How climate change is likely to worsen inflation

“If we ignore it and don’t do anything about climate change, it will become a staggering cost. And it will have a huge impact not only on grocery bills, but many other aspects of our ordinary lives,” said Suzi Kerr, chief economist at the Environmental Defense Fund.

by Shirin Ali | Oct. 04, 2022

Corn waits to be harvested on land leased by Tempe Farming Co., Thursday, July 22, 2021, in Casa Grande, Ariz. The Colorado River has been a go-to source of water for cities, tribes and farmers in the U.S. West for decades. But climate change, drought and increased demand are taking a toll. The U.S. Bureau of Reclamation is expected to declare the first-ever mandatory cuts from the river for 2022. Darryl Webb/ AP

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Climate change is capable of devastating entire U.S. industries, especially agriculture.

Farmers in Florida are facing that reality after Hurricane Ian damaged the state’s citrus farms.

Climate disasters have cost North America $415 billion, much of it due to wildfires and hurricanes.

Climate change isn’t viewed as a major contributing factor for high prices right now, but as severe weather events increase in frequency and devastate industries that contribute to the U.S. economy, experts warn it increasingly will be if temperatures keep rising.

Severe weather events, like hurricanes, wildfires and droughts, devastate entire communities while costing billions to rebuild. It also affects industry, from energy to transportation and agriculture, leading to a significant rise in food costs for millions.

Treasury Secretary Janet Yellen said last week while speaking in North Carolina that climate change can manifest itself in “acute, weather-related supply shocks,” that create sharp reductions in capacity and raise prices for consumers.

The Environmental Protection Agency (EPA) has also warned that climate change can and will disrupt food availability, reduce agricultural productivity and interrupt food delivery.

The federal agency warned that, “spikes in food prices after extreme events are expected to be more frequent in the future.”

It’s a reality that Florida is currently experiencing firsthand after Hurricane Ian hit the state and resulted in higher prices for frozen orange concentrate orange juice by more than 5 percent and could have long lasting impacts with at least 75 percent of Florida’s citrus belt under threat of heavy flooding.

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California is another, with the U.S. Department of Agriculture (USDA) noting in July that U.S. orange production is expected to drop 13 percent to the lowest level in 55 years due to poor fruit set, the stage where a flower turns into a berry — driven by California’s severe drought.

These severe weather events are happening at a time when the price of goods is especially high, with food prices in the U.S. rising 11.4 percent over the past 12 months — the largest annual increase since May 1979. That’s along with record high prices for electricity, housing, gas and a broad range of other products.

To Suzi Kerr, chief economist at the Environmental Defense Fund, climate change’s current role in driving up the prices of goods and services is relatively small, but told Changing America that “if we ignore it and don’t do anything about climate change, it will become a staggering cost. And it will have a huge impact not only on grocery bills, but many other aspects of our ordinary lives.”

Climate change is expected to continue, causing all sorts of severe weather events. The U.S. West has been in a long-running drought since 2020, which is expected to continue. And research from the journal Nature Communications also found that hurricanes have increased in frequency and destructiveness over the past 150 years, with climate change considered a major factor.

Even Federal Reserve Chairman Jerome Powell said last year during the Green Swan conference that climate change risks the world economy and that, “there is no doubt that climate change poses profound challenges for the global economy and certain the financial system.”

Understanding the economic impact of climate change is critical, as an analysis by Columbia University’s Climate School noted climate disasters have cost North America $415 billion, much of it due to wildfires and hurricanes. Every degree Celsius that the Earth warms, there’s an estimated 5 to 15 percent decrease in overall crop production.

That will hit American farmers who are likely to struggle to maintain their fields and adapt to changing weather conditions — causing prices to increase.

Increased costs may also come in the form of lost wages and medical bills, as a warming climate adds to the risk of waterborne and foodborne diseases and allergies. Columbia estimated temperature extremes are projected to cause the loss of two billion labor hours each year by 2090, resulting in $160 billion of lost wages.

Congress has taken action against climate change and current inflation, most recently through the Inflation Reduction Act, which includes provisions to mitigate climate change through a host of different measures, such as tax credits for energy production and investments in technologies including wind, solar and geothermal energies.

It also includes a new program to reduce methane emissions from oil and gas by offering grants and loans to help companies that reduce their emissions while charging fees to those with excess emissions.

Kerr believes that the Inflation Reduction Act is a “game changer” and carries strong potential to reduce energy costs in the U.S. and could set an example for the rest of the world about what’s possible when addressing climate change.