Hugh Bollinger / Sunday, August 21, 2011

Accounting for the climate

To properly understand the price for a good or service, the costs associated with producing it must be properly accounted. This is commonly called "cost accounting" and is part of everything sold in a market economy. Some costs are harder to calculate than others, especially when they involve environmental services like clean air, water, and wild species. Such externalities are now much more important. Calculating external costs from the impacts associated with climate change will become central to cost and pricing calculations for businesses planning new products, services, and industrial processes. A project organized by National Climatic Data Center-- a division of NOAA --has just released a report that calculates this year's extreme weather events that caused more than $1 billion in damages in one year. So far in 2011, there have been nine different natural disasters that caused damages greater than $1 billion. These events include summer floods along the Missouri River, the ongoing severe drought over the southern plains and Southwest, and the massive tornadoes that struck the Midwest in the spring. [caption id="attachment_6766" align="aligncenter" width="391" caption="Billion dollar disasters map (credit: NOAA)"]

[/caption] The cumulative costs of these disasters is now approaching $35 billion and counting. The director of the National Weather Service said, “I don’t think it takes a wizard to predict 2011 is likely to go down as one of the more extreme years for weather in history,” and the hurricane season has just begun. As cost accounting models become more sophisticated and accurate by including more variables, the impact of ignoring climate change will become clearer. At a minimum, these analyses will help communities and businesses plan better for surviving the amplified weather events expected to increase from a warmer environment. WHB

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Tags: climate change NOAA business planning cost accounting environmental externalities NCDC

Accounting for the climate

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