Climate Change's Effect on the Economy

📆This Week’s Topic

This week, we’ll be talking about Climate Change, and how it will effect not only us but the economy in the future. Climate change is something that affects everyone in the world, and we’ll go into specifics on the economic impacts of climate change in the future, but also how it’s impacting the decisions home buyers make right now.

💳 Cause & Effect

Climate Change is usually associated with carbon emissions, rising seas, and catastrophic weather events. However an equally important part of the problem is the cost of damages left by the storms and changes in weather. In 2024, the journal Nature published a report that said that damages from storms could potentially leave far greater economic damages than previously projected. However a little over two weeks ago, they retracted the journal due to after an outlier in one country that skewed the results of the entire study.

📊 Statistics

The “problem country” was Uzbekistan, which if left out meant that the data would revert to earlier findings, of a 23% economic decline instead of one of 60% if it was included. The journal was criticized by many, including Solomon Hsiang, professor of global environmental policy at Stanford University. Mr. Hsiang, who co-wrote the original critique of the journal, says that a 20% reduction was considered a huge number, but a 60% reduction is “off the chart.”

🔚 Outcome

Maximilian Kotz and Leonie Wenz, the authors of the study who faced multiple lines of criticism over the specificity of their data and disregard to correlations within neighboring geographical regions, plan to revise the study by changing the uncertainty range(interval where a true measurement likely lies while accounting for a variety of errors) and lessen the economic impact by the end of the century. However their outlier might not be so far off from other data, as a paper from Timothy Neal, economist at University of New South Wales, found that even in places where weather is not so extreme, there will still be economic constraints, and a general decline by 40% by 2100.

⛱ Consumer Effect

Climate change not only is a thing of the future, but is impacting people currently. The real estate platform Zillow removed a feature that showed the risk of an extreme weather event at a specific home listing. The climate risk ratings began a year ago, and was designed to analyze a specific homes’ risk from flooding, wildfires, wind, extreme heat, and poor air quality. From a home buyers perspective, it was a great feature that would greatly influence your decision, and might choose if you bought a home or not.

🏢Business Effect

But from the point of view of real estate agents and homeowners trying to sell a property, it hurt sales, and was a possible deterrent for potential home buyers. Some homeowners even challenged the scores, and discovered there was no way to change the risk rating. Earlier this month, Zillow removed the risk ratings after complaints from a private database funded by real estate brokers and agents. The database, California Regional Multiple Listing Service, fed Zillow the data which First Street used to create the actual risk models but raised concerns about the accuracy of the flood risk rating. CRLM's CEO Art Carter said that displaying the flood risk of a property can greatly reduce the perceived value of the property. While the actual ratings are no longer on Zillow, there are hyperlinks that take you to First Street’s website, where you can find the risk data for the house.

⏳ Final Summary

All in all, climate change will have vast negative impacts on many portions of the economy, now and in the future. It is already lowering the values of homes, and will further choke the economy to a size around 20% smaller by the end of 2100.

🙏Thank You & Important Information

As always, thank you for reading this edition of Friday Finance. We are so grateful for the support received, and we hope you continue to read. If you aren’t subscribed but are enjoying our content, please consider it, so that you can stay up to date on the latest news on the economy.

Best,

Grayson Stein and Jacob Gans

Friday Finance