Elisa Lanzi , OECD Environment Directorate
You may have seen recent Back to the Future festivities marking 21 October 2015 as the date Marty and Doc travel to the future in the famous second film with Michael J. Fox. If only we had a similar time machine allowing us to travel to 2045 to see what the climate has in store to better decide what policies to adopt today. Alas, no time machine has been invented yet but, in the absence of such a cool device, we can rely on climate and economic models that attempt to shed light on how climate change may affect the future of our societies. The new OECD report The Economic Consequences of Climate Change, does this using a global multi-sector, multi-region modelling approach.
Covering impacts on agriculture, coastal zones, some extreme events, health and energy and tourism demand, the report finds that climate would cost the global economy 1.0-3.3% of GDP annually by 2060 and 2-10% by the end of the century in the absence of new policies (the range reflects the uncertainty surrounding the way the climate may respond to the concentrations of greenhouse gases). However, most importantly, the impacts vary drastically across regions: in some regions they’re slightly positive while in others, starkly negative.
Climate impacts particularly affect regions in Africa and Asia, which are especially vulnerable to a range of different impacts, such as heat stress and crop yield loss. GDP losses in 2060 are projected to amount to 1.6-5.2% in the Middle East & North Africa regions, 1.7-6.6% in the South- and South-East Asia regions and 1.9-5.9% in the Sub-Saharan Africa regions. Impacts are projected to be smaller in most OECD countries. The model results show that for a few countries, especially those in higher latitudes, i.e. Canada and Russia, the benefits from impacts such as gains in tourism, energy and health, outweigh the negative ones, at least to 2060.
The model also allows us to identify the impacts that will affect the economy the most. Of the impacts included in the modelling assessment, changes in crop yields and in labour productivity due to health impacts are projected to affect the economy most strongly, causing losses to annual global GDP in 2060 of 0.9% and 0.8%, respectively, and several percent in the most vulnerable regions. Each of the impacts causes important indirect effects on other sectors and regions as well.
As we learn from combining climate and economic models, once greenhouse gases are emitted, they will have unavoidable and enduring effects on the climate and the economy for a century or more. This doesn’t just mean that there will be higher impacts in the long term but also stronger risks of tipping points and very severe impacts. Together, this leaves no doubt that policy action both on mitigation and on adaptation is needed.
So while economic models are not as cool as a time machine would be, they do have the advantage that they can be used to study how policies may affect the future economy. Simulation results from The Economic Consequences of Climate Change show that ambitious adaptation and mitigation policies can reduce the future costs of climate change, but above all limit the risks of more catastrophic impacts. In an optimal policy scenario, both adaptation and mitigation are implemented, while also leaving some remaining market impacts (it would be too costly to reduce all impacts). The benefits of adaptation policies, from a reduction in the selected market impacts alone, may amount to more than 1 percentage point of GDP by the end of the century. Early and ambitious mitigation action can help economies avoid half of the macroeconomic consequences by 2060 and could reduce projected GDP reductions from 2-10% to 1-3% of global GDP by the end of the century.
While the fictitious elements and machines in the Back to the Future films are still not reality, climate modelling analysis tells us that strong policies are needed now to address climate change. Maybe even better than a time machine taking us to the future, would be one going back to tell our ancestors to reduce emissions. But since that’s not an option, we should really at least change our present choices and adopt climate policies now. That would spare future generations from having to invent a time machine to correct our mistakes.
Policy highlights from The Economic Consequences of Climate Change