THE JOINT ECONOMIC CONSEQUENCES OF CLIMATE CHANGE AND AIR POLLUTION. Rob Dellink Environment Directorate, OECD

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1 THE JOINT ECONOMIC CONSEQUENCES OF CLIMATE CHANGE AND AIR POLLUTION Rob Dellink Environment Directorate, OECD Impacts conference 2017

2 Climate change and air pollution Joint analysis of climate change and air pollution to identify synergies and trade-offs Climate change and (outdoor) air pollution are both important environmental problems, with global repercussions Significant overlap in the drivers of emissions Significant overlap in the affected sectors This presentation looks at economic interactions Hard to find reliable biophysical information Focus on baselines / cost of inaction, not co-benefits Main contribution: consistent framework 2

3 Methodology Economic model Projects sectoral and regional economic activity, and projects corresponding environmental pressure (such as emissions) Assessment of economic consequences Links biophysical impacts to changes in economic variables (such as changes in productivity of production factors) Environmental model Links environmental pressure to indicators of the state of the environment (such as temperature change, pollutant concentrations,...) Impact models Links environmental indicators to (sectoral) biophysical impacts (such as changes in crop yields or incidence of illness) 3

4 The ENV-Linkages model Computable General Equilibrium (CGE) model Multi-regional (25), multi-sectoral (35) Full description of economies All economic activity is part of a closed, linked system Simultaneous equilibrium on all markets Structural trends, no business cycles Dynamics Solved iteratively over time (recursive-dynamic) Capital vintages Link from economy to environment Greenhouse gas and outdoor air pollution emissions linked to economic activity Feedbacks from climate and air pollution damages on economy 4 4

5 Environmental Outlook to 2050 & CIRCLE Population & demographics Capital supply Natural resources Economic activity Efficiency Prices Efficiency Prices Land use Energy use Environmental pressure 5

6

7 Selected impacts of climate change Included in the modelling Agriculture: yield changes for 8 crop sectors, and fisheries Coastal zones: capital and land losses due to sea level rise Health: diseases and labour productivity losses from heat stress Energy demand Tourism demand Capital damages from hurricanes Stand-alone analysis Fatalities from heatwaves Urban damages from river floods Ecosystems: biodiversity (crude approximation) Still not quantified Large-scale disruptive events, 7

8 Emissions and temperature increase Source: OECD (2015), The Economic Consequences of Climate Change 8

9 Regional cost of selected climate impacts 0% OECD Europe OECD Pacific OECD America -1% Latin America World Rest of Europe & Asia -2% -3% Middle East & North Africa South & South East Asia SubSaharan Africa -4% -5% -6% -7% Source: OECD (2015), The Economic Consequences of Climate Change Uncertainty ranges in 206 due to uncertainty in ECS 9

10 Global importance of different impacts Global damages 2035 Tourism Demand Health Global damages 2060 Tourism Demand Agriculture Agriculture Coastal Zones Energy Demand Extreme Precipitation Events Health Extreme Precipitation Events Coastal Zones Energy Demand Global GDP loss: 2035: % 2060: % Source: OECD (2015), The Economic Consequences of Climate Change 10

11 Premature deaths from climate change: heat stress Source: OECD (2015), The Economic Consequences of Climate Change 11

12

13 Impacts of air pollution Health impacts Mortality Morbidity: illness (especially respiratory and cardiovascular diseases) General equilibrium framework Economic consequences Market costs + Agricultural impacts Crop-specific yield losses Valuation approaches Non market costs Not for this paper 1 3

14 Concentrations of air pollutants Annual average total anthropogenic PM2.5 (µg/m3) Concentrations calculated with TM5-FASST (EU JRC Ispra) Source: OECD (2016), The Economic Consequences of Outdoor Air Pollution 14

15 (GDP percentage change wrt no-feedback baseline, 2060) Projected market costs of outdoor air pollution, 2060 Source: OECD (2016), The Economic Consequences of Outdoor Air Pollution 15

16 Number of deaths per year per million people, 2060 Premature deaths caused by outdoor air pollution Premature deaths 2010: 3 million Projection 2060: 6 9 million Source: OECD (2016), The Economic Consequences of Outdoor Air Pollution 16

17 The joint consequences

18 Types of interactions 1. Effects of impacts & economic consequences on emissions e.g. climate damages reduce production and emissions of polluting industries 2. Effects of state of environment (temp., conc.) on impacts e.g. changes in weather affect ozone formation 3. Effects of impacts on impacts e.g. pollution illnesses increase fatalities from heatwaves 4. Effects of economic consequences on economic cons. incl. CGE interaction effects and other non-linearities More significant interactions when considering consequences of policies! 18

19 1. Interactions through emissions (percentage change wrt no-feedback baseline, 2060) 19

20 2. & 3. Biophysical linkages: for future research Physical (state-of-environment) interactions Climate change is part of calculations of PM and O3 concentrations Air pollutants are part of carbon cycle model Interactions through joint effects on health Lack of data to quantify; default assumption is additive effects Distinguish between mortality and morbidity effects Problem in assessing mortality-morbidity relationships Interactions in agriculture Assess through use of crop models Other potential impact interactions Tourism: effects from pollution unclear, as are interactions Energy demand: significant effects only for policy scenarios? 20

21 4. Economic interactions: effects on GDP (percentage change wrt no-feedback baseline, 2060) 21

22 4. Economic interactions: effects on production factors (percentage change wrt no-feedback baseline, 2060) 22

23 4. Economic interactions: effects on specific sectors (percentage change wrt no-feedback baseline, 2060) 23

24 Conclusions 1. Feedback effects through changes in emissions are very limited 2. & 3. Biophysical feedbacks unclear 4. Economic feedbacks limited at global level Some regions hardly any economic interaction effects Some regions significant trade effects (+) Some regions significant economic adaptation effect (+) Some regions significant non-linearity effect (-) More significant interactions through reactions to policies! 24

25 THANK YOU! For more information:

26 The OECD CIRCLE project CIRCLE: Costs of Inaction and Resource scarcity: Consequences for Long-term Economic growth Calculating the costs of inaction: Quantify how changes in environmental quality, climate change, natural resources affect the economy, and prospects for long-term growth Regional and sectoral quantitative approach where possible, coupled with more general insights where needed Market impacts: production function approach Non-market impacts: valuation approach 26

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