Economics of climate change

ByВячеслав Потапенко

Economics of climate change

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 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.

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