In ways perhaps subtle or significant, climate change has affected your local economy in recent years. The question is, how much more change are you yet to see?
Photo: Egor Gordeev on Unsplash
One of the topics that is rarely out of the daily news cycle is climate change. This is apparent whether you are somewhere in the Asia Pacific, in Europe, or the Middle East. Whether you live in Africa or are located in the Americas. The news and opinion segments you listen to, watch, or read, may cover climate change from a variety of perspectives – including energy, agricultural and transport. The information conveyed may be about government policy, a conference, a product innovation, or an impact upon a community.
The subject of the changing climate is pervasive. It is having, and will continue to have, an impact upon economies of all sizes. Even those down to the local level.
Climate change influences investment and insurance decisions. It has caused shifts in supply and demand for a range of goods and services. It drives innovation and gives birth to opportunities for entrepreneurs. Responses to climate change can be seen right across the value chain in almost all industry sectors.
Just like other global megatrends, demography and computerisation for example, climate change is an important strategic consideration in economic development. A consideration that spans several strategic planning life-cycles.
Things have changed and will continue to change
As we turn our attention to the impact of climate change in particular, and other global megatrends more broadly, have upon the local economy over the coming years, it is important to refresh our understanding of the element of time. To reflect upon how things have changed more generally.
Very few of us in 2010, no doubt, could see that by 2020 local traders would be affected by online shopping or by the prominence of digital marketing, let alone the pummeling by an infectious virus. Similarly, at the turn of this Century’s second decade who was prepared for the prominence of ESG (environmental, social, governance) principles in the business world, or to the attraction and success of social entrepreneurship?
So, just as 2020 is different to 2010 in a myriad of ways 2030 will be different to 2020. This leads to several implications for the development of a local economy. What sectors will be doing well, and which will be classed as sunset industries. What changes are we likely to witness in say housing, in transport, in manufacturing, and in services?
By contemplating the risks and opportunities that lie over the horizon, images of what the future could look like can be drawn. And from these images a vision can emerge that can be built by germane strategic objectives.
Global Megatrends shape economies over the long term
Global megatrends (eg. demography, computerisation, climate change) will continue to shape local economies for far longer than the standard four or five year time span. Because of this, those preparing economic development strategies need to consider time spans beyond those of any strategy that is currently being prepared. In essence, a strategy document prepared during 2021 should have an eye on what will be included in any subsequent strategy document.
The point is this: trends drive change. Whether large or small, trends cause things to be different over time. The megatrends mentioned previously, climate change, demography and computerisation, have a far more significant influence upon economies of all sizes than local trends. Take one example of a smaller and localised trend – fashion. Whether in say interior decorating or consumer tastes. These small-scale trends could impact what goods and services are available locally, or what the community spends their money on. In a similar manner the more significant and global trends, the megatrends, drive change not only at a local level but more importantly at a national and international level. And these megatrends in turn also impact what goods and services are available and what the community spends its money on.
While this document will discuss in greater detail the megatrend of climate change, attention will turn first to the other two. By briefly reflecting first upon the impact of the megatrends of demography and of computerisation on a local economy, we can lay a foundation for a more detailed examination of the future of the local economy in terms of climate change.
First, to considerations of the global megatrend of demography. According to the United Nations, between 2015 and 2030 the proportion of those over 60 across the world is expected to grow by over 50% to 1.4 billion people. That’s to over 16% of the expected 8.5 billion people who will be alive in 2030. About one in every six people will be nearing pensioner status.
How could this megatrend influence an economy? As an increasing percentage of people get older there are, obviously, implications for the health sector in terms of the costs of provision of care and the availability of a workforce that can provide this care. At a local level the economy can be impacted by housing and mobility needs, differing demands for education, and shifts in the types of popular community activities.
It’s easy to see, then, that this global megatrend will continue to influence a local economy beyond the lifespan of a standard strategic plan for local economic development. Thus there is a need to consider this and other long term trends in the context of the economic development process. There is a need to think strategically about the future. And the use of strategic foresight is the ideal approach – it can be used to help prepare any local economy for the changes that will be wrought by any of the megatrend.
Consider a ten year period as two planning cycle. And think in terms of the changes that the megatrend of demography will cause over the next ten years. The implication is this: with the two five-year economic development strategy cycles, the 2021 document should be prepared with the 2026 document in mind. Because 2030 occurs during this second cycle. That is, the 2021 document should be prepared with what the local economy could look like in 2030, because of the changes that the global megatrend of demography will cause throughout the 10 year period.
So, what will the impacts be upon a local economy?
Consider housing. If it is likely that a higher percentage of the local population will need suitable senior citizen accommodation by 2030 then regulations and land use, for example, can be modified during the first half of this third decade of the 21st Century. With construction underway during the second half.
Consider health care needs. Again, if it is likely that a higher percentage of the local population will be in need of medical services, due to an aging population, will you be ready? Perhaps during the early part of this decade education and workforce development programs can be developed. With the second half of the decade being spent by drawing people into this skills development pipeline.
The second global megatrend to reflect on is computerisation. For decades now there have been advances in information technology. And advances will continue. One area of continuing development is computing power. According to Moore’s Law, computing power effectively doubles every two years while its price halves over the same period. Another is the rapidly advancing technology of quantum computing. A technology that, among other things, will give rise to new materials and new ways of communication.
How could this megatrend shape the local economy? One obvious impact is job loss due to automation with a flow-on to the education sector. Another is an increasing importance resting upon how a company collects and uses data. A third could be in the improved efficiency in the construction and management of all manner of physical assets.
As with the case of demographic change, a two cycle approach to the development of the local economy could be utilised. For example, knowing that the local businesses will increasingly need people skilled in using data then training and education programs can be developed through the first cycle and implemented during the second cycle.
The global megatrend of climate change
We are well aware of the mechanism that drives climate change. An increasing concentration of greenhouse gases (carbon dioxide, methane, nitrous oxide and halocarbons) in the atmosphere alters the balance of energy being received from the sun and being reflected from the earth back into space. The higher the amount of these gases in the atmosphere, the lower the amount of heat escaping from the earth. The result: a warmer atmosphere.
Rigorous scientific studies over many years have determined that the observed increase in greenhouse gas concentration is due to human activity. Primarily through the release of carbon dioxide from carbon rich energy sources, aka fossil fuels.
Thus, as the atmosphere warms the balance of multiple ecosystems are modified. The temperature of the ocean rises, as does the air. Leading to melting land and sea ice and to shifting weather patterns. Increasing the concentration of atmospheric carbon dioxide also leads to changing the chemical composition of the ocean. This ocean acidification influences life in the sea as much as shifting weather patterns influences life on land.
And so efforts to reduce the increasing concentration of green-house gases are focused on reducing humanity’s reliance on these carbon-rich energy sources. To replace a non-renewable source of energy with a renewable source of energy.
However, as these reduction efforts play out its important to understand what the general impacts of climate change are.
In essence, over the coming years, there will be a continuing increase in land and ocean temperatures. The frequency and duration of land and marine heatwaves will rise. As will the intensity and frequency of heavy precipitation.
The higher the latitude, the greater the warming. These higher temperatures will also cause instability in the cryosphere (eg. Antarctica, Greenland), which leads to higher sea levels. And increasing absorption by the ocean of carbon dioxide will intensify its acidification.
And these changed environmental systems will in turn influence ecosystems, resources, life and economic activity. From shifts in climatically determined ranges for insects, plants and vertebrates to the relocation of marine species. From changes to crop yields to rises in heat-related mortality and morbidity for humans. From losses in nature-facing industries to migration of people facing ruin.
The list of impacts, and attendant detail, can unfortunately be quite lengthy and disheartening.
Climate mitigation and climate resilience
However, it is important to see what is happening on the other side of the coin. What innovations, industries, technologies and government mandates and actions are being taken as a result of the changing climate? These efforts can be broadly classified as climate mitigation and as climate resilience.
The efforts to mitigate the effects of climate change, largely centre on energy and land use.
Firstly, to the sources of energy. Investment in clean energy continues to grow, while some types of fossil fuel are being seen as assets at risk of being stranded. Pressure from those that provide insurance, from governments, and from the economics of clean sources of energy continue to force decarbonisation activities across the globe.
Related to the decarbonisation of energy sources are activities to do with energy efficiency. These activities are about reducing energy wastage and are underway in industrial processes, in corporate offices, in domestic dwellings, and across all modes of transport for people and goods.
Secondly, to how land is used. Reversing deforestation, limiting the spread of urban footprints and peatland restoration are some of the more common nature-based approaches. The use of carbon sinks to sequester carbon can be classified as a land-use climate mitigation strategy.
Climate resilience is the second category of responses to climate change. The efforts to improve resilience in the face of a changing climate focus on the built environment, the economy and public health.
Regarding the built environment: sea walls, drains, bridges and the building materials used in their construction are all in the spotlight. As are commercial and domestic buildings, whether through new standards or through retrofitting to suit the changing climate.
Regarding the economy. To improve resilience, the risks to income producing assets will need to be lowered. This may mean the relocation of say electricity network assets and computer data centres. Road surfaces and railway tracks may need to be re-built to support daily life as mean temperatures rise and weather extremes become more pronounced. It may also mean reduced reliance on taxation revenue from affected sectors.
Regarding public health. Increasing investments in systems that detect and respond to novel diseases will need to considered, as will messaging campaigns relating to the dangers of extreme temperatures and storms. The capabilities of each of the levels of the health care system will also need to be addressed.
Local impacts of climate change upon industry sectors
We can understand at a conceptual level the reality of climate change, but what are the local implications? We can accept that climate change is a global megatrend and that it is and will continue to influence economies of all sizes, but at a personal level and on a daily basis we may not be witnessing any significant change. And we may ‘get’ what climate mitigation and climate resilience is, but we can struggle to comprehend these developments in terms of their influence upon how our community lives their lives. How they operate their businesses. What investment decisions they make. The profile of their staff.
In other words, we do need to understand the changes that will be wrought upon the locale in which we live because of the increasing concentration of green house gases in the atmosphere.
The question is this: how will climate change affect the local economy? What are the potential changes that this particular global megatrend will usher in through the course of this third decade of the 21st Century?
Let us briefly consider several industry sectors.
Regarding agriculture, forestry and fishing. Climate change is currently having a negative impact on profits. Water availability, farming techniques, crop yield, livestock viability and the sustainability of fish stocks will continue to be affected. To ensure ongoing success, adaptation will be the critical stance. More than likely the sources of profit for each of these three sub-sectors will change over the next 10 years as will aspects of business operations.
Regarding mining. Apart from pressure to reduce Scope 1, 2 and 3 emissions, hazards associated with the increased frequency and intensity of weather extremes will drive change. However, green energy does rely upon a set of raw materials. We are well aware of the need for copper and lithium, but wind turbines need rare earths and solar cells need metalloids. As the science of renewable energy creation, distribution, storage and use advances expect to see exploration for, and exploitation of, new metals and minerals.
Regarding construction. Not only will the environmental ratings of how commercial, industrial and residential buildings are operated be tightened, but so will the method and the materials of construction. Green hydrogen can be used in the production of steel and cement, with other materials sourced from recycling processes. There will be an increase in construction activity relating to climate resilience efforts.
Regarding manufacturing. Climate mitigation and climate resilience efforts will impact production processes and the viability of what is produced. Changes in types of energy sources, how energy is distributed and the cost of energy will impact where manufacturing is located. A broad shift from the linear model to the circular model will influence the manufacturing value chain.
Regarding transportation. Apart from the obvious replacement of non-renewable sources of power with renewable sources of power (climate mitigation) and the climatic strengthening of transport infrastructure (climate resilience), usage and profitability patterns will change. For example, greater use of public transit systems, increased disruptions to logistics from weather-related events, and a reduction of investment in firms that are not aligned with the science of climate change.
Regarding utilities. The big story of the last decade is the precipitous fall in the cost of renewable energy. Particularly solar energy. Virtual powerplants, sourcing energy from domestic solar panels, will be a feature of the electricity grid. Low or zero carbon heating solutions for homes and the shift to green hydrogen for industry will shift demand for fuel types. More frequent and more severe drought conditions may well cause an increased reliance upon desalination plants and reconfigured water distribution networks.
Regarding wholesale and retail trade. The circular economy is forecast to change supply and value chains. As will climatic events and consumer responses to the pattern of events. Reductions in energy costs should improve profitability, but the buildings that house a business’s operations will affect both its reputation and some fixed costs.
Regarding professional services. Codes of conduct will include green-related standards. And, as with any set of broad changes to the mix of industry sectors, the services sector will leverage new opportunities (for example, the rise of carbon-permit traders and the various types of climate-change consultants).
Regarding public administration. Efforts into research and development, into environmental monitoring and compliance, and into policy and regulatory impacts will all take a higher profile. Public consultations and messaging will be vital to draw people forward. Awareness of, and solutions to, the risks and opportunities presented by climate mitigation and resilience efforts will need to be emphasised through the education systems’ curricula.
Common threads
From primary industries through to those at the more complex tertiary level of economic activity, the changes wrought by climate change will impact all economies. Even those at the local level.
By identifying some common threads that weave through each of these sectors, those developing strategic plans for their local economies can do so with greater insight into what potentially lies ahead. It means that the plan’s strategic objectives will better describe what 2030 is expected to look like. And the stakeholders in the local economy will be better prepared for how things will pan out during the second half of this decade.
One common thread has to do with opportunities for innovation. Climate change is a problem and responses to this problem generally fall into the mitigation camp or the resilience camp. While the downside across all sectors is a loss of business as usual, the shift to new ways of doing things opens up opportunities for new goods and services. A second order effect will be felt in the demand across the range adult education options. Courses on offer should encourage sustainability and resource efficiency across the domains being studied.
Another common thread is the need for risk assessment and financial services. Depending on the asset, upgrades, replacements and retrofitting will need to be assessed, financed, undertaken and insured.
Then there are employment multipliers. Given the potential negative impact on employment in a cross-section of businesses (particularly those that rely upon weather conditions), high-value businesses that operate in the green sector will be eagerly sought after. Given the potential for significant gains in productivity and profitability, local businesses that lean into exploiting the opportunities that will exist after 2030 will be pivotal to a local economy’s ongoing success.
A final thread has to do with reputation. A local economy that is seen as leaning into the opportunities afforded by climate change and being wise with respect to mitigation and resilience strategies will attract and retain capital. Whether in the form of human capital, because of its responsiveness to the needs of the future, or in the form financial capital, because it is seen as a place that is focused on meeting challenges in a progressive fashion.
Planning for these views of the future
We have developed an understanding of the need to prepare for the 4th decade of the 21st Century today. That the global megatrends currently holding sway will continue to impact economies at national, and at the local level. And we’ve discussed the changes through which one of these megatrends, climate change, will become apparent across several industry sectors over the coming years.
This was followed by a review of some of the common factors that those with an interest in developing local economies should be mindful of.
Importantly, strategies relating to the development of the local economy can be the mechanism through which the listed industry changes and related common factors can be addressed. While the strategy’s vision can be used to bring direction to local economic activity and establish a reference point for stakeholder discussions, it is through a plan’s strategic objectives that preparations for 2030 will occur.
While it is a given that climate change will continue to influence, the images of the future presented here may be different in different locales around the world. You may see the future unfolding differently, perhaps with underlying assumptions that are darker or perhaps with a set of brighter scenarios.
Nevertheless, climate change will continue to affect the local economy through efforts relating to mitigation and resilience. The potential changes that this global megatrend will usher in through the course of the coming decades are likely to be profound.
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