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The Economic Consequences of Climate Change POLICY HIGHLIGHTS


CIRCL

Further degradation of the environment and natural capital can compromise prospects for future economic

well-being. The OECD Environmental Outlook to 2050: Consequences of Inaction (OECD, 2012) projected s

of climate change, biodiversity loss, water scarcity and health impacts of pollution by 2050, unless more am

implemented. The Environmental Outlook, however, presented a one-way analysis of the impacts of socioe

on the environment. Specifically, it took no account of the feedbacks from environmental challenges and re economy. This report, The Economic Consequences of Climate Change seeks to address this gap through

modelling framework that links climate change impacts to specific aspects of regional economic activity, s

productivity, the supply of production factors such as capital, and changes in the structure of demand. This

which covers a wide range of impact categories including agriculture, coastal zones, some extreme events

and tourism demand, is used to assess the economic consequences of climate change until 2060, and is co stylised integrated assessment modelling of post-2060 economic impacts.


Main messages

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c growth and human

significant consequences

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omplemented by more

In almost all regions, market consequences from climate change are projected to be negative, and there are significant non-market impacts and downside risks of tipping points and very severe impacts.

The macroeconomic costs from selected market impacts alone amount to 1.0 to 3.3% of annual Gross Domestic Product (GDP) by 2060 and 2 to 10% by the end of the century in the absence of new policies. This is driven by a continued build-up of greenhouse gas concentrations, which are projected to lead to a global average temperature increase of 1.6-2.6°C by 2060 and 2.5-5.5°C by the end of the century in absence of new policies.

Of the impacts modelled in the analysis, changes in crop yields and in labour productivity are projected to affect the economy most strongly, causing losses to annual global GDP in 2060 of 0.8% and 0.9%, respectively, and several percent in the most vulnerable regions.

Net economic consequences are projected to be negative in 23 of the 25 regions modelled in the analysis. They are especially large in Africa and Asia, where the regional economies are vulnerable to a range of different climate impacts, such as heat stress and crop yield losses. Macroeconomic costs in most countries in these regions by 2060 are projected to be between 1.5% and 6.5% of GDP. In countries in higher latitudes, i.e. Canada and Russia, the net economic benefits are projected to outweigh the negative impacts, at least in the coming decades.

Climate impacts affect all sectors in the economy through important indirect effects on the rest of the economy, not least through the relocation of labour and capital, and represent a systemic risk to the global economy.

The macroeconomic consequences of climate change are fundamentally non-linear: they increase more than proportionately with temperatures. Uncertainties in the economic and climate system imply a risk that macroeconomic costs from market impacts alone run into the double digits well before the end of the century.

Once greenhouse gases are emitted, they will have unavoidable and enduring effects on the climate and economy for a century or more, thereby permanently locking the world into higher impacts and stronger downside risks. Together, this implies a strong call for ambitious policy action both on mitigation and on adaptation.

Ambitious adaptation and mitigation policies can reduce the future costs of climate change, but – perhaps more importantly – also limit the downside risks associated with high impacts and crucial tipping points. However, if only adaptation policies are adopted, total climate change costs are substantially higher than when only mitigation policies are adopted. In an optimal mix that minimises the total costs of climate change, there will be some costs from mitigation action, some costs associated with adaptation policies, and some costs from remaining market impacts. • The benefits of adaptation policies, from a reduction in the selected market impacts alone, may amount to more than 1 percentage point of GDP by the end of the century, as the stylised analysis shows. It also highlights that if barriers to adaptation are strong, the costs of climate change can even double. • Early and ambitious mitigation action (aimed at minimising total climate costs) can help economies avoid half of the macroeconomic consequences by 2060 and could reduce projected reductions of global GDP from 2-10% to 1-3% by the end of the century. It can also reduce the risk of triggering the worst negative long-term consequences of climate change. Less ambitious mitigation policies in the first decades will have lower short-term costs, but lead to higher long-term risks. Despite the potential of mitigation to limit emissions, significant impacts from climate change are projected to persist in vulnerable regions, such as in most countries in Africa and Asia. • Mitigation policies will reduce the negative impacts of climate change on all economic sectors, yet the costs of these policies will not be borne by all sectors proportionally to their expected benefits. Just like the market impacts included in the modelling analysis, the mitigation policy leads to a shift in the structure of the economy towards more services.

OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change - 1

POLICY HIGHLIGHTS

THE ECONOMIC CONSEQUENCES OF CLIMATE CHANGE


1

Why a modelling assessment of the economic consequences of climate change?

As successive assessment reports by the

and the interactions in the economic system that they

Intergovernmental Panel on Climate Change (IPCC)

induce rather than their aggregate magnitude that is

have shown, it is clear that climate change is occurring

most illuminating.

and that further emissions of greenhouse gases will amplify the consequences of climate change on both

Besides projected market impacts, policymakers need to

socioeconomic and natural systems. The current

take into account the large downside risks and long-

knowledge base for the impacts of climate change is only

term effects of climate change when designing policies

sufficient to model a subset of these potential impacts

to mitigate emissions of greenhouse gases and adapt

and capture some of the relevant uncertainties.

to the impacts of climate change. The reason is that emission reductions lead to a stream of future benefits

The Economic Consequences of Climate Change provides

and reduced risks, while adaptation reduces the adverse

a detailed global quantitative assessment of the

consequences of climate impacts that are already

economic consequences of climate change. Most

underway and helps societies proactively prepare for

existing studies of climate impacts have a stylised,

the future. Therefore, the calculation of the benefits of

aggregated representation of the economy. This report

policy action should be based on the full stream of future

uses a multi-sector, multi-region modelling approach

avoided impacts, and not simply follow the time profile of

to assess how a range of climate change impacts affect

market impacts as they emerge.

the global economy. The report covers impacts on agriculture, coastal zones, some extreme events, health

When policymakers assess the costs and benefits of

and energy and tourism demand. This report is not a

mitigation action, they need to think of including a ‘risk

prediction of what will happen, nor a synthesis of the full

premium’ to reflect the risks of crossing irreversible

consequences of climate change. It sheds light, however,

tipping points, and to avoid the downside risks of more

on how these impacts affect the composition of GDP over

severe impacts. Mitigation not only reduces the expected

time and how sectoral consequences spill over to other

level of climate impacts, but it also considerably reduces

sectors and regions.

uncertainties about the magnitude of the impacts and downside risks. Finally, there are important co-benefits

Trying to understand what climate change may mean for

from most policy actions that can be reaped immediately

the future of our societies is daunting. While a certain

and locally, such as air quality benefits. Policy makers

amount of climate change is already locked-in, the range

need to take these into account when determining the

of possible outcomes over the course of this century

appropriate policy efforts.

and beyond is very wide. It can therefore reasonably be asked what value a modelling analysis of the economic

The magnitude and distributional consequences of both

consequences of climate change at a global level can

market impacts and policy action are uncertain but

offer policy makers. After all, a combination of the

this study provides insights on long-run trends and the

uncertainties and the necessary simplifications of a

mechanisms that link climate change impacts and global

model representation of the global economy will likely

economic activity. These will be valuable in informing

dominate any aggregate result. But that is to miss the

attempts to manage the significant and accumulating risk

point of the exercise. It is the direction of these changes

of serious climatic disruption.

2 - OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change


Modelling the economic consequences of climate change

The modelling analysis in The Economic Consequences of

equilibrium (CGE) model ENV-Linkages to assess the

Climate Change is based on an assessment of climate

implications for different economic activities until

impacts from the literature, and specifies the effects

2060 (see Figure). By using a multi-region, multi-sector

of the selected set of climate change impacts on the

dynamic CGE model, the assessment can link different

drivers of economic growth, such as the productivity

impacts directly to specific drivers of economic growth,

and supply of specific production factors, as well as

including labour productivity, capital stocks and land

changes in consumer demand induced by climate

supply, as well as assess the indirect effects these impacts

change. The production function approach allows for a

have on the rest of the economy (other sectors and final

detailed assessment of a subset of the direct and indirect

demand), and on the economies of other countries. The

consequences of climate change for the economy for a

detailed numerical assessment using ENV-Linkages is

selected number of climate change impacts (see Table).

complemented with a more stylised assessment of the

Other major impacts of climate change are investigated

long-run implications (beyond 2060) using the AD-DICE

outside the modelling framework.

integrated assessment model. All impact assessments are based on the Representative Concentration Pathway (RCP)

Detailed assessments of these specific impacts are fed

8.5 or the A1B emissions scenario as used by the IPCC.

into the OECD’s global dynamic computable general

Figure 1. Linking economic and climate change models

Economic model Projects sectoral and regional economic activity, and projects corresponding emissions pathway

Assessment of economic consequences

Climate model

Link biophysical impacts to changes in economic variables to be fed back ino the economic model

Links emissions pathway to temperature change and other climate change indicators

Impact models Links climate change indicators to (sectoral) biophysical climate impacts

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Table 1. Quality of the coverage of the sectors in the adaptation literature Changes in crop yields (incl. land productivity and water stress) Livestock mortality and morbidity from heat and cold exposure Changes in pasture- and rangeland productivity Changes in aquaculture productivity Changes in fisheries catches

modelled

COASTAL ZONES

Loss of land and capital from sea level rise Non-market impacts in coastal zones

modelled qualitatively

EXTREME EVENTS

Mortality, land and capital impacts from hurricanes Mortality, land and capital impacts from floods

modelled stand-alone

HEALTH

Mortality from heat exposure (incl. heatwaves) Morbidity from heat and cold exposure (incl. heatwaves) Mortality and morbidity from infectious diseases, cardiovascular and respiratory diseases

stand-alone modelled modelled

ENERGY DEMAND

Changes in energy demand for cooling and heating

modelled

TOURISM DEMAND

Changes in tourism flows and services

modelled

ECOSYSTEMS

Loss of ecosystems and biodiversity Changes in forest plantation yields

stand-alone qualitatively

WATER STRESS

Changes in energy supply Changes in availability of drinking water to end users (incl. households)

qualitatively qualitatively

HUMAN SECURITY

Civil conflict Human migration

qualitatively qualitatively

TIPPING POINTS

Large scale disruptive events

stand-alone

AGRICULTURE

qualitatively stand-alone qualitatively modelled

Note: “Modelled” implies that the impact is captured (at least partially) in the main modelling framework; “stand-alone” refers to a quantitative assessment outside the main modelling framework, and “qualitatively” implies only a qualitative assessment was possible in this report.

4 - OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change


Projecting the economic consequences of climate change

Managing risks over time is at the heart of all climate policy setting. Despite the many uncertainties, it is still valuable to assess both the direct and indirect economic consequences from the selected climate change impacts listed above. The OECD ENV-Linkages model simulations suggest that negative consequences on GDP are projected to gradually increase over time and rise faster than global economic activity. If no further climate change action is undertaken, the combined negative effect of the selected

impacts on global annual GDP is projected to rise over time to likely levels of 1.0% to 3.3% by 2060, with a central projection of 2%. This range reflects uncertainty in the equilibrium climate sensitivity (ECS) – a measure indicating how sensitive the earth’s climate reacts to a doubling of atmospheric CO2 – using a likely range of 1.5°C to 4.5°C. Assuming a wider range of 1°C to 6°C in the ECS, global GDP losses could amount to 0.6% to 4.4% in 2060.

Figure 2. Global and regional changes in GDP from selected climate change impacts, central projection (Percentage change in regional GDP) 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 Sub-Saharan Africa

-4%

-5%

-6%

-7%

2010

2020

2030

2040

2050

2060

uncertainty ranges in 2060 due to uncertainty in ECS

Source: ENV-Linkages model.

As temperatures continue to rise to a projected 4°C above pre-industrial levels by 2100 (with a likely uncertainty range of 2.5°C to 5.5°C), AD-DICE projections suggest that GDP may be reduced by between 2% and 10% by the end of the century relative to the no climate change baseline scenario (likely ECS range). As experimental projections with the AD-DICE model show, continuing to emit greenhouse gas emissions as usual until 2060 will commit the world to macroeconomic costs in a range of 1% to 6%

of global GDP by the end of the century even if emissions fall to zero in 2060. However, assessments of impacts for higher temperature increases are much less robust; they could even lead to global macroeconomic costs of 12% by 2100 when nonlinearities in the economic consequences to climate change are strong (as shown by using the Weitzman damage function, which assumes that large temperature increases lead to much more dramatic reductions in GDP by including a higher power term in the damage function).

OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change - 5

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Figure 3. Changes in global GDP from selected climate change impacts in the very long run (Percentage change w.r.t. no climate change baseline) Likely uncertainty range - central projection until 2100 Central projection until 2100 Weitzman damage function

Likely uncertainty range - central projection until 2060 Central projection until 2060 (committed by 2060)

0%

-2%

-4%

-6%

-8%

-10%

-12%

-14% 2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

Source: AD-DICE model.

The range of projections does not capture the considerable uncertainties and risks from climate change that could potentially lead to much more severe consequences (especially in the long-run), or result in smaller economic consequences than in the central projection. Some major uncertainties stem from assumptions on economic growth, demographics, ECS, projections of regional climate, and the valuation of climate change impacts. Large downside risks of climate

change are associated with uncertainty about the response of the climate system to temperature increases beyond 2째C, the impact of climate change on economic growth, irreversible tipping points, and the non-market impacts of climate change. Taking only one of these sources of uncertainties, the ECS, into consideration already yields wide uncertainty ranges, although in almost all regions the sign of the net effects on GDP is not in doubt.

6 - OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change


Regional variation in economic consequences of climate change

Net economic consequences from these impacts are projected to be negative in 23 of the 25 regions modelled in the analysis. They are especially large in Africa and Asia, where the regional economies are vulnerable to a range of different climate impacts, such as heat stress and crop yield losses. GDP losses in 2060 for the selected impacts covered in the analysis are projected to amount to 1.6% to 5.2% in the Middle East & North Africa regions, 1.7% to 6.6% in the South- and South-East Asia regions (incl. India) and 1.9% to 5.9% in the Sub-Saharan Africa regions, respectively (using Purchasing Power Parities exchange rates to aggregate across regions). The regional uncertainty ranges also clearly show the existence of significant downside risks, with potential macroeconomic costs by 2060 in many countries in Africa coming close to 10% of GDP, and in India above 12%. Market impacts are projected to be smaller in most OECD countries. Again,

these regional projections only take into account uncertainty from equilibrium climate sensitivity and these uncertainties are larger on the regional scale than at global level. The model results show that for a few countries, especially those in higher latitudes, i.e. Canada and Russia, the beneficial economic consequences of the impacts considered in the analysis are projected to outweigh the negative ones, at least to 2060. Economic benefits stem predominantly from gains in tourism, energy and health. The global assessment also shows that countries that are relatively less affected by climate change may reap trade gains. These projections do not, however, include potential negative effects from the occurrence of climatic tipping points as well as other climate change impacts not modelled in the assessment. Local effects may also differ significantly from the national averages.

Figure 4. Uncertainty in regional GDP changes in 2060 due to uncertainty in equilibrium climate sensitivity (Percentage change in GDP in 2060 w.r.t. no climate change baseline)

Wider ECS uncertainty range

Likely ECS uncertainty range

Central projection 4% 2% 0% -2% -4% -6% -8% -10%

OECD America

OECD Europe

OECD Pacific

Rest of Europe and Asia

Latin America

Middle East & North Africa

South and SouthEast Asia

Other Africa

South Africa

Other Asia

India

Indonesia

ASEAN 9

North Africa

Middle East

Other Lat.Am.

Brazil

Other Europe

Caspian region

Russia

Non-OECD EU

China

Korea

Japan

Aus. & NewZ.

Other OECD

Other OECD EU

EU large 4

USA

Mexico

Chile

-14%

Canada

-12%

SubSaharan Africa

Note: Black horizon lines represent central projection; blue bars the likely ECS uncertainty range and the thin vertical lines the wider ECS uncertainty range. Source: ENV-Linkages model.

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5

Sectoral variation in the economic consequences of climate change

The impacts on labour productivity from reduced health outcomes and on agriculture are projected to have the largest negative consequences, causing losses to annual global GDP of 0.9% and 0.8%, respectively, by 2060 for the central projection. Including a CO2 fertilisation effect reduces the macroeconomic consequences of agricultural impacts to 0.6%, and the effect is projected to be especially strong in Africa (reducing costs from agricultural impacts from 1.5% to 1% by 2060 in SubSaharan Africa). Impacts from sea level rise also become

gradually more important, growing most rapidly after the middle of the century. Impacts on demand for energy and tourism are very small from a global perspective, as benefits in some regions balance costs in others. Furthermore, in most regions energy benefits from reduced heating compensate for costs from increased cooling. Climate-induced impacts from hurricanes may have significant effects on local communities, but the macroeconomic consequences are projected to be very small.

Figure 5. Attribution of macroeconomic consequences to selected climate change impacts, central projection (Percentage change in GDP w.r.t. no climate change baseline) Agriculture Extreme Precipitation Events

Coastal Zones Health

2035

Energy Demand Tourism Demand

2060

Source: ENV-Linkages model.

The analysis assumes no mitigation actions are taken beyond those that are already adopted, and only marketdriven adaptation measures are considered; effectively this reflects a no-new-climate-policies setting. The actual change in macroeconomic costs from the regional impacts will depend in part on the ability of economies to adapt to climate impacts by changing production technologies, consumption patterns and international trade patterns. For instance, reductions in availability of land and capital due to sea level rise are projected to

induce a reallocation of land and capital between sectors and thus affect the entire economy. The significance of indirect effects on sectors and regions confirms the importance of using a multi-sectoral, multi-regional economic approach. For more severely affected countries, especially India, the total GDP loss is smaller than the sum of the individual losses from different impacts, indicating that countries can respond to the variety of different impacts in a more sophisticated way than simply responding to each individual impact separately.

8 - OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change


Agriculture, fisheries, forestry Other industries GDP

Energy and extraction Transport and construction

-5%

-4%

-3%

-2%

Energy intensive industries Other services

-1%

0%

1%

2%

OECD America

Canada Chile Mexico

OECD Pacific OECD Europe

Other OECD EU

Latin America Rest of Europe and Asia

USA

China

EU large 4 Other OECD Aus. & NewZ. Japan Korea

Non-OECD EU Russia Caspian region Other Europe Brazil

SubSaharan Africa

South and SouthEast Asia

Middle East & North Africa

Other Lat.Am. Middle East North Africa ASEAN 9 Indonesia India Other Asia South Africa Other Africa

Source: ENV-Linkages model.

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Figure 6. Changes in GDP by region and economic sector from selected climate change impacts, central projection (Percentage change in GDP w.r.t. no climate change baseline)


6

From macroeconomic consequences to the full costs of inaction

The modelling approach in The Economic Consequences of Climate Change includes as many market impacts as possible, but can only provide a partial picture of the consequences of climate change, as it cannot take into account non-market aspects of well-being (e.g. premature deaths) or impacts for which the available data are insufficient. The modelling analysis is therefore complemented by stand-alone quantitative information specifically calculated for this report for some of the impacts which could not be incorporated. •

Urban flood impacts are highly uncertain, in part because they rely on projections of regional and local precipitation, as well as behavioural responses. Moreover, only potential costs in absence of adaptation efforts could be assessed. The two countries that have by far the largest projected potential urban flood costs are India and China. For OECD countries, the climate-induced potential urban flood costs are projected to be much smaller (see Figure).

The regions with the highest number of premature fatalities from heat stress are the ones with high population (like China and India) or where aging increases the size of the vulnerable population at risk (such as the EU and the US). In new calculations by the Japanese National Institute for Environmental Studies (NIES), the global death toll from heat stress is projected to increase from less than 150 thousand people annually in the current climate, to more than a million by the 2050s and close to 3 million by 2080s. The associated welfare costs in OECD countries are projected to be highest in North American and EU countries.

For loss of ecosystem services, a Willingness-toPay approach is used to quantify the associated

economic costs, although this cannot be used as a proxy for the effect of loss of biodiversity or specific ecosystem services on different sectors in the economy. For the CIRCLE baseline, by 2060, this approach yields a value of around 1% of GDP for most high income countries. •

The modelling analysis does not fully include uncertain but high-impact large-scale singular events in the climate system, such as a shut-down of the Gulf Stream or collapse of the West Antarctic ice sheet. While the temperature thresholds associated with the triggering of such events remain uncertain, in general terms their likelihood increases with more severe climatic changes, and they are expected to have severe permanent effects on the economy. If the risks of such events are – in a rudimentary way – included in the stylised analysis by adopting a damage function that projects much more rapidly rising economic consequences for higher temperatures, then the consequences for the level of GDP could reach double digits well before the end of the century.

The report also qualitatively discusses a number of important climate impacts that could not be quantified, including impacts on reduced winter mortality from extreme cold, local disruptions of infrastructure from extreme weather events, changes in water stress and impacts on human security (specifically migration and conflict). Although for some of these effects, and for particular regions, the consequences may be positive, the existing evidence collated by the Intergovernmental Panel on Climate Change (IPCC) and others points to significant further downside risks for negative consequences. On balance, the costs of inaction presented here are therefore likely to underestimate the full costs of climate change impacts.

10 - OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change


below - 1

from -1 to 0

from 0 to 1

from 10 to 100

above 100

Source: OECD calculations based on Winsemius and Ward (2015).

7

Avoided impacts from policy action

The economic consequences of climate change, as outlined in detail in the report, with losses in gross domestic product (GDP) for almost all regions and numerous important other consequences, imply a strong call for policy action. By implementing ambitious mitigation policies to reduce the emission sources of climate change, and adaptation policies to best deal with the remaining consequences, the worst impacts may be

avoided, and the economic consequences from climate change substantially reduced. The benefits of adaptation policies, from a reduction in the selected impacts alone, may amount to more than 1 percentage point of GDP by the end of the century, as the stylised analysis with AD-DICE shows. It also highlights that if barriers to adaptation are strong, and firms and households are not able to adapt at all, the costs of climate change can even double.

OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change - 11

POLICY HIGHLIGHTS

Figure 7. Climate change costs from urban floods by 2080 (Billions of USD, 2005 PPP exchange rates)


Figure 8. Components of climate change costs from selected climate change impacts for different adaptation and mitigation scenarios (Percentage of no climate change baseline GDP level)

Adaptation costs

Mitigation costs

Residual damages

12% 10% 8% 6% 4% 2% 0%

2050

2100

No mitigation

2050

2100

Optimal mitigation

Full adaptation

2050

2100

No mitigation

2050

2100

Optimal mitigation

Flow adaptation

2050

2100

No mitigation

2050

2100

Optimal mitigation

No adaptation

Source: AD-DICE model.

Early and ambitious mitigation action (aimed at minimising total climate costs, which limits temperature change to 2.5째C, according to the AD-DICE projections) can help economies avoid half of the GDP consequences by 2060 (i.e. reduce them to 1% of annual GDP; excluding the economic effects of the mitigation policy itself). It can also reduce the risk of triggering the worst long-term consequences of climate change. Despite the potential of mitigation to limit impacts, however, significant costs from climate change are projected to persist in vulnerable regions, such as in most countries in Africa and Asia. Mitigation not only reduces the expected level of climate costs, but ambitious mitigation action also considerably reduces the risks of large economic costs (the likely uncertainty range reduces from 2-10% to 1-3% by 2100 for the selected climate impacts, according to the simulations). Furthermore, less ambitious mitigation policies in the first decades will have lower short-term costs, but lead to higher long-term risks (in quantitative terms, this result is heavily influenced by the choice of discount rate). But mitigation will not remove all impacts, so there is still a need for adaptation. However, if only adaptation policies are adopted, the economic consequences are substantially larger than when only mitigation policies are adopted. In the optimal mix, there will be some costs from mitigation action, some costs associated with adaptation policies, and some remaining impacts.

Mitigation policies will reduce the negative impacts of climate change on all economic sectors, yet the costs of these policies will not be borne by all sectors proportionally to their expected benefits. The detailed CGE model analysis is used to shed further light on this, again with a horizon to 2060. Agriculture, for example, despite its relatively small size, will experience substantial direct and indirect impacts from climate change; its high emissions could imply substantial costs from stringent economy-wide mitigation policies. For energy production and the industrial sectors the climate impacts are smaller than the potential effects from stringent economy-wide mitigation policies. Renewable power generation can substantially increase production activities if an ambitious mitigation policy is implemented, but on balance the negative effects on fossil fuel producers outweigh those on renewables. Services are projected to benefit from the mitigation policy as they are relatively clean, but they are negatively affected by climate impacts. However, given the large size of services compared to the other sectors, the relative share of the services sectors in total GDP can increase, i.e. they are relatively less affected than other sectors. Thus, both climate impacts and the mitigation policy lead to a shift in the structure of the economy towards more services. However, as mitigation policies reduce climate impacts, the projected gains in the services sector may be smaller than when mitigation policies are investigated without consideration of the benefits of policy action.

12 - OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change


Figure 9. Regional changes in GDP from selected climate change impacts with and without mitigation policy (Percentage change in GDP in 2060 w.r.t. no climate change baseline) Avoided impacts

Change in GDP after mitigation

0.0% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% -4.0%

OECD America

OECD Europe

OECD Pacific

Rest of Europe & Asia

Latin Middle East South & America & North South-East Africa Asia

SubSaharan Africa

Note: Mitigation policy aimed at minimising total climate costs (limiting temperature change to 2.5째C). Source: ENV-Linkages model.

8

Improving the knowledge base for better climate policies

Despite the detailed modelling frameworks used and careful calibration of sectoral and regional economic activity, The Economic Consequences of Climate Change presents just one projection of a possible scenario for the economic implications of climate change until 2060. The aggregate results do not represent the total social costs of climate change. It is not a prediction of what will happen, nor a synthesis of the full literature on climate change. Other models and other scenarios would give quantitatively different results. More robust insights would be gathered from a broader analysis, using multiple scenarios and multiple models. This would, however, represent a substantial additional research effort. Additional research efforts are also needed to reduce the major knowledge gaps on the economic consequences of climate change, not least concerning the

regional economic consequences of triggering important tipping points, which could potentially have effects on the economy that are an order of magnitude higher than those included in the modelling analysis here. Furthermore, a robust methodology is needed to include non-market impacts and co-benefits of policy action into the evaluation. The value of the analysis provided in this report is therefore more in terms of identifying the direction and relative magnitude of the different effects that have been modelled rather than precise numerical projections. The report aims to give insights on how ignoring climate change may be detrimental to economic growth, affect the structures of economies around the world, and on how adaptation and mitigation policies may reduce these risks.

OECD POLICY HIGHLIGHTS The Economic Consequences of Climate Change - 13


FOR FURTHER INFORMATION OECD (2015), The Economic Consequences of Climate Change, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264235410-en. OECD (2012), OECD Environmental Outlook to 2050: The Consequences of Inaction, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264122246-en.

THE ECONOMIC CONSEQUENCES OF CLIMATE CHANGE ON THE WEB www.oecd.org/environment/circle.htm www.oecd.org/environment/modelling.htm

CONTACT Rob Dellink, Co-ordinator Modelling and Outlooks, rob.dellink@oecd.org Elisa Lanzi, Policy Analyst, elisa.lanzi@oecd.org

PHOTO CREDITS ©Adrian Scottow, 2010 ©iStock.com/TimArbaev ©iStock.com/ 3alexd ©Topten22photo | Dreamstime.com ©dreamstime_m_8855290 rt

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The Economic Consequences of Climate Change: Policy Highlights  

This report provides a new detailed quantitative assessment of the consequences of climate change on economic growth through to 2060 and bey...

The Economic Consequences of Climate Change: Policy Highlights  

This report provides a new detailed quantitative assessment of the consequences of climate change on economic growth through to 2060 and bey...

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