Study Highlights the Business Cost of Climate Change

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Picture Courtesy: Purdue Climate Change Research Center Picture Courtesy: Purdue Climate Change Research Center
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Climate change is expected to have a significant impact on all living things for generations to come, spanning issues ranging from animal habitat preservation to how farmers will produce food to feed a growing population. Economically speaking, however, the effects may be a mixed bag when it comes to commercial and residential energy use.

That’s the focus of a recently-released report from Purdue University and IUPUI researchers, Climate Change and Indiana's Energy Sector, looking at energy supply and demand in the face of warming due to ongoing climate change. Researchers looked at the commercial and residential sectors, which they say are the most sensitive to climate change.

If summers and winters warm up, the report suggests, there will likely be a slight decrease in overall demand for energy in the residential sector, and a slightly larger increase in energy demand in the commercial sector.

“Businesses essentially use more energy for cooling, and residences use more energy for heating, so the residences end up benefiting a little bit from the warmer conditions,” says Purdue Climate Change Research Center Director Jeff Dukes. “The businesses end up paying more, essentially, because they have more cooling costs associated with these higher temperatures.”

The numbers are significant. The study suggests that, by mid-century, the energy needs of businesses could increase by as much as 5.5 percent. That results in a potential cost increase of more than $100 million per year. Researchers expect residential energy use to decrease by as much as 3 percent during the same time period.

Lead author and Purdue Professor of Political Science Leigh Raymond says companies in the commercial sector should prepare for a “pretty significant cost of doing business increase” as temperatures rise. Now is the time, he argues, for businesses to make investments to make their buildings more energy efficient and install new cooling technology.

The findings may also serve as a warning for municipalities and utilities as they prepare for increased demand, specifically for cooling. Raymond says they can expect “more and more days where we’re looking at a potentially high stress rate on our energy grid.” He estimates Indiana could go from an average of four days per year with high stress rates to anywhere from 30 to 70 days by mid-century, depending on the part of the state.

The study also looks at the supply side of the energy equation heading into the middle of the century, suggesting Hoosiers will get more of their energy from renewable resources as they become more cost effective.

“All of our analyses suggest that coal is going to disappear, even if it’s priced to zero,” says Dukes, “and that of course would have major health benefits for people in the state, because there is so much air pollution from coal-fired power plants.”

The authors also suggest what Raymond calls “pretty modest policy interventions” like a $40 per ton carbon tax to move the state more quickly toward renewables.

Overall, the authors hope the study, which you can find here, will help businesses, residents and municipalities plan ahead, both for the effects of climate change and for how they can become part of the solution.

Dukes says the cost effects are a mixed bag for Hoosier residents and businesses.
Raymond says the report can help businesses plan ahead.
Raymond outlines his hopes for how businesses and policymakers use the study.
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