Chapter 2 The Economics of Climate Change
study, to make preliminary estimates of these economic impacts and suggests how these estimates can be helpful. 5.
Finally, it describes a way of building analytical and institutional capacity based on the principle of “no regrets” that can be used to address gaps in the analytical capacity to plan and manage economic development in many different sectors of the economy, while at the same time being helpful for making decisions about mitigating GHG emissions and adapting to climate change.
Brief Overview of the Economics of Climate Change The underlying theory for valuing the economic impacts of climate change in specific sectors is the same as for valuing the damages of almost any environmental pollutant. This underlying theory has been widely applied for many air and water pollutants in numerous settings (Adams et al. 1985; Adams et al. 1986; Smith and Desvouges 1985; Carson and Mitchell 2004). What makes climate change different, for policy purposes, from conventional air pollutants is that a ton of GHG emitted from any location will have roughly the same forcing effect on global and regional climates as from any other location. However, the global nature of the impacts created by GHG-induced climate change is only relevant for mitigating GHG-induced climate change impacts (i.e. reducing net emissions – commonly referred to as “mitigation”). On the other hand, the impacts of GHG-induced climate change will be felt at specific locations. Therefore, adaptation measures to address impacts from climate change only yield benefits in those specific locations. However, to the extent that adaptation actions are contingent on climate change, their benefits and costs are influenced by successful mitigation of GHGs. If emissions are reduced more, the climate will change less, climate change impacts will be decreased, and the advantage gained by adapting versus not adapting will be decreased. If, however, emissions are not reduced, the climate will change more, climate change impacts will increase, and the advantage gained by adapting versus not adapting will be increased. Changes in climate, no matter what the cause, have the potential to affect the goods and services provided by the natural environment within many market sectors. For example, changes in temperature and precipitation and a host of other meteorological variables influence the growth and development of commercial crops, the amount of runoff that is available for use from surface and groundwater sources by humans, animals, and industry. Changes in climate can also directly and indirectly affect the flows of environmental services that attract tourists to specific locations to engage in certain forms of recreation for their own enjoyment. You can’t ski if there is no snow and going to the beach is not much fun when the air temperature is 400 C plus and the water temperature is not far behind. You cannot enjoy hearing the birds sing if they are gone. If climate change causes sea levels to rise, beaches can be lost and valuable beachfront property inundated. These are just some of the examples of how climate change can disrupt the flow of environmental services. Whilst the physical damages of climate change are easy to explain and understand (but often hard to measure) valuing these damages in monetary terms is less easy to understand. In
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