AN ECONOMIC PERSPECTIVE

Transcription

1 CLIMATE CHANGE CRISIS: AN ECONOMIC PERSPECTIVE L.H.P. Gunaratne Department of Agricultural Economics and Business Management, Faculty of Agriculture University of Peradeniya

2 BASIC QUESTIONS A. Is there a role for economics in current climate change issue? Does it go beyond BCA? B. What are the causes of climate change in terms of economics? C. What is the economic impacts of climate change in production (food, manufacturing etc) as well as service sectors and other areas (E.g. human health)? D. What is its impact on social welfare, food security, equity etc? Will it be uniform across the nation? E. What are the cost-benefits of adaptations and mitigation? How to asses the cost-effective strategies?

3 OUTLINE Role of economics Economic perspective Economic impacts of climate change Uncertainties North-South disparity Other areas where economic analysis needed

4 ROLE OF ECONOMICS Climate change results from GHG emissions due to economic activities including energy, industry, transport and land use. Economics provide a useful perspective in terms of recognizing i opportunity costs and framing questions. Most of the changes have direct economic impacts, as well as the strategies selection should be based on economic analysis i.e., value of unseen alternatives or environment adaptations and mitigation measures. In some situations, economics provide guidance to collection of data. Also, it provides analytical tools to emissions management.

5 BASIC ECONOMIC UNDERSTANDING Climate is a pubic good i.e., those who fail to pay for it cannot be excluded of enjoying it. Climatic change is a result of an externality associated with GHG emissions. i.e., those who produce GHG emissions impose cost on the world and future generations. But they do not pay the cost directly for their actions. Climate change is a market failure involving externalities and public goods However, climatic change is different from other externalities. Global l - in its causes and consequences Impacts are long-term and persistent Impacts on global economy will be broad (Eg: welfare, equity, food security)

6 GLOBAL ECONOMIC IMPACTS OF CLIMATE CHANGE It is very difficult to estimate the economic impacts because Climate change is a long-term phenomenon with a number of side effects It requires inter-disciplinary knowledge in agronomy, meteorology, biology, engineering etc. Magnitude of impacts are heavily based on different modeling approaches (validity and reliability) In general Hurricanes/cyclones cause billions of dollars in damages to property and infrastructure Declining crop yields due to high temperature and drought. High sea temperature on coral reefs Inability to distinguish the human-induced change from the random error

7 STERN REVIEW: THE ECONOMIC CASE FOR CLIMATE CHANGE The Key points of the Stern Review on the economics of climate change (2006) are: Without action, the overall costs and risks of climate change will loose at least 5% of global GDP annually. This could rise to 20% of GDP or more. The costs of reducing greenhouse gas emissions to avoid the worst impacts of climate change can be limited to 1% of global GDP each year. The investment in the next years will have a substantial effect on the climate after the second half of this century.

8 CITED ECONOMIC IMPACTS US: Ruth states that many US states and highly vulnerable to effects of climate change. She says from sewers to aquifers, highways and health system, climate change will rewrite community infrastructure needs. E.g.:annual cost in US due to drought : 6-8 billion flooding and hurricane billion UK: Climate change costs 5-20% of GDP Climate change threats to capture fishes and aquaculture. Future production increase in high latitude regions because of warming and decrease ice cover. But in low latitude production goes down due to vertical mixing of water columns also affect marine biodiversity.

9 IMPACTS ON AGRICULTURE Studies by Reily, Rozenweign, Parry, Hohmann and Kane have used different approaches such as global circulation models to understand the production impacts and price impacts (Range of values in 1989 USD under different approaches, by 2060) Region With adaptation Without adaptation $500/capita to to $ /capita to to >$2000/capita to to -328 East Europe/USSR to to 1885 OECD to to 2674 Total -37,623 to to -126

10 OBSERVATIONS/ISSUES Low income regions suffer more, though their contribution is minimal However, the real impacts are estimated t and subjected to certain uncertainty E.g. This study assumed that 4.0 C -5.2 C change by 2060 These predictions are based on plant growth simulation models they usually are based on precipitation and T records. Behavioral response to climate changes were ignored (tillage, crop selections and rotation scheme) Indirect impacts (E.g.: pest + diseases) were not included, also other resource changes.

11 GENERAL DIFFICULTIES IN ECONOMIC ANALYSIS CGE modeling has been extensively used in most of the studies. E.g: introduction of C taxes, tax swaps, emission trading These are Dealt with short medium term horizon while climate change is a long term phenomenon. Environmental dimension is lightly present in the models. E.g: C emission are associated with energy consumption. E.g: In social welfare calculation environmental quality changes were disregarded.

12 NORTH- SOUTH ISSUES Disparities between regions Emissions Seventy percent of GHG emissions are by Annex 1 countries while CO2 emission due to fossil fuel burning accounts for 60%. The ratio of per capita emission in developed and developing countries is 10. Vulnerability Temperature increase, sea level rise, increasing frequency of floods, cyclones and drought; more damage to the south. Polluter cannot make decisions based on their CBA value when stakeholder are not just polluters. GHG emission from developing countries likely surpass those from DCs within the first half of the country, but reluctant to accept binding emission targets asking rich nations to act first

13 + The top 25 overlap + Top 25 in Population Thailand Netherlands, (Taiwan) Top 25 in GDP Bangladesh, Nigeria, Viet Nam, Philippines, Ethiopia, Egypt, Congo USA, China, EU25, Russia, India, Japan, Germany, Brazil, UK, Italy, Mexico, France, Indonesia, Iran, Turkey Canada, S.Korea, Australia, SAfrica S.Africa, Spain, Poland, Argentina + Top 25 in Ukraine, Emissions + Pakistan S. Arabia

14 REGIONAL IMPACTS AS A PERCENTAGE OF GDP 2/22/2013

15 FORECAST OF WORLDWIDE CO 2 EMISSIONS FROM FOSSIL FUEL COMBUSTION 2/22/2013

16 COSTS OF ABATEMENT WITHOUT REDISTRIBUTION 2/22/2013

17 GHG EMISSIONS AS A FRACTION OF GDP Metric tons CO2 / Thousand GPD PPP (US$) 0.2 India USA South Africa 0

18 IMPACTS OF CLIMATE CHANGE ON POOR Water shortage: 1/6 of world population will suffer (World Development movement) Loss of livelihood: 1 billion(unep) due to desertification. Environmental refugees: 200 million by 2050 due to rising i of sea levels and agricultural damages(world development movement) Homeless population: E.g:Bangladesh-17 million by 2030(Oxfam) Health impacts: : E.g: 182 million in Sub-Saharan Africa will die due to diseases (Christian Aid)

19 OTHER ARGUMENTS Its people, not nations CC is not a rich nation s problem i.e. if you are poor anywhere in the world you are at mere risk from Climate Change impacts; rest with affluent individuals, not wealthy nations. E.g: Highly polluted areas in Los Angelis: 71% Black, and only 24% of whites Black children likely to have 3 times Lead in blood compared to that of white. Eg: E.g: Australia; A tertiary educated citizen produce more than twice GHG compared to that of a low income citizen USA P l h th $ it l 4 ti USA: People who earn more than $75,000 emit nearly 4 times as much of C, who earn less than $10,000

20 POTENTIAL ECONOMIC IMPACTS (SRI LANKA) Season CV% ( ) CV% ( ) FIM SWM SIM NEM Annual Variability of the Rain fall and Timing of On set resulting water scarcity c and excess water Increasing ambient temperature Disaster (floods, droughts and cyclones) Related economic losses

21 FURTHER ROLE OF ECONOMICS OF Mitigation CLIMATE CHANGE RESEARCH Identification of cost effective mitigation strategies Trade in emission rights. The magnitude of savings depends on No of countries in the trading market Shape of the Marginal Abatement Curves. Impacts of this on financial markets. Cost of mitigation increase exponentially as the targets lowered (optional). What mix of policy instruments is need for cost-effective strategy? Carbon price regulations Implicit prices Leakage E.g: emission standers for automobiles will increase the cost(for technology) E.g: properties of renewable energy, biofuel subsidies (gap gives the implicit prices) Mitigation of GHG emissions in Annex b countries may increase emission in Mitigation of GHG emissions in Annex b countries may increase emission in other countries. This depend on level of integration of them in world economy and price elasticity of energy supply.

22 Further role. CDM: Project evaluation as cost-effective compliance with the Kyoto targets. Evaluation of relative costs of alternative abatement methods Impacts of climate change are broad and interact with other market failures and economic dynamics give rise to many complex policy problems The other perspectives such as social welfare, equity, risk and uncertainty and food security are also relevant. Questions of inter and intra-generational issues and discounting?

23 2/22/2013 THANK YOU

24 DAMAGE CAUSED BY THE FLOODS AND LANDS SLIDES: MAY 2003 RATNAPURA DISTRICT 2/22/2013

25 TOTAL ECONOMIC LOSS ( 2003 MAY FLOOD) 2/22/2013