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Economic Impact of Climate
Change in the Pacific Islands:
Some Issues and Challenges
Biman Prasad
Professor and Dean of the Faculty of Business
and Economics, The University of the South
Pacific
Outline
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Introduction
Impacts: why be concerned?
Magnitude of Economic Impacts
Lessons from Stern Review
What are the challenges to
minimize adverse impacts
Policy Responses
Introduction
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Financial crisis presents opportunities for climate
change policies
Fiscal stimulus not only to create demand but to
promote sustainable development
Australian Govt- action on climate change is
economically responsible- delaying it will increase
the cost by 15%
190 nations seeking to conclude a new UN treaty in
Copenhagen next year
Serious Implications on agriculture and water
sectors
Environmental Kuznet’s Hypothesis should be
revisited by large developing countries
Impacts: Why be concerned?
Climate change impacts are complex
Direct and Indirect impacts
climate change and sea level rise of the
magnitude predicted by IPCC would affect many
natural systems which will affect the survival
and provision for human beings
Regional Changes in climate change
El Nino SO (ENSO) importance to Pacific
El Nino brings drought- more frequent since
the 1970s
Impacts: Examples
Changes in natural productivity and biodiversity
Decrease in cereal output in most tropical countries
Increased water shortages
Adverse economic impacts
Risk of flooding in small and low lying islands
Increase threats to human health
 increase inequities between poor and rich countries
Risk of irreversible climate changes
Magnitude of Economic Impacts
Stern Review findings (1)
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A simple conclusion: the benefits of strong and early
action far outweigh the economic costs of not acting
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Climate change will affect the basic elements of life for
people around the world –access to water, food production,
health, and the environment
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Hundreds of millions of people could suffer hunger, water
shortages and coastal flooding as the world
warms.
Stern review (2)
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The review estimates that cost of no action could
cost 5% of global GDP per annum now and for
ever
If a wider range of risk is taken into account the
cost could be 20% of GDP
In contrast cost of reducing greenhouse gas
emissions would only amount to 1% of GDP with a
range of +/-3% reflecting the uncertainties
China $4.8b of a 100-year high water tide- cost of
action would cost $400m
Current and Emerging threats in
the Pacific Islands
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Natural disasters- cyclones, typhoons,
hurricanes and floods are getting more
severe
Sea level rise, innundation, storm surges
and coastal erosion- Pacific countries
most vulnerable
Fresh water scarcity- due to drought
through high average temperatures and
contamination from industrial pollution
Food scarcity- due to land erosion and
water scarcity
Economic Impact of Natural
Disasters in the Pacific
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Prasad, Mckenzie and Kaloumaira
(2005 study)
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Direct and Indirect impacts and it is
not easy to estimate.
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The official damage assessments
omit many of the indirect costs.
Impacts on PICs (1)
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In the 1990s, for example, cost of extreme events in the
Pacific Island region is estimated to have exceeded US$1
billion (Bettencourt and Warrick, 2000).
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This included the cost of Cyclones Ofa and Val, which hit
Samoa in 1990/91, causing losses of US$440 million, which
was greater than the country’s average annual gross
domestic product (GDP) in recent years.
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In Niue, Cyclone Heta is estimated to have caused an
impact of about NZ$37.7 million, which is approximately
25% of its GDP (Prasad, Mckenzie and Kaloumaira, 2005)
Impacts on PICs (2)
Cyclone Ami and related flooding in Fiji
(2003)
Sectors
Social
Economic Sectors
Infrastructure
Utilities
Total
Subsectors
Housing
Health
Agriculture
Education
Tourism
Sugar
Non-sugar
agriculture
Roads
Water supply
Sewerage
Telecommunicatins
Power supply
Total Cost (FJ$)
$28,737,506
$65,277,448
$5,792,435
$4,580,400
$104,387,789
Impacts on PICs (3)
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Climate Change in the Pacific is also expected to have
wide ranging impacts on key economic sectors on which
countries are heavily reliant
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These include subsistence food production, agriculture,
fisheries, forestry, tourism, infrastructure, water, energy ,
transport and health. Assessments in agriculture (Singh
(1990), fisheries (Lehodey (2000) and tourism (Beccken
(20O4) for example, indicate that economic losses are
expected to be significant.
Challenges for minimizing the impacts
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Building capacity and tools for appropriate
assessment
Collection of appropriate data
4 Steps
1.
Gather background information
on the natural hazard event
2.
Sectoral Assessments
3.
Cross sectoral assessments
4.
Overall Impact Assessment
Allocation in the budget for mitigation and
adapation
Policy Responses to Climate
Change Impacts (1)
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PICs are small players in reducing
the extent of climate change
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For them policy responses to reduce
the negative impact of climate change
on the economy is important
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Public policy to manage resources
efficiently- both market based and
governmental action
Policy Responses to Climate
Change Impacts (2)
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New technologies to reduce the risk of damages
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Managing wastes
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Developing better water infrastructure- less prone to damage by
natural disasters
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Reducing negative impacts on agriculture and fisheries- food security
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Promote public-private partnerships in developing appropriate
infrastructure to reduce the economic risk
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Providing better social safety networks-reduce burden on government
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Education and economic incentives to prepare communities so that
the negative impacts could be minimized
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