Download The Economics of Climate Change Nicholas Stern World Bank

The Economics of Climate Change
Nicholas Stern
World Bank
Jakarta
23th March 2007
Key messages
• The costs of strong and urgent action to avoid
serious impacts from climate change are
substantially less than the the damages thereby
avoided
• Even with strong action to reduce greenhouse gas
emissions adaptation must be a crucial part of
development strategy
• Policy requires urgent and international action,
pricing for damages from greenhouse gases,
supporting technology development and
combating deforestation
Projected impacts of climate change
0°C
Food
Water
Global temperature change (relative to pre-industrial)
1°C
2°C
3°C
4°C
5°C
Falling crop yields in many areas, particularly
developing regions
Falling yields in many
Possible rising yields in
developed regions
some high latitude regions
Small mountain glaciers
disappear – water
supplies threatened in
several areas
Significant decreases in water
availability in many areas, including
Mediterranean and Southern Africa
Sea level rise
threatens major cities
Ecosystems
Extensive Damage
to Coral Reefs
Rising number of species face extinction
Extreme
Rising intensity of storms, forest fires, droughts, flooding and heat waves
Weather
Events
Risk of Abrupt and
Increasing risk of dangerous feedbacks and
Major Irreversible
abrupt, large-scale shifts in the climate system
Changes
Stabilisation and eventual change in
temperature
5%
400 ppm CO2e
95%
450 ppm CO2e
550 ppm CO2e
650ppm CO2e
750ppm CO2e
Eventual temperature change (relative to pre-industrial)
0°C
1°C
2°C
3°C
4°C
5°C
Aggregate estimates of
impacts
• Essential to take
account of risk and
uncertainty
• Assumptions on
discounting, risk
aversion and equity
affect the results
• Models should not be
taken too literally
Baseline
climate
High
Climate
Market
impacts
5%
7%
Broad
impacts
11%
14%
• Magnitude of effects in middle of plausible range
taking into account sensitivity analysis in review and
effect omitted from modelling
Adaptation and development
• Development key to adaptation: enhances
resilience and increases capacity
• Adaptation to current climate variability
reduces costs of natural disasters
• Adaptation requires economy-wide planning
and regional co-operation
– Leadership and co-ordination is essential: key role
for Heads of Government, Finance and Economic
Ministries
6
International support for
adaptation
• Link between development and adaptation has
implications for ODA scale and focus
• Equity requires assistance from rich countries as
main source of climate problem
• This strengthens still further argument for delivery
on aid commitments
• UNFCCC process and funds essential to support
capacity-building and prioritisation
• Additional ODA flows will be a bigger source of
funding for adaptation and development
Global opportunities for
adaptation
International action also has a key role in supporting
global public goods for adaptation:
–
–
–
–
–
–
Forecasting climate and weather
Disaster response
More resilient crop varieties
Technologies for water conservation and irrigation
New methods to combat land degradation
Prevention and treatment of malaria and other
water- and vector- borne diseases
Delaying mitigation is dangerous and
costly
100
450ppm CO2e
90
500ppm CO2e (falling to
450ppm CO2e in 2150)
Global Emissions (GtCO2e)
80
70
550ppm CO2e
60
50
Business as Usual
40
50GtCO2e
30
65GtCO2e
20
70GtCO2e
10
0
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
Stabilising below 450ppm CO2e would require emissions to peak by
2010 with 6-10% p.a. decline thereafter.
If emissions peak in 2020, we can stabilise below 550ppm CO2e if we
achieve annual declines of 1 – 2.5% afterwards. A 10 year delay
almost doubles the annual rate of decline required.
Growth, change and opportunity
• Strong Mitigation costs around 1% p.a. worldwide
• Strong mitigation is fully consistent with the
aspirations for growth and development in poor and
rich countries. Business as usual is not.
• Costs will not be evenly distributed:
•Competitiveness impacts can be reduced by acting together.
•New markets will be created. Investment in low-carbon electricity sources
could be over $500bn a year by 2050.
• Mitigation policy can also be designed to support
other objectives:
•energy - air quality, energy security and energy access
•forestry - watershed protection, biodiversity, rural livelihoods
Mitigation policy instruments
• Pricing the externality- carbon pricing via tax
or trading, or implicitly through regulation
• Bringing forward lower carbon technologyresearch, development and deployment
• Overcoming information barriers and
transaction costs– regulation, standards
• Promoting a shared understanding of
responsible behaviour across all societies –
beyond sticks and carrots
Reducing emissions from
deforestation
• Improving land
management and
reducing deforestation is
highly cost-effective, and
significant in reducing
emissions
• Large-scale pilot
schemes could help
explore alternative
approaches to provide
effective international
support
Implications for Asia?
• Climate change impacts will affect everyone…but
developing countries are already vulnerable to climate
variability & have the least capacity to respond
• Costs of climate change can be reduced through both
adaptation & mitigation – but adaptation is the only way
to cope with impacts of climate change over next few
decades
• Asia can benefit from global initiatives for clean energy
investment, reduced deforestation and development of
global public goods
• Asian leaders have an important role in shaping the
international debate
• Requires leaderships of Heads of State and
Economics/Finance Ministries – cuts across all parts of
government
Conclusion
• Our understanding of the risks of climate
change has advanced strongly.
• We understand the urgency and scale of
action required.
• We know that the technologies and
economic incentives for effective action
are available or can be created
• We are in a much better position now to use
our shared understanding to agree on
what goals to adopt and what action to take.
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