consequences of climate change impacts for …consequences of climate change impacts for economic...

Consequences of climate change impacts for economic growth: a dynamic quantitative

assessment Presentation Jean Chateau, Rob Dellink and Elisa Lanzi Environment Directorate, OECD With Input from F.Bosello & R.Parado from FEEM and K. de Bruin IAMC Annual Conference - 2014

•  For years OECD published reports (like Environmental Outlooks) that point we should urgently act on environmental issues because current and future economic/human activities will deteriorate more and more our environment.

•  Then at the OECD we studied the efficiency of a large panel of economic tools to tackle these environmental issues: carbon permits, pesticide taxes, energy taxes,….

•  Off course OECD is not alone on this. Reports and alerts from almost all IOs or Academic and scientific community or NIOs sketched the same picture, and ….

•  …. Almost nothing happened on practical, or at least the policies adopted were with very limited ambition (ex. Carbon pricing: EU-ETS)

Motivations I. : Old OECD approaches

2"

Starting from this statement we tried to understand why no policy action have been taken and our main conclusions are:

–  Environmental impacts are not really/enough measured in terms of economic losses: as long as you present to policy makers a policy (ex. Climate change mitigation) that will impact negatively GDP you could not convince if you not present the economic benefit of the policy (not only environmental).

–  Most of the environmental and climate policy will affect more the poorer households than the richer (carbon taxes, fossil fuel energy subsidies,…): understanding distributive impacts would help implement successful environmental policy.

–  Opportunity costs of economic-efficient environmental reform: Exple even if energy efficiency investment could be profitable for private or public agents there exists investment that are much more profitable. Showing economic and environmental efficiency of a policy is not enough.

Motivations II. : OECD new project streams

3"

4

CIRCLE Project themes and tracks

Climate change

Modelling track Air pollution

Land-water-energy nexus

Water

Scoping track Biodiversity and ecosystems

Resource scarcity

CIRCLE looks at costs of inaction and benefits of action: feedbacks from environmental challenges on economic growth

CIRCLE: Costs of Inaction and Resource scarcity: Consequences for Long-term Economic growth

•  Impacts of environmental damages on the economy are modelled directly as changes in the production function variables (e.g. labour productivity, land efficiency,…)

•  Allows calculating the costs of environmental damages to the macro-economy and studying how the economies adjust to the presence of environmental damages

•  Model impacts and economic feedbacks within a Computable General Equilibrium (CGE) model, ENV-Linkages

•  Project economic growth for future decades and calculate future macro-economic costs of environmental damages

•  Use GDP as key indicator of economic growth

Production function approach

5"

•  ENV-Growth Model: to generate long run macro-scenarios: –  Outputs: GDP, aggregate savings, current account, labour supply,

exchange rate, GDP deflator,… –  Methodology: Mix of a potential output projection model based on

conditional convergence of generic economic growth models + a transitional convergence module (OECD Eco dpt meth)

–  Standard utilization : OECD SSP’s projection of GDP, OECD@100 report.

•  ENV-Linkages Model: –  dynamic CGE Model : 40 sectors (including 5 electricity tech. and 8

crops sectors) and 25 regions (IEA World Energy Outlook regions). Vintage capital, Dynamic up to 2060

–  Outputs: sectoral value added and prices, environmental emissions, energy carriers, Land-use (still in phase of improvement).

6

OECD ENV modelling tools:

•  Collaboration with CMCC/FEEM to incorporate damages in ENV-Linkages –  Methodology of the FEEM ICES model –  Data for a subset of damages from sectoral EU projects –  Data consistency on damages is ensured by choosing damages

corresponding to an appropriate temperature pathway (no simple damage functions relating everything to global ΔT)

•  Damages calculated in ENV-Linkages model to 2060 –  Autonomous adaptation takes place via sectoral adjustments and

international trade

•  Longer term consequences of climate change explored with the AD-RICE model

Methodology for preliminary climate analysis

7"

Climate change impacts and damages

•  Coastal land losses and damages to capital Sea level rise

•  Changes in mortality & morbidity and demand for healthcare Health

•  Changes in produc8vity of produc8on sectors Ecosystems

•  Changes in agricultural produc8vity Crop yields

•  Changes in produc8vity of tourism services Tourism flows

•  Changes in the demand for energy from cooling and hea8ng Energy demand

•  Changes in catchment Fisheries

•  Extreme weather events, water stress, catastrophic risks, … Not included

8"

-‐4.0%

-‐3.5%

-‐3.0%

-‐2.5%

-‐2.0%

-‐1.5%

-‐1.0%

-‐0.5%

0.0%

2010 2020 2030 2040 2050 2060

Global GDP impacts (% change wrt no-‐damages baseline)

Likely uncertainty rangeequilibrium climate sensitivity (1.5°C -‐ 4.5°C)

9"

Global assessment

-‐4.0%

-‐3.5%

-‐3.0%

-‐2.5%

-‐2.0%

-‐1.5%

-‐1.0%

-‐0.5%

0.0%

2010 2020 2030 2040 2050 2060



Wider uncertainty rangeequilibrium climate sensitivity (1°C -‐ 6°C)

Central projection

-‐4.0%

-‐3.5%

-‐3.0%

-‐2.5%

-‐2.0%

-‐1.5%

-‐1.0%

-‐0.5%

0.0%

2010 2020 2030 2040 2050 2060



Wider uncertainty rangeequilibrium climate sensitivity (1°C -‐ 6°C)

Central projection

Source: Dellink et al (2014)

10"

Regional results (central projection)


-‐6%

-‐5%

-‐4%

-‐3%

-‐2%

-‐1%

0%

1%

2%

OECD America OECD Europe OECD Pacific Rest of Europe and Asia

La8n America Middle East & North Africa

South & South-‐ East Asia

Sub-‐Saharan Africa

World

Global GDP impact (% change wrt no -‐ damages baseline, 2060)

Agriculture Sea level rise Tourism Health Ecosystems Energy Fisheries

11"

The impact of trade linkages

-‐6%

-‐5%

-‐4%

-‐3%

-‐2%

-‐1%

0%

1%

2%

OECD America OECD Europe OECD Pacific Rest of Europe and Asia

La8n America Middle East & North Africa

South & South-‐ East Asia

Sub-‐Saharan Africa

Regional GDP impacts (% change wrt no -‐ damages baseline)

'Unilateral' impact Total impact


•  1st results (on costs of inaction) published

•  Next steps –  Continue policy analysis –  Improve agricultural sector

representation (Done) –  Add more impacts - but how to

integrate large-scale disruptive events (catastrophes)?

–  Integrate with other themes

12"

Current status

•  Effects of selected climate impacts on economic growth by 2060 non-negligible

•  Large variation between regions and sectors –  large losses in South & South-East Asia, gains from trade

adjustments in OECD-Pacific –  Of selected impacts agriculture dominates

•  Large uncertainties •  Lock-in to much worse risk profile

–  GDP losses remain for at least a century more –  Substantial increase in risk of much larger damages

•  Adaptation and mitigation policies are both essential –  Mitigation limits level of damages plus uncertainty on damages –  Adaptation cannot replace mitigation

Preliminary conclusions climate analysis

13"

•  Total consistent macro-economic and sectoral baseline for Energy, Agriculture and trade of these commodities.

•  Very Narrow collaboration with IEA (energy side), ITF (transport), OECD-FAO (short term agr.) + rely directly to long run agriculture projections from IFPRI’s IMPACT model (AGMIP Scenarios).

•  Ongoing process of baseline harmonization on more elements global trade (ECO Trade Dpt & CEPII), water use with GTAP-Purdue, IMAGE for Land-Use, resources projections LSE & IEA,…

•  But in any case we will still not have a real IAM: Environmental damages through factors changes not through damages functions.

•  Horizon still limited to 2060: to narrow for Climate Change Perspective

•  Missing Elements: Endogenous population changes, imperfect link between physical units and economic values,….

14

Strengths and Weakness of our global CIRCLE project

THANK YOU!

For more information:

www.oecd.org/environment/CIRCLE.htm

www.oecd.org/environment/modelling

[email protected] [email protected]

[email protected]

Preliminary analysis of benefits of policy action

•  Assessment of benefits of policy action require insight into stream of future avoided damages –  Not straightforward to assess with ENV-Linkages –  Lack of sectoral adaptation information is also an issue

•  As first step, use the AD-RICE model which is especially suited for this (as perfect foresight model) –  AD-RICE is an augmented version of Nordhaus’ RICE

model, with explicit representation of adaptation

•  Look at both adaptation and mitigation policies, and their interactions

16

17"

Stylised analysis post-2060

-‐9%

-‐8%

-‐7%

-‐6%

-‐5%

-‐4%

-‐3%

-‐2%

-‐1%

0%2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Global damages as percentage of GDP

Likely uncertainty range (Business as Usual)

Likely uncertainty range (Committed by 2060)

Central projection (Business as Usual)

Central projection (Committed by 2060)

Central projection (highly nonlinear damages)-‐9%

-‐8%

-‐7%

-‐6%

-‐5%

-‐4%

-‐3%

-‐2%

-‐1%

0%2010 2020 2030 2040 2050 2060 2070 2080 2090 2100






Central projection (highly nonlinear damages)-‐9%

-‐8%

-‐7%

-‐6%

-‐5%

-‐4%

-‐3%

-‐2%

-‐1%

0%2010 2020 2030 2040 2050 2060 2070 2080 2090 2100






Central projection (highly nonlinear damages)


18"

Preliminary results: adaptation policies

Preliminary results; not to be cited or quoted

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% change wrt no-damage baselineLikely uncertainty range - Optimal adaptation Central projection - Optimal adaptation

Central projection - Flow adaptation Central projection - No adaptation

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% change wrt no-damage baselineLikely uncertainty range - No adaptation Central projection - Optimal adaptation


-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% change wrt no-damage baselineLikely uncertainty range - Flow adaptation Central projection - Optimal adaptation


19"

Preliminary results: mitigation policies


-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% change wrt no-damage baselineLikely uncertainty range - No mitigation Likely uncertainty range - Optimal mitigationCentral projection - No mitigation Central projection - Optimal mitigationWeitzman damage function - No mitigation Weitzman damage function - Optimal mitigation

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100


-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100


20"

Preliminary results: discounting


-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% change wrt no-damage baselineLikely uncertainty range - Nordhaus discounting Central projection - Nordhaus discounting

Central projection - UK Treasury discounting Central projection - Stern discounting

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% change wrt no-damage baselineLikely uncertainty range - Stern discounting Central projection - Nordhaus discounting


-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% change wrt no-damage baselineLikely uncertainty range - UK Treasury discounting Central projection - Nordhaus discounting


21"

Preliminary results: interactions


-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% change wrt no-damage baselineOptimal adaptation - No mitigation Optimal adaptation - Optimal mitigationFlow adaptation - No mitigation Flow adaptation - Optimal mitigationNo adaptation - No mitigation No adaptation - Optimal mitigation

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100


-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100


consequences of climate change impacts for …consequences of climate change impacts for economic...

Documents