insured and therefore new products can be developed.”

Swiss Re is already developing new business lines for climate change. In particular, the Zurich-based reassurer recently began covering a coral reef 60 km off the coast of Cancun, Mexico. If a storm destroys the reef, Swiss Re will cover the repair costs up to $70 million. Besides attracting tourists, reefs, threatened by global warming, form a natural barrier against storms and flooding. Preserving reefs is therefore advantageous both ecologically and economically.

Local and global consequences

It’s also worth distinguishing between local consequences of sea level rise and global incidents. The blows to the energy and tourism industries will be massive on a local level, but relatively limited from a global perspective, given that the benefits enjoyed by some regions will compensate for the losses in other areas, according to the OECD.

“Decline for some means growth for others, and what is destroyed by climate change will be rebuilt elsewhere,” said Mered. “Some regions will suffer more than others. Dubai is better prepared than Bangladesh.” Southern and Southeast Asia are particularly vulnerable regions, according to researchers, and especially islands like Kiribati.

Even though the real impact of rising sea levels is largely unknown, one thing is certain: the cost of not doing anything would be extremely high. “The good news is that the ways to reduce greenhouse gases are becoming simpler and less expensive,” said Jonathan Harris from Tufts University.

“Solar and wind energy prices have dropped drastically, as well as the cost of energy measures that reduce pollution. There is incredible potential – which has remained virtually untapped – to store carbon in the ground and forests, thanks to better farming and forestry practices. The extent of the problem, however, means that policies must be put in place immediately to encourage rapid progress across all fronts.”

Migratory waves and new cities

Rising ocean levels will also lead to many population relocations, which will affect anywhere between one million and hundreds of millions of people, according to the forecasts. In the Pacific, Kiribati, a group of 33 islands at only 1.8 m above sea level, could be completely submerged over the next few decades. Two islands have already disappeared. The government is planning to relocate the entire population of 110,000 people to Fiji. Some residents have already left.

The consequences will be enormous, and not just for the economy. “It’s very likely that the migration issue will get worse and lead to more and more conflicts,” expects researcher Mikaa Mered. “Many people will head north and the far north will increasingly become a land of immigration. This begs the question of making the Arctic a sanctuary, as people are discussing building new cities. What can become a sanctuary today might not be able to be in the future, for climate and migration reasons.”

 
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