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Africa: Economics of Climate Change

AfricaFocus Bulletin
Nov 5, 2006 (061105)
(Reposted from sources cited below)

Editor's Note

"All countries will be affected. The most vulnerable - the poorest countries and populations - will suffer earliest and most, even though they have contributed least to the causes of climate change." - Stern Review on the Economics of Climate Change

This AfricaFocus Bulletin contains excerpts from a press release, summary of conclusions, and chapter 3 on the projected impact of climate change, from the Stern Review on the Economics of Climate Change. The full Stern report and additional background is available on http://www.sternreview.org.uk

Another AfricaFocus Bulletin sent out today contains information from a new report on Africa and global warming from the Working Group on Climate Change and Development, made up of Oxfam and other leading development organizations; and from a UN Environment Programme report on Africa's Vulnerability to Climate Change..

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Publication of the Stern Review on the Economics of Climate Change

30 October 2006

http://www.sternreview.org.uk

[excerpts from press release.]

The most comprehensive review ever carried out on the economics of climate change was published today.

The Review, which reports to the Prime Minister and Chancellor, was commissioned by the Chancellor in July last year. It has been carried out by Sir Nicholas Stern, Head of the Government Economic Service and former World Bank Chief Economist.

Sir Nicholas said today:

"The conclusion of the Review is essentially optimistic. There is still time to avoid the worst impacts of climate change, if we act now and act internationally. Governments, businesses and individuals all need to work together to respond to the challenge. Strong, deliberate policy choices by governments are essential to motivate change.

But the task is urgent. Delaying action, even by a decade or two, will take us into dangerous territory. We must not let this window of opportunity close."

The first half of the Review focuses on the impacts and risks arising from uncontrolled climate change, and on the costs and opportunities associated with action to tackle it. A sound understanding of the economics of risk is critical here. ...

The Review finds that all countries will be affected by climate change, but it is the poorest countries that will suffer earliest and most. Unabated climate change risks raising average temperatures by over 5 C from pre-industrial levels. Such changes would transform the physical geography of our planet, as well as the human geography - how and where we live our lives.

Adding up the costs of a narrow range of the effects, based on the assessment of the science carried out by the Intergovernmental Panel on Climate Change in 2001, the Review calculates that the dangers of unabated climate change would be equivalent to at least 5% of GDP each year.

The Review goes on to consider more recent scientific evidence (for example, of the risks that greenhouse gases will be released naturally as the permafrost melts), the economic effects on human life and the environment, and approaches to modelling that ensure the impacts that affect poor people are weighted appropriately. Taking these together, the Review estimates that the dangers could be equivalent to 20% of GDP or more.

In contrast, the costs of action to reduce greenhouse gas emissions to avoid the worst impacts of climate change can be limited to around 1% of global GDP each year. People would pay a little more for carbon-intensive goods, but our economies could continue to grow strongly.

If we take no action to control emissions, each tonne of CO2 that we emit now is causing damage worth at least $85 - but these costs are not included when investors and consumers make decisions about how to spend their money. Emerging schemes that allow people to trade reductions in CO2 have demonstrated that there are many opportunities to cut emissions for less than $25 a tonne. In other words, reducing emissions will make us better off. According to one measure, the benefits over time of actions to shift the world onto a low-carbon path could be in the order of $2.5 trillion each year.

The shift to a low-carbon economy will also bring huge opportunities. Markets for low-carbon technologies will be worth at least $500bn, and perhaps much more, by 2050 if the world acts on the scale required.

Tackling climate change is the pro-growth strategy; ignoring it will ultimately undermine economic growth.

The Review looks at what this analysis means for the level of ambition of global action. It concludes that the levels of greenhouse gases in the atmosphere should be limited to somewhere within the range 450 - 550ppm CO2e (CO2 equivalent). Anything higher would substantially increase risks of very harmful impacts but would only reduce the expected costs of mitigation by comparatively little. Anything lower would impose very high adjustment costs in the near term and might not even be feasible, not least because of past delays in taking strong action.

The second half of the Review examines the national and international policy challenges of moving to a low-carbon global economy.

Climate change is the greatest market failure the world has seen. Three elements of policy are required for an effective response.

The first is carbon pricing, through taxation, emissions trading or regulation, so that people are faced with the full social costs of their actions. The aim should be to build a common global carbon price across countries and sectors.

The second is technology policy, to drive the development and deployment at scale of a range of low-carbon and high-efficiency products. And the third is action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change. Fostering a shared understanding of the nature of climate change, and its consequences, is critical in shaping behaviour, as well as in underpinning both national and international action.

Effective action requires a global policy response, guided by a common international understanding of the long-term goals for climate policy and strong frameworks for co-operation. Key elements of future international frameworks should include:

Emissions trading:

  • Expanding and linking the growing number of emissions trading schemes around the world is a powerful way to promote cost-effective reductions in emissions and to bring forward action in developing countries.
  • Strong targets in rich countries could drive flows amounting to tens of billions of dollars each year to support the transition to low-carbon development paths.

Technology co-operation:

  • Informal co-ordination as well as formal agreements can boost the effectiveness of investments in innovation around the world.
  • Globally, support for energy research and development should at least double, and support for the deployment of low-carbon technologies should increase up to five-fold.
  • International co-operation on product standards is a powerful way to boost energy efficiency.

Action to reduce deforestation:

  • The loss of natural forests around the world contributes more to global emissions each year than the transport sector. Curbing deforestation is a highly cost-effective way to reduce emissions; large-scale international pilot programmes to explore the best ways to do this should get underway very quickly.

Adaptation:

  • The poorest countries are most vulnerable to climate change. It is essential that climate change be fully integrated into development policy, and that rich countries honour their pledges to increase support through overseas development assistance.
  • International funding should also support improved regional information on climate change impacts, and research into new crop varieties that will be more resilient to drought and flood.

For media enquiries, please call 020 7270 6280, or email sterninvites@hm-treasury.gsi.gov.uk.


Stern Review: The Economics of Climate Change

Summary of Conclusions

There is still time to avoid the worst impacts of climate change, if we take strong action now.

The scientific evidence is now overwhelming: climate change is a serious global threat, and it demands an urgent global response.

This Review has assessed a wide range of evidence on the impacts of climate change and on the economic costs, and has used a number of different techniques to assess costs and risks. From all of these perspectives, the evidence gathered by the Review leads to a simple conclusion: the benefits of strong and early action far outweigh the economic costs of not acting.

Climate change will affect the basic elements of life for people around the world access to water, food production, health, and the environment. Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms.

Using the results from formal economic models, the Review estimates that if we don't act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more.

In contrast, the costs of action reducing greenhouse gas emissions to avoid the worst impacts of climate change can be limited to around 1% of global GDP each year.

The investment that takes place in the next 10-20 years will have a profound effect on the climate in the second half of this century and in the next. Our actions now and over the coming decades could create risks of major disruption to economic and social activity, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes.

So prompt and strong action is clearly warranted. Because climate change is a global problem, the response to it must be international. It must be based on a shared vision of long-term goals and agreement on frameworks that will accelerate action over the next decade, and it must build on mutually reinforcing approaches at national, regional and international level.

Climate change could have very serious impacts on growth and development.

If no action is taken to reduce emissions, the concentration of greenhouse gases in the atmosphere could reach double its pre-industrial level as early as 2035, virtually committing us to a global average temperature rise of over 2 C. In the longer term, there would be more than a 50% chance that the temperature rise would exceed 5 C. This rise would be very dangerous indeed; it is equivalent to the change in average temperatures from the last ice age to today. Such a radical change in the physical geography of the world must lead to major changes in the human geography where people live and how they live their lives.

Even at more moderate levels of warming, all the evidence from detailed studies of regional and sectoral impacts of changing weather patterns through to economic models of the global effects shows that climate change will have serious impacts on world output, on human life and on the environment.

All countries will be affected. The most vulnerable the poorest countries and populations will suffer earliest and most, even though they have contributed least to the causes of climate change. The costs of extreme weather, including floods, droughts and storms, are already rising, including for rich countries.

Adaptation to climate change that is, taking steps to build resilience and minimise costs is essential. It is no longer possible to prevent the climate change that will take place over the next two to three decades, but it is still possible to protect our societies and economies from its impacts to some extent for example, by providing better information, improved planning and more climate-resilient crops and infrastructure. Adaptation will cost tens of billions of dollars a year in developing countries alone, and will put still further pressure on already scarce resources. Adaptation efforts, particularly in developing countries, should be accelerated.

The costs of stabilising the climate are significant but manageable; delay would be dangerous and much more costly.

The risks of the worst impacts of climate change can be substantially reduced if greenhouse gas levels in the atmosphere can be stabilised between 450 and 550ppm CO2 equivalent (CO2e). The current level is 430ppm CO2e today, and it is rising at more than 2ppm each year. Stabilisation in this range would require emissions to be at least 25% below current levels by 2050, and perhaps much more.

Ultimately, stabilisation at whatever level requires that annual emissions be brought down to more than 80% below current levels.

This is a major challenge, but sustained long-term action can achieve it at costs that are low in comparison to the risks of inaction. Central estimates of the annual costs of achieving stabilisation between 500 and 550ppm CO2e are around 1% of global GDP, if we start to take strong action now.

Costs could be even lower than that if there are major gains in efficiency, or if the strong co-benefits, for example from reduced air pollution, are measured. Costs will be higher if innovation in low-carbon technologies is slower than expected, or if policy-makers fail to make the most of economic instruments that allow emissions to be reduced whenever, wherever and however it is cheapest to do so.

It would already be very difficult and costly to aim to stabilise at 450ppm CO2e. If we delay, the opportunity to stabilise at 500-550ppm CO2e may slip away.

Action on climate change is required across all countries, and it need not cap the aspirations for growth of rich or poor countries.

The costs of taking action are not evenly distributed across sectors or around the world. Even if the rich world takes on responsibility for absolute cuts in emissions of 60-80% by 2050, developing countries must take significant action too. But developing countries should not be required to bear the full costs of this action alone, and they will not have to. Carbon markets in rich countries are already beginning to deliver flows of finance to support low-carbon development, including through the Clean Development Mechanism. A transformation of these flows is now required to support action on the scale required.

Action on climate change will also create significant business opportunities, as new markets are created in low-carbon energy technologies and other low-carbon goods and services. These markets could grow to be worth hundreds of billions of dollars each year, and employment in these sectors will expand accordingly.

The world does not need to choose between averting climate change and promoting growth and development. Changes in energy technologies and in the structure of economies have created opportunities to decouple growth from greenhouse gas emissions. Indeed, ignoring climate change will eventually damage economic growth.

Tackling climate change is the pro-growth strategy for the longer term, and it can be done in a way that does not cap the aspirations for growth of rich or poor countries.

A range of options exists to cut emissions; strong, deliberate policy action is required to motivate their take-up.

Emissions can be cut through increased energy efficiency, changes in demand, and through adoption of clean power, heat and transport technologies. The power sector around the world would need to be at least 60% decarbonised by 2050 for atmospheric concentrations to stabilise at or below 550ppm CO2e, and deep emissions cuts will also be required in the transport sector.

Even with very strong expansion of the use of renewable energy and other lowcarbon energy sources, fossil fuels could still make up over half of global energy supply in 2050. Coal will continue to be important in the energy mix around the world, including in fast-growing economies. Extensive carbon capture and storage will be necessary to allow the continued use of fossil fuels without damage to the atmosphere.

Cuts in non-energy emissions, such as those resulting from deforestation and from agricultural and industrial processes, are also essential.

With strong, deliberate policy choices, it is possible to reduce emissions in both developed and developing economies on the scale necessary for stabilisation in the required range while continuing to grow.

Climate change is the greatest market failure the world has ever seen, and it interacts with other market imperfections. Three elements of policy are required for an effective global response. The first is the pricing of carbon, implemented through tax, trading or regulation. The second is policy to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change.

Climate change demands an international response, based on a shared understanding of long-term goals and agreement on frameworks for action.

Many countries and regions are taking action already: the EU, California and China are among those with the most ambitious policies that will reduce greenhouse gas emissions. The UN Framework Convention on Climate Change and the Kyoto Protocol provide a basis for international co-operation, along with a range of partnerships and other approaches. But more ambitious action is now required around the world.

Countries facing diverse circumstances will use different approaches to make their contribution to tackling climate change. But action by individual countries is not enough. Each country, however large, is just a part of the problem. It is essential to create a shared international vision of long-term goals, and to build the international frameworks that will help each country to play its part in meeting these common goals.

...


Brief Excerpts From Chapter 3:
The Impacts of Climate Change on Growth and Dewelopment

Climate change threatens the basic elements of life for people around the world access to water, food, health, and use of land and the environment. On current trends, average global temperatures could rise by 2 - 3 C within the next fifty years or so,1 leading to many severe impacts, often mediated by water, including more frequent droughts and floods (Table 3.1).

... Declining crop yields, especially in Africa, are likely to leave hundreds of millions without the ability to produce or purchase sufficient food - particularly if the carbon fertilisation effect is weaker than previously thought, as some recent studies suggest. At mid to high latitudes, crop yields may increase for moderate temperature rises (2 3 C), but then decline with greater amounts of warming.

... Climate change will increase worldwide deaths from malnutrition and heat stress. Vector-borne diseases such as malaria and dengue fever could become more widespread if effective control measures are not in place. In higher latitudes, cold-related deaths will decrease.

...

Declining crop yields are likely to leave hundreds of millions without the ability to produce or purchase sufficient food, particularly in the poorest parts of the world. Around 800 million people are currently at risk of hunger (~ 12% of world's population), and malnutrition causes around 4 million deaths annually, almost half in Africa. According to one study, temperature rises of 2 to 3 C will increase the people at risk of hunger, potentially by 30 - 200 million (if the carbon fertilisation effect is small) (Figure 3.6).43 Once temperatures increase by 3 C, 250 - 550 million additional people may be at risk over half in Africa and Western Asia, where (1) the declines in yield are greatest, (2) dependence on agriculture highest, and (3) purchasing power most limited. If crop responses to carbon dioxide are stronger, the effects of warming on risk of hunger will be considerably smaller. But at even higher temperatures, the impacts are likely to be damaging regardless of the carbon fertilisation effect, as large parts of the world become too hot or too dry for agricultural production, such as parts of Africa and even Western Australia.

...

The distribution and abundance of disease vectors are closely linked to temperature and rainfall patterns, and will therefore be very sensitive to changes in regional climate in a warmer world. Changes to mosquito distributions and abundance will have profound impacts on malaria prevalence in affected areas. This will be particularly significant in Africa, where 450 million people are exposed to malaria today, of whom around 1 million die each year. According to one study, a 2 C rise in temperature may lead to 40 - 60 million more people exposed to malaria in Africa (9- 14% increase on present-day), increasing to 70- 80 million (16-19%) at higher temperatures, assuming no change to malaria control efforts. Much of the increase will occur in Sub-Saharan Africa, including East Africa. Some studies suggest that malaria will decrease in parts of West Africa, e.g. taking 25 50 million people out of an exposed region, because of reductions in rainfall. Changes in future exposure depend on the success of national and international malaria programmes. Such adaptations are not taken into account in the estimates presented, but the effectiveness of such programmes remains variable.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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