The Economic Consequences of Climate Change

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03 Nov 2015
9789264235410 (PDF) ; 9789264249776 (EPUB) ;9789264235403(print)

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This report provides a new detailed quantitative assessment of the consequences of climate change on economic growth through to 2060 and beyond. It focuses on how climate change affects different drivers of growth, including labour productivity and capital supply, in different sectors across the world. The sectoral and regional analysis shows that while the impacts of climate change spread across all sectors and all regions, the largest negative consequences are projected to be found in the health and agricultural sectors, with damages especially strong in Africa and Asia.

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  • Preface

    As we approach the Conference of the Parties (COP21) in late 2015 in Paris, our leaders are facing a fundamental dilemma: to get to grips with the risks of climate change or see their ability to limit this threat slip from their hands. Today our understanding of the scale of the risks posed by climate change is much better developed and supported by seriously tested and globally accepted evidence. This report, The Economic Consequences of Climate Change provides detailed insights into the consequences of policy inaction for the global economy. Its main contribution, when compared to previous efforts in this area, is that it does so through a more detailed economic modelling framework that links climate change impacts to sectoral and regional economic activity.

  • Acronyms and abbreviations
  • Executive summary

    This report provides a detailed global quantitative assessment of the direct and indirect economic consequences of climate change (i.e. climate damages) for a selected number of impacts: changes in crop yields, loss of land and capital due to sea level rise, changes in fisheries catches, capital damages from hurricanes, labour productivity changes and changes in healthcare expenditures from diseases and heat stress, changes in tourism flows, and changes in energy demand for cooling and heating. Other major impacts of climate change are investigated outside the modelling framework.

  • Modelling the economic consequences of climate change

    This chapter first presents a brief discussion of the main categories of climate change impacts. It then introduces the methodology used to identify how climate impacts affect economic growth. It highlights how the costs of inaction until 2060 can be assessed using a production function approach to link climate change impacts to specific drivers of growth in the dynamic general equilibrium model ENV-Linkages; and how and why this is complemented by a more stylised integrated assessment modelling of long-term impacts using the AD-DICE model. The chapter ends with a description of how the production function approach is used to model the various impacts in ENV-Linkages.

  • The damages from selected climate change impacts to 2060

    This chapter first briefly outlines the main socioeconomic trends that are projected to emerge regardless of climate change or climate change policies. It then presents the results of the numerical evaluation of the economic costs of climate change until 2060 using the ENV-Linkages model. The focus of this assessment of the damages from climate change is on market impacts and macroeconomic consequences, but the chapter also investigates consequences for specific regions, the sectoral structure of the different economies, and the consequences for international trade.

  • The bigger picture of climate change

    Without aiming to be complete, this chapter provides insights into the main consequences of inaction that are not assessed in . The chapter starts with an analysis using the integrated assessment model AD-DICE to shed light on the long-term consequences of climate change. It then presents a number of important examples of market and non-market consequences of climate change that are not included in the analysis with the ENV-Linkages model. Two prominent examples of these are the projected urban damages from river floods and the welfare costs from premature deaths due to heat stress.

  • The benefits of policy action

    This chapter opens with a discussion on how policy makers can deal with climate change even if future damages and other consequences are not fully known. Then, stylised projections of the AD-DICE model are used to highlight the potential benefits of adaptation and mitigation policies at the global level, and the trade-offs and synergies between both policy options. The chapter closes with an assessment of the avoided damages from mitigation policy action in the ENV-Linkages model, and compares the sectoral distribution of damages and mitigation costs.

  • Description of the modelling tools

    The OECD’s in-house dynamic computable general equilibrium (CGE) model – ENV-Linkages – is used as the basis for the assessment of the economic consequences of climate impacts until 2060. The advantage of using a CGE framework to model climate impacts is that the sectoral details of the model can be exploited. Contrary to aggregated IAMs, where monetised impacts are directly subtracted from GDP, in a CGE model the various types of climate damages can be modelled as directly linked to the relevant sectors and economic activities.

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