Download The Economics of Climate Change April 2009

The Economics of Climate Change
• Are there winners and losers?
• Issues
– Geography
– Sectors of the economy affected most
– Involvement of corporations
– Valuing the environment and recommending
policy
Geographic Impact
• Winners
–
–
–
–
Canada
Northeastern U.S.
Russia
Northeastern Europe
• Losers
Drought:
Mid latitudes
Continental interiors
Africa, Asia
US – Midwest, SW
Low lying areas:
Bangladesh
Indonesia
US – Atlantic, Gulf
coast
Haves vs. have nots
• Winners
– Developed Countries
– Can afford the costs to
avoid damage
(mitigation)
– Or to adapt to new
climate (adaptation)
– Barriers built in
Venice, St.
Petersburg, London,
NYC?
• Losers
– Developing Countries
– Cannot afford costs of
mitigation or
adaptation
– Often also the most
vulnerable due to
location or reliance on
agriculture
Areas of the economy affected most
• Winners
• For geographies that
benefit from climate
change:
– Agriculture: CO2 can
increase crop productivity,
shift of crop or prime yield
• Ex: wheat to corn
– Grapes/wine making
– Tourism increase
– Property values increase
• Losers
• For geographies that are
harmed by climate
change
– Agriculture: crop failures
due to extreme heat or lack
of water
– Less tourism
– Property values decrease
– Extreme weather
The Economics of Climate Change
• Other areas affected adversely by climate
change
• Insurance
• 2004 $145 billion, 2005 $200 billion in losses
• Price of insurance rising
• Health care
• Increased loss of life due to extreme heat, disease or lack of
water
• Estimated 160 to 230 million will be at risk for malaria and
1.2 to 2.2 billion at risk for water shortage by 2050
• Increased cost for health care
Local impacts
• Winners
– Lilacs will bloom
earlier
– Poison ivy will spread
north
– Bald eagle hatchlings
survival rate will
increase
– Construction industry:
year round outdoor
work
• Losers
– Dairy cows give less
milk
– Maple sugaring trees
will not thrive
– Apple orchards will
produce less fruit
– Skiing industry
– Less corn due to
increase in pests
The Economics of Climate Change
• How economists make recommendations
to policy
– Cost effectiveness
– Compare costs vs. benefits
– Look at cost to mitigate and adapt
– Look at damage estimates based on
mitigation and adaptation levels
Costs involved
• Cost to mitigate
– Estimated between .2 and 3.2% of a country’s GDP
– For US, that is equivalent to a range of $23.5 to $376
billion
– Stern recommends an investment of 1% of global
GDP to combat climate change. Global GDP is
currently at 35 trillion so this would mean an
investment of $350 billion
• Cost to adapt
– 90% of impacts can be adapted in rich countries
– 50% of impacts can be adapted in poor countries
– (Stern report)
Costs involved
Estimated cost of damages as % of GDP
Region
IPCC
Mendelson Nordhaus
(1995) (2000)
(2000)
+2.5°C + 2.5°C
+ 2.5°C
North
America
World
output
-.3
1.5 to
2.0
-.1
.5
1.5
Tol
Stern
(1999) (2006)
+ 1.0°C range
-3.4
-2.3
5 to
20
Costs involved
• Cost of future damage
– Most accept an estimated value between 1 to
2.5% of a country’s GDP on average
– For US, that is equivalent to a range of $117.5
to $293.75 billion
– Stern estimate is 5 – 20% of global GDP
– Damage not evenly distributed, some will
incur more
– Africa 4%, India 5%, US less than 1% decline
(Nordhaus)
Valuation issues
• Valuation is tricky
• Uncertainty about future CO2 level, temperature,
amount of adaptation, future population
• Weighing the present vs. the future (discounting:
higher rate = more weight to today’s generation)
• Valuing goods based on incorrect market price
• Valuing goods without a price (non-market)
– Example: value of life
• Political/corporate interests can influence the
process
Uncertainty
• Estimated number of people facing water
shortages
– 1° C = 1.25 – 2.25 billion
– 2° C = 2.1 – 3 billion
• This could represent as much as 40% of
the population, depending on the
population growth rate
• These figures assume no change in
mitigation or adaptation
Impact of discount rate
• Benefits and costs received in the future
are often discounted to reflect a
preference for current consumption
• This in essence gives preference to
today’s generation at the expense of future
generations
• This is very sensible to do when valuing
monetary investments
Impact of discount rate
• The question is whether it is appropriate to
use a discount rate when valuing the
earth’s ecosystem
• Choice of rate can greatly alter forecasts
– For ex: at a 1% rate, one would spend $126
million today to avoid $1 billion in damages in
2200. At a 5% rate, one would spend
$32,000 today.
Impact of discount rate
• Stern used a .1% rate, Nordhaus used a
3% rate thus contributing to their different
findings
• Stern: planet is essential for survival and
irreplaceable, so it must be treated
differently from other goods
• Nordhaus: must discount due to future
wealth
Pricing of goods
• Do prices correctly reflect their scarcity,
value or impact on the environment?
• Yes – insurance rates
• No - too low: gas, SUV’s?
• Property rates: Florida coast is higher than
New York despite increase risk of
hurricane. Value inflated due to
government subsidized insurance
• Too high: alternative energy?
Challenges for the economy
• Shift away from the use of fossil fuels
would require restructuring our:
– Transportation systems
– Source of electricity generation
– Job shifting
• Already coal mining is seeing a change in the
industry with a rate of 9,000 less jobs per year
from 1980-1995
Challenges for you
• What can you do to
alleviate your contribution
to climate change?
• Transportation
– Choose alternative energy
means of transportation or
at least one that gets good
gas mileage
– Take public transportation
or carpool when possible
• Electric energy
– Turn off lights when not in
room
– Use longer life light bulbs
– Choose alternative energy
on your electric bill
• Combat deforestation
– Recycle paper
– Buy notebooks using
recycled paper
– Avoid disposable products
Challenges for you
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Ten conservation tips from the Office of Environmental Sustainability:
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Bring a refillable coffee mug to get your morning coffee. Each dorm resident received
one from UAS; check in your dorm office if you did not get yours. Mugs are also
available for purchase at the Outtakes Store and the Corner Café. Refillable mug
users get a discount on their coffee!
Turn off the water when brushing your teeth.
Recycle your batteries – look for battery collection week during Recyclemania.
Turn off your computer before going to bed and unplug your cell phone charger when
not using it.
Reuse paper, when possible print on both sides of the paper.
Use the cold water cycle for washing full loads of clothes.
Instead of buying bottled water, buy a refillable one and fill it at fountains.
Turn off the lights when leaving a room.
Create your own recycling center in your room. Check the dollar store for small trash
bins. Set up one for paper and one for glass, aluminum and plastic. Empty into the
larger bins provided in common areas.
Remember that even the smallest actions add up to a lot when everyone pitches in.
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Questions?
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Contact info:
Office of Environmental Sustainability
Mary Ellen Mallia
UNH 212
956-8120
[email protected]
www.albany.edu/gogreen