The Inefficiency of Inequality
Chapter V
impacts of climate change will demand additional spending and public investment to address the consequences of extreme events such as floods, droughts and hurricanes; and the implementation of measures to adapt to the new climatic conditions and reduce the population’s vulnerability. The adaptation costs for the region are estimated at approximately 0.4% of its current GDP (see figure V.27), although these estimates are subject to a high level of uncertainty and will most likely tend to rise22 (World Bank, 2010b; Vergara and others, 2013). From the economic standpoint, it makes sense to invest in adaptation, since its costs are almost 10 times lower than the costs of inaction. In addition, investment in adaptation has a stimulating effect on the economy, especially if it drives technical change and production diversification. Figure V.27 Latin America and the Caribbean: estimated annual costs of climate change adaptation, by sector to 2050 (Percentages of regional GDP) 0.06
Water supply
0.10
Health 0 0 Extreme weather events
0.01 0.02
Agriculture
0.02 0.02 0.005 0.005
Fisheriesa
0.20 0.20
Coastal areas 0.03
Infrastructure
0.06 0.29
Total 0
0.05
0.10
0.15
0.20
0.25
0.30
0.37 0.35
0.40
Driest scenario (CSIRO) b Wettest scenario (NCAR) c
Source: Economic Commission for Latin America and the Caribbean (ECLAC), The economics of climate change in Latin America and the Caribbean: Paradoxes and challenges of sustainable development, Santiago, 2015, and World Bank, The Cost to Developing Countries of Adapting to Climate Change: New Methods and Estimates, Washington, D.C., 2010b. a Fisheries sector: medium range (from 0.18 to 0.36 and from 0.18 to 0.35 for the NCAR and CSIRO models, respectively). b Commonwealth Scientific and Industrial Research Organisation (driest scenario). c National Center for Atmospheric Research of the United States (wettest scenario).
The reality of the Caribbean countries clearly illustrates the tension between global pollution and its widely differing effects across countries. Between 1990 and 2017, as many as 345 climate-related disasters were recorded in the Caribbean, an average of 12 per year. This type of occurrence seriously damages the economic infrastructure of small island developing States, diminishing their social achievements and deepening inequalities. The annual impact of these disasters on their capital stock is much greater, relatively, than those occurring in Europe or Central Asia, equivalent to 20% of their annual social expenditure (UNISDR, 2015). This leads to a significant deviation of the investment portfolio and budgetary resources that must be redirected towards rebuilding these economies and reducing the impact on the affected population. In the case of the disasters caused by the 2017 hurricane season, for example, the impacts exceeded 50% of GDP in some of the island States. 22
The World Bank (2010a) estimates that the adaptation costs in agriculture, water resources, infrastructure, coastal areas, health, extreme weather events and fishing will be less than 0.3% of the region’s GDP; that is, they will oscillate between US$ 16.8 billion and US$ 21.5 billion a year until 2050 (World Bank, 2010a). According to Agrawala and others (2010), adaptation costs in terms of irrigation, water infrastructure, coastal protection, early warning systems, investments in climate-resilient settlements, air conditioning, treatment of diseases and research and development for adaptation will be close to 0.24% of regional GDP. Given that adaptation requires public and private investments that can stimulate economic activity, this cost calculation is gross and does not consider the multiplier effects of these investments.
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