Growth Commission Climate Control & Economic Growth
-
Upload
vivek-sharma -
Category
Documents
-
view
228 -
download
0
Transcript of Growth Commission Climate Control & Economic Growth
-
8/3/2019 Growth Commission Climate Control & Economic Growth
1/24
Climate Change and
Economic Growth
Robert Mendelsohn
WORKING PAPER NO.60
-
8/3/2019 Growth Commission Climate Control & Economic Growth
2/24
-
8/3/2019 Growth Commission Climate Control & Economic Growth
3/24
WORKINGPAPERNO.60
ClimateChangeandEconomicGrowth
RobertMendelsohn
-
8/3/2019 Growth Commission Climate Control & Economic Growth
4/24
2009TheInternationalBankforReconstructionandDevelopment/TheWorldBank
OnbehalfoftheCommissiononGrowthandDevelopment
1818HStreetNW
Washington,DC20433
Telephone:2024731000
Internet: www.worldbank.org
www.growthcommission.org
Email: [email protected]
Allrightsreserved
1234511100908
ThisworkingpaperisaproductoftheCommissiononGrowthandDevelopment,whichissponsoredby
thefollowingorganizations:
AustralianAgency
for
International
Development
(AusAID)
DutchMinistryofForeignAffairs
SwedishInternationalDevelopmentCooperationAgency(SIDA)
U.K.DepartmentofInternationalDevelopment(DFID)
TheWilliamandFloraHewlettFoundation
TheWorldBankGroup
Thefindings,interpretations,andconclusionsexpressedhereindonotnecessarilyreflecttheviewsofthe
sponsoringorganizationsorthegovernmentstheyrepresent.
Thesponsoringorganizationsdonotguaranteetheaccuracyofthedataincludedinthiswork.The
boundaries,colors,
denominations,
and
other
information
shown
on
any
map
in
this
work
do
not
imply
anyjudgmentonthepartofthesponsoringorganizationsconcerningthelegalstatusofanyterritoryor
theendorsementoracceptanceofsuchboundaries.
Allqueriesonrightsandlicenses,includingsubsidiaryrights,shouldbeaddressedtothe
OfficeofthePublisher,TheWorldBank,1818HStreetNW,Washington,DC20433,USA;
fax:2025222422;email:[email protected].
Coverdesign:NaylorDesign
-
8/3/2019 Growth Commission Climate Control & Economic Growth
5/24
Climate Change and Economic Growth iii
AbouttheSeriesThe Commission on Growth and Development led by Nobel Laureate Mike
SpencewasestablishedinApril2006asaresponsetotwoinsights.First,poverty
cannotbereduced in isolationfromeconomicgrowthanobservation thathas
been
overlooked
in
the
thinking
and
strategies
of
many
practitioners.
Second,
thereisgrowingawarenessthatknowledgeabouteconomicgrowthismuchless
definitivethancommonlythought.Consequently,theCommissionsmandateis
totakestockof thestateof theoreticalandempiricalknowledgeoneconomic
growthwithaviewtodrawing implicationsforpolicyfor thecurrentandnext
generationofpolicymakers.
To help explore the state of knowledge, the Commission invited leading
academics and policy makers from developing and industrialized countries to
explore and discuss economic issues it thought relevant for growth and
development, including controversial ideas. Thematic papers assessed
knowledgeand
highlighted
ongoing
debates
in
areas
such
as
monetary
and
fiscal
policies, climate change, and equity and growth. Additionally, 25 country case
studieswerecommissionedtoexplorethedynamicsofgrowthandchangeinthe
contextofspecificcountries.
WorkingpapersinthisserieswerepresentedandreviewedatCommission
workshops, which were held in 200708 in Washington, D.C., New York City,
and New Haven, Connecticut. Each paper benefited from comments by
workshop participants, including academics, policy makers, development
practitioners, representatives of bilateral and multilateral institutions, and
Commissionmembers.
The
working
papers,
and
all
thematic
papers
and
case
studies
written
ascontributions to the work of the Commission, were made possibleby support
fromtheAustralianAgencyforInternationalDevelopment(AusAID),theDutch
MinistryofForeignAffairs,theSwedishInternationalDevelopmentCooperation
Agency (SIDA), theU.K.Departmentof InternationalDevelopment (DFID), the
WilliamandFloraHewlettFoundation,andtheWorldBankGroup.
TheworkingpaperserieswasproducedunderthegeneralguidanceofMike
SpenceandDannyLeipziger,ChairandViceChairoftheCommission,andthe
Commissions Secretariat, which is based in the Poverty Reduction and
Economic Management Network of the World Bank. Papers in this series
representtheindependentviewoftheauthors.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
6/24
iv Robert Mendelsohn
AbstractGrim descriptionsof the longtermconsequencesofclimatechangehavegiven
the impression that the climate impacts from greenhouse gases threaten long
term economic growth. However, the impact of climate change on the global
economyis
likely
to
be
quite
small
over
the
next
50
years.
Severe
impacts
even
by the end of the century are unlikely. The greatest threat that climate change
poses to longterm economic growth is from potentially excessive nearterm
mitigationefforts.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
7/24
Climate Change and Economic Growth v
ContentsAbouttheSeries ............................................................................................................. iiiAbstract ............................................................................................................................ivIntroduction ...................................................................................................................... 7Efficient
Policy..................................................................................................................8
ClimateChangeImpacts.................................................................................................9 MitigationCosts .............................................................................................................12Conclusion ......................................................................................................................13References .......................................................................................................................15
-
8/3/2019 Growth Commission Climate Control & Economic Growth
8/24
-
8/3/2019 Growth Commission Climate Control & Economic Growth
9/24
Climate Change and Economic Growth 7
ClimateChangeandEconomicGrowthRobertMendelsohn1
IntroductionThereisnoquestionthatthecontinuedbuildupofgreenhousegaseswillcause
the earth to warm (IPCC 2007a). However, there is considerable debate about
what isthesensiblepolicyresponsetothisproblem.Economists,weighingcost
and damages, advocate abalanced mitigation program that starts slowly and
gradually becomes more severe over the century. Scientists and
environmentalists,
in
contrast,
advocate
more
extreme
nearterm
mitigation
policies. Which approach is followed will have a largebearing on economic
growth. Thebalanced economic approach to the problem will address climate
change with minimal reductions in economic growth. The moreaggressive the
neartermmitigationprogram,however,thegreatertheriskthatclimatechange
willslowlongtermeconomicgrowth.
Itshouldbeunderstoodthatclimateisnotastableunchangingphenomena
even when left to natural forces alone. There havebeen several major glacial
periodsinjustthe lastmillionyears.Muchofthisperiodhasbeensignificantly
colderthantheclimateinthelast20,000years.IcecoveredmostofCanadaand
Scandinavia
and
frozen
tundra
extended
well
into
New
Jersey
and
the
Great
Plains in the United States. These cold periods have been quite hostile,
discouraginghumansfromlivinginmuchofthenorthernpartsofthenorthern
hemisphere.Inaddition,withintheselongglacialswings,thereisalsoincreasing
evidence that therehavebeenmanyexamplesofabruptclimatechange (Weiss
and Bradley 2001). These natural changes have had major impacts on past
civilizationscausingdramaticadaptationsandsometimeswholesalemigrations.
Climatechangeisnotnew.Humaninducedclimatechangeissimplyanadded
disturbancetothisnaturalvariation.
The heart of the debate about climate change comes from a number of
warnings from scientists and others that give the impression that human
induced climate change is an immediate threat to society (IPCC 2007a,b; Stern
2006).Millionsofpeoplemightbevulnerabletohealtheffects(IPCC2007b),crop
1 Robert O. Mendelsohn is Edwin Weyerhaeuser Davis Professor, Yale School of Forestry and
Environmental Studies, YaleUniversity. Professor Mendelsohn studiesa range of economic and
environmentalissues,frommeasuringhazardouswastedamagestoestimatingwelfarecosts,from
timberharvestingwithfluctuatingpricestomeasuringtheeconomicvalueoftraditionalmedicine
fromtropicalrainforests.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
10/24
8 Robert Mendelsohn
production might fall in the low latitudes (IPCC 2007b), water supplies might
dwindle (IPCC 2007b), precipitation might fall in arid regions (IPCC 2007b),
extremeeventswillgrowexponentially(Stern2006),andbetween2030percent
of species will risk extinction (IPCC 2007b). Even worse, there may be
catastrophic events such as the melting of Greenland or Antarctic ice sheets
causing
severe
sea
level
rise,
which
would
inundate
hundreds
of
millions
of
people(Dasguptaetal.2009).Proponentsarguethereisnotimetowaste.Unless
greenhouse gases are cut dramatically today, economic growth and wellbeing
maybeatrisk(Stern2006).
These statements are largely alarmist and misleading. Although climate
changeisaseriousproblemthatdeservesattention,societysimmediatebehavior
has an extremely low probability of leading to catastrophic consequences. The
science and economics of climate change is quite clear that emissions over the
next few decades will lead to only mild consequences. The severe impacts
predictedbyalarmistsrequireacentury(ortwointhecaseofStern2006)ofno
mitigation.
Many
of
the
predicted
impacts
assume
there
willbe
no
or
little
adaptation.Theneteconomicimpactsfromclimatechangeoverthenext50years
willbesmallregardless.Mostofthemoresevereimpactswilltakemorethana
centuryorevenamillennium tounfoldandmanyofthesepotential impacts
will never occur because people will adapt. It is not at all apparent that
immediate and dramatic policies need tobe developed to thwart longrange
climaterisks.Whatisneededarelongrunbalancedresponses.
Infact,themitigationplansofmanyalarmistswouldposeaseriousriskto
economic growth. The marginal cost function of mitigation is very steep,
especially in the short run. Dramatic immediate policies to reduce greenhouse
gas emissions wouldbe very costly. Further,by rushing into regulations in a
panic,itisverylikelythatnewprogramswouldnotbedesignedefficiently.The
greatest threat that climatechangeposes toeconomic growth is that the world
adoptsacostlyand inefficientmitigationpolicy thatplacesahugedragon the
globaleconomy.
EfficientPolicyThe ideal greenhouse gas policy minimizes the sum of the present value of
mitigation costs plus climate damages (Nordhaus 1992). This implies the
marginalcost
of
mitigation
should
be
equal
to
the
present
value
of
the
marginal
damagesfromclimatechange.Themagnitudeorseverityofmitigationprograms
depends on the magnitude and severity of climate impacts. Mitigation also
dependsuponhowexpensiveitistocontrolgreenhousegasemissions.
Becausemarginaldamagesriseasgreenhousegasesaccumulate,theoptimal
policy isdynamic,growingstricterover time (Nordhaus2008).Emission limits
shouldbe mild at first and graduallybecome more severe. Over the long run,
-
8/3/2019 Growth Commission Climate Control & Economic Growth
11/24
Climate Change and Economic Growth 9
cumulative emissions are strongly curtailed. But this optimal policy reduces
emissions in the second half of the century more than the first. Partly, this
dynamicpolicy reflects the scienceofclimatechange;damagesareexpected to
grow with the concentration of greenhouse gases. Partly, this dynamic policy
reflectsthediscountrate,thatimmediatecostsanddamageshaveahighervalue
thanfuture
costs
and
damages.
Partly,
this
dynamic
policy
reflects
the
fact
that
technicalchangeisgoingtoimproveourabilitytocontrolgreenhousegasesover
time. Resources that are saved for the future can be invested in better
technologiesthatwillbemoreeffectiveatreducingtonsofemissions.
ClimateChangeImpactsEconomic research on climate impacts has long revealed that only a limited
fraction of the market economy is vulnerable to climate change: agriculture,
coastal
resources,
energy,
forestry,
tourism,
and
water
(Pearce
et
al.
1996).
These
sectors make up about 5 percent of the global economy and their share is
expectedtoshrinkovertime.Consequently,evenifclimatechangeturnsoutto
be large, there is a limit tohowmuch damageclimatecando to the economy.
Mostsectorsoftheglobaleconomyarenotclimatesensitive.
Ofcourse, theeconomiesofsomecountriesaremorevulnerable toclimate
change than the global average. Developing countries in general have a larger
shareoftheireconomiesinagricultureandforestry.Theyalsotendtobeinthe
lowlatitudeswheretheimpactstothesesectorswillbethemostsevere.Thelow
latitudestendtobetoohotforthemostprofitableagriculturalactivitiesandany
further warming will further reduce productivity. Up to 80 percent of the
damages
from
climate
change
maybe
concentrated
in
low
latitude
countries
(Mendelsohnetal.2006).
Somedamagesfromclimatechangewillnotaffecttheglobaleconomy,but
will simply reduce the quality of life. Ecosystem change will result in massive
shiftsaroundtheplanet.Someoftheseshiftsarealreadyreflectedinagriculture
and timberbut theygobeyond the impacts to these marketsectors.Parks and
other conservation areas will change. Animals will change their range.
Endangeredspeciesmaybelost.Althoughtheseimpactslikelyleadtolossesof
nonmarket goods, it is hard to know what value to assign to these effects.
Another importantsetofnonmarket impacts involvehealtheffects.Heatstress
mayincrease.
Vector
borne
diseases
may
extend
beyond
current
ranges.
Extreme
events could threaten lives. All of these changes could potentially affect many
peopleifwedonotadapt.However,itislikelythatpublichealthinterventions
could minimize many of these risks. Many vectorborne diseases are already
controlled at relatively low cost in developed countries. Heat stress can be
reduced with a modicum of preventive measures. Deaths from extreme events
canbe reducedby a mixture of prevention and relief programs. As the world
-
8/3/2019 Growth Commission Climate Control & Economic Growth
12/24
10 Robert Mendelsohn
develops,itislikelythattheserisksmayinvolvehigherpreventioncosts,butnot
necessarilylargelossesoflife.Further,wintersleadtohighermortalityratesthan
summerssoitmaywellbethatwarminghaslittleneteffectonhealth.
AgriculturalstudiesintheUnitedStatessuggestthattheimpactsofclimate
changeinmidlatitudecountriesarelikelytobebeneficialformostofthecentury
and
onlybecome
harmful
towards
the
end
of
the
century
(Adams
et
al.
1990;
Mendelsohnetal.1994).Incontrast,therewillbeharmfulimpactstoagriculture
in African countries (Kurukulasuriya and Mendelsohn 2008a), Latin American
countries (Seo and Mendelsohn 2008a), and China (Wang et al. 2009) starting
almostimmediatelyandrisingwithwarming.Theoverallsizeoftheseimpactsis
lower than earlier analyses predictedbecause of the importance of adaptation.
Irrigation(KurukulasuriyaandMendelsohn2008b),cropchoice(Kurukulasuriya
and Mendelsohn 2008c; Seo and Mendelsohn 2008b; Wang et al. 2009), and
livestockspecieschoice(SeoandMendelsohn2008c)allplayarole inreducing
climate impacts. The studies above document that current farmers are already
usingall
of
these
methods
to
adapt
to
climate
today
in
Africa,
Latin
America,
and
China.
Othersectors thatwereoriginallyexpected tobedamaged include timber,
water,energy,coastal,andrecreation.Forestrymodelsarenowprojectingsmall
benefits in the timber sector from increased productivity as trees respond
positivelytoawarmer,wetter,CO2enrichedworld(Sohngenetal.2002).Water
models tend to predict there willbe damages as flows in major rivers decline.
However,thesizeoftheeconomicdamagescanbegreatlyreducedbyallocating
the remaining water efficiently (Hurd et al 1999; Lund et al. 2006). Energy
models predict that the increased cost of cooling will exceed the reduced
expendituresonheating (Mansuretal.2008).Severalgeographicstudiesofsea
level rise have assumed there wouldbe large coastal losses from inundation
(Nichols 2004; Dasgupta et al. 2009). However, careful economic studies of
coastalareassuggest thatmosthighvaluedcoastswillbeprotected (Neumann
and Livesay 2001; Ng and Mendelsohn 2005).The cost of hard structuresbuilt
over the decades as sea levels rise willbe less than the cost of inundation to
urban populations. Only lessdeveloped coastal areas are at risk of inundation
(Ng and Mendelsohn 2006). Initialstudies of recreation measured the losses to
the ski industry of warming (Smith and Tirpak 1989). Subsequent studies of
recreation, however, noted that summer recreation is substantially larger than
winter recreation and would increase with warming (Mendelsohn and
Markowski
1999;
Loomis
and
Crespi
1999).
The
net
effect
on
recreation
is
thereforelikelytobebeneficial.
Aseconomicresearchonimpactshasimproved,themagnitudeofprojected
damages from climate change has fallen. Early estimates projected that a
doublingofgreenhousegaseswouldyielddamagesequalto2percentofGDPby
2100 (Pearceetal.1996). More recentanalysesof impacts suggestdamagesare
aboutanorderofmagnitudesmaller(closerto0.2percentofGDP)(Tol2002a,b;
-
8/3/2019 Growth Commission Climate Control & Economic Growth
13/24
Climate Change and Economic Growth 11
MendelsohnandWilliams2005).Thereasonthatdamageshavebeenshrinkingis
thattheearlystudies(i)didnotalwaystakeintoaccountsomeofthebenefitsof
warming to agriculture, timber, and tourism; (ii) did not integrate adaptation;
and(iii)valuedclimatechangeagainstthecurrenteconomy.Atleastwithsmall
amountsofclimatechange,thebenefitsappeartobeofthesamemagnitudeas
thedamages.
Only
when
climate
change
exceeds
2degrees
Celsius
are
there
net
damages.Manyearlystudiesassumedvictimswouldnotchangetheirbehavior
inresponsetosustaineddamages.Morerecentstudieshaveshownthatagreat
dealofadaptationisendogenous.Ifgovernmentprogramsalsosupportefficient
adaptations,themagnitudeofdamagesfallsdramatically.Finally,byexamining
theeffectofclimatechangeonthecurrenteconomy,earlyresearchersmadetwo
mistakes. First, they overestimated the relative future size of sectors that are
sensitivetoclimatesuchasagriculture.Second,theyunderestimatedthesizeof
thefutureeconomyingeneralrelativetoclimateeffects.
Economicanalysesof impactsalsoreveal that they followadynamicpath,
increasingroughly
by
the
square
of
temperature
change
(Tol
2002b;
Mendelsohn
andWilliam2007).Thechangesoverthenextfewdecadesareexpectedtoresult
inonlysmallneteffects.Mostofthedamagesfromclimatechangeoverthenext
hundredyearswilloccurlateinthecentury.Theseresultsonceagainsupportthe
optimal policy of starting slowly with climate change and increasing the
strictnessofregulationgraduallyovertime.
Incontrasttothe literatureoneconomic impacts, theSternReportpredicts
large damages. However, most of the losses in the Stern Report occur in the
twentysecondcentury.Sterntriestoarguethatthesedamagesareequivalentto
losing5percentofGDPayearstartingimmediately.However,theargumentis
basedonafalseassumptionthat thediscountrate isnearzero.Hearguedthat
theonlyreasontodiscountfortimeatallisbecausethereisapossibilitythatthe
earth wouldbe destroyedby an asteroid. This assumption hasbeen heavily
criticized in the economics literature since it makes no economic sense
(Nordhaus 2007; Dasgupta 2008). Stern also talks about the importance of
adaptation but gives little credence to any impact studies that included
adaptation.InSternsdefense,hedoestakeintoaccountofuncertaintyandlow
probability, highconsequence events. However, in general, he tends to
overestimatetheexpectedvalueoftheseimpacts.Forexample,heassumesthat
climate change will cause extreme events to grow exponentially. This is a
misinterpretationofdataonhistoricdamagesfromextremeeventsthataredue
toeconomic
growth,
not
climate
damages
(Pielke
and
Landsea
1998;
Pielke
and
Downtown2000).
Theconsequencesofcatastrophiceventsarepossiblyquitesevere.Ifthereis
largescalemeltingoftheGreenlandicesheetsorWestAntarctica,itcould lead
todramaticsea levelriseespeciallyafterseveralcenturies.Thereisnoquestion
that this would force mankind to retreat from rising seas andbuild new cities
inland.However,giventhelongtimeframeinvolved,itisnotclearthatthecost
-
8/3/2019 Growth Commission Climate Control & Economic Growth
14/24
12 Robert Mendelsohn
ofsucharelocationisasdramaticasitmightatfirstseem.Thereisnoquestion
thatthelandalongthecoastwouldbelost.Butnewcoastallandwouldappear
sothatwhatisactuallylostisinteriorland.Buildingswouldnotreallybelostas
newcitieswouldbebuiltinanticipationofrisingseas.Oldercitiesalongtheold
coast would graduallybe depreciated until they are abandoned. Although this
mayseem
like
ahuge
loss,
most
of
the
buildings
built
500
years
ago
no
longer
exist. Finally, it is uncertain whether catastrophic events will occur. These
damagesmustconsequentlybeweighedbythelowprobabilitytheywilloccur.
MitigationCostsThe literature on mitigation predicts a wide range of costs. On the more
optimisticside,thereareanumberofbottomupengineeringstudiesthatsuggest
mitigationmaybeinexpensive.Somestudiesarguethatonecouldevenstabilize
greenhouse
gas
concentrations
at
negative
costs
(IPCC
2007c).
The
engineering
studies suggest one could reduce emissionsby 20 to 38 percentby 2030 for as
little as $50 per ton of CO2 (IPCC 2007c). There is even a superoptimistic
technicalchangecampthatarguesemissionscouldbecutby70percentby2050
foraslittleas$50pertonofCO2(Stern2006).
The empirical economic literature suggests mitigation cost functions are
price inelastic (Weyant and Hill 1999). Using todays technology, the average
abatement cost for a 70 percent reduction in carbon in the energy sector is
estimated to be about $400 per ton of CO2 (Anderson 2006). The shortrun
mitigationfunctionisverypriceinelastic.Thelongrunislessclear.Withtime,it
is expected that the shortrun marginal cost curve for mitigation will flatten.
However,
whether
it
ever
gets
as
flat
as
the
optimistic
engineering
models
projectisnotclear.
Aninelasticshortrunmarginalcostfunctionimpliesthatlargereductionsof
emissionsintheshortrunwillbeveryexpensive.Theresimplyisnoinexpensive
way to reduce emissions sharply in the short run. Renewable energy sources
suchashydroelectricityhavelargelybeenexhausted.Solarandwindpowerare
expensive except in ideal locations and circumstances. Other strategiessuch as
shifting from coal to natural gas can work only in the short run as they cause
morerapiddepletionofnaturalgassupplies.
Intheshortrun,arushedpublicpolicyislikelytobeinefficient.Itwilllikely
exempt
major
polluters
as
Europe
now
does
with
coal.
Very
few
national
mitigation programs regulate every source of emission. Most countries have
sought to reduce emissions in only a narrow sector of the national economy.
Rushed programs will likely invest in specific technologies that are ineffective,
such as the United States has done with ethanol. Ethanol produces as much
greenhousegasasgasoline.Theinelasticityofthemarginalcostfunctionimplies
thatmitigationprogramsthatarenotapplieduniversallywillbeverywasteful.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
15/24
Climate Change and Economic Growth 13
Regulatedpolluterswillspendalottoeliminateasingletonwhileunregulated
polluterswillspendnothing.
Universal participation also requires that all major emitting countriesbe
included. The signatory countries that limit emissions under the existing
international Kyoto agreement are responsible for only about one quarter of
global
emissions.
The
United
States
and
China
generate
another
one
half
of
emissions and all the remaining developing countries approximately emit the
other quarter. Whereas Kyoto countries arebeginning to spend resources on
mitigation,nonKyoto countries spend little tonothing. Even within the Kyoto
countries, many countries are failing to reach their targets. By failing to get
universal application of regulations, the current regulations are unnecessarily
wasteful. Without near universal participation, the cost of mitigation doubles
(Nordhaus 2008). In fact, the current Kyoto treaty is so ineffective that global
emissionsarerisingat thepacepredictedwithnomitigationatall.GlobalCO2
emissionsin2006were8.4gigatonsofcarbon(GtC).
Stern
and
other
climate
advocates
recommend
that
strict
regulationsbe
placed on emissions immediately. Stern recommends regulations that would
increase the marginal cost of emissions to $300 per ton of CO2. The stricter
regulationswouldreduceemissionsby40GtCperyear(70percent)by2050.If
themarginalcostdoesnotfall, thecostofthisprogramwillbe$1.2 trillionper
yearby2050.Ofcourse, it is likely that longtermmarginalcostswillbe lower
with technical change. Assuming that costs fall by 1 percent per year, the
marginalcostwouldfallto$200pertonofCO2by2050.Theoverallcostofthe
Stern program wouldbe $800billion per year in 2050. The present value of
mitigation costs in theStern program is estimated tobe $28 trillion (Nordhaus
2008).
Theoptimalregulationsthatminimizethepresentvalueofclimatedamages
and mitigation costs are more modest. They wouldbegin with prices closer to
$20pertonofCO2thenriseto$85pertonby2050(Nordhaus2008).Thatwould
lead to a 25 percent reduction in greenhouse gasesby 2050 rather than the 70
percent reduction in the Stern program. The present value of the global
mitigationcostsoftheoptimalprogramthiscenturyisestimatedtobe$2trillion
(Nordhaus2008).Thesecostsareanorderofmagnitudelessthanthecostofthe
Sternprogram.
ConclusionThispaper argues that the impacts from climate change arenot likely toaffect
globaleconomicgrowthoverthenext40years.Thesizeofclimatechangeduring
thisperiodisprojectedtobetoosmalltohavemuchofaglobalnetimpact.Inthe
secondhalfofthecentury,warmingwillbelargeenoughtodetectbutevenby
2100, the annual net market impacts are predicted tobebetween 0.1 and 0.5
-
8/3/2019 Growth Commission Climate Control & Economic Growth
16/24
14 Robert Mendelsohn
percentofGDP.These impactsaresimplynot large enough toaffecteconomic
growththiscentury.
Catastrophic climate change could impose large annual losses on society.
However,sucheventsarecurrentlyhavealowprobabilityandwilloccurfarinto
the future. It is not selfevident that more dramatic mitigation policies are the
mostappropriate
tool
to
address
low
probability,
high
consequence
events.
It
is
not clear how much mitigation would change the probabilities of these events
occurring. Second, a tool that is more flexible and immediate wouldbe more
effective.Whatisneededisatoolthatcouldbeimplementedonceitisclearthere
is actually a catastrophic event underway. Geoengineeringseeding the upper
atmosphere with particlesappears to be a better strategy for handling
catastrophic events than mitigation. Society can choose to engage in
geoengineering only if it is clear a catastrophe is imminent. Geoengineering is
relatively inexpensive. Butmost importantly, geoengineering is immediate and
can reverse the consequences ofdecadesof greenhousesgases ina matterof a
fewweeks.
Finally,
geoengineering
is
flexible.
The
particles
will
fall
to
earth
in
amatter of a few months. There are of course environmental concerns with
intentionally managing the earths climate. We need to learn more about what
those consequences might be. However, faced with the possibility of a
catastrophe,itseemsthatgeoengineeringissimplytoogoodapolicytoolnotto
develop.
Economically optimal mitigation policies would not pose a great threat to
economicgrowth.Policiesthatbalancemitigationcostsanddamageswouldlead
to regulations that are not especially burdensome. The present value of
mitigationcostsofanoptimalpolicywouldbe$2trillionfortheentirecentury.
Of course, not every country willbe affected alike. Lowlatitude countries
willbear thebruntofclimatedamages (Mendelsohnetal.2006)andwill likely
seedamages immediately.Lowlatitudeeconomieswith largesharesofrainfed
agriculture are especially vulnerable and may see reductions in agricultural
income of 60 percent or moreby 2100 (Seo and Mendelsohn 2008a). Similarly,
some countries may face higher mitigation costs. Countries that are growing
more quickly, are heavier energy consumers, and are more dependent on coal
willfacehighercosts.
Thebiggestthreatclimatechangeposestoeconomicgrowth,however,isnot
fromclimatedamagesorefficientmitigationpolicies,butratherfromimmediate,
aggressive, and inefficient mitigation policies. Immediate aggressive mitigation
policiescould
lead
to
mitigation
costs
equal
to
$28
trillion
(Stern
2006).
This
is
14
timeshigherthanthemitigationcostsofanoptimalpolicy.Ifthesepolicieswere
nomoreefficientthancurrentpolicies,thecostscouldeasilyriseto$56trillion.
Thesemisguidedmitigationprogramsposeaseriousthreattoeconomicgrowth.
Theywouldimposeheavyadditionalcostsontheglobaleconomythatcannotbe
justifiedbythelimitedreductionsinclimateriskthattheyoffer.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
17/24
Climate Change and Economic Growth 15
ReferencesAdams,R.M.,C.Rosenzweig,R.Peart,J.Ritchie,B.McCarl,J.Glyer,B.Curry,J.
Jones, K. Boote, and L. Allen. 1990. Global Climate Change and U.S.
Agriculture.Nature345:219224.
Anderson, D. 2006. Costs and Finance ofAbating Carbon Emissions in the Energy
Sector.SupportingDocumentsforSternReview,HMTreasury,London,UK.
Dasgupta,P.2008.DiscountingClimateChange.JournalofRiskandUncertainty
37:141169.
DasguptaS.,B.Laplante,C.Meisner,D.Wheeler,andJ.Yan.2009.TheImpact
of SeaLevel Rise on Developing Countries: A Comparative Analysis.
ClimaticChange93:379388.
Grubb, M., T.Jamasb, and M. Pollitt. 2008. Delivering a LowCarbon Electricity
System.
Cambridge,
UK:
Cambridge
University
Press.
Hurd, B., J. Callaway, J. Smith, and P. Kirshen. 1999. Economic Effects of
Climate Change on US Water Resources. In R. Mendelsohn and J.
Neumann,eds.,The ImpactofClimateChangeon theUnitedStatesEconomy.
Cambridge,UK:CambridgeUniversityPress.
IPCC(IntergovernmentalPanelonClimateChange).2007a.ClimateChange2007
ThePhysicalScienceBasis.TheIntergovernmentalPanelonClimateChange.
Cambridge,UK:CambridgeUniversityPress.
. 2007b. Climate Change 2007: Impacts, Adaptation, and Vulnerability.
Intergovernmental
Panel
on
Climate
Change.
Cambridge,
UK:
Cambridge
UniversityPress.
. 2007c. Climate Change 2007: Mitigation. Intergovernmental Panel on
ClimateChange.Cambridge,UK:CambridgeUniversityPress.
Kurukulasuriya, P., and R. Mendelsohn. 2008a. A Ricardian Analysis of the
ImpactofClimateChangeonAfricanCropland.AfricanJournalAgriculture
andResourceEconomics2:123.
.2008b.ModelingEndogenousIrrigation:TheImpactofClimateChange
onFarmers inAfrica.PolicyResearchWorkingPaper4278.WorldBank,
Washington,DC.
.2008c.CropSwitchingasanAdaptationStrategy toClimateChange.
AfricanJournalAgricultureandResourceEconomics2:105126.
Loomis,J.andJ.Crespi.1999.EstimatedEffectsofClimateChangeonSelected
Outdoor Recreation Activities in the United States. In Mendelsohn and
Neumann,eds.,The ImpactofClimateChangeon theUnitedStatesEconomy.
Cambridge,UK:CambridgeUniversityPress.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
18/24
16 Robert Mendelsohn
Lund,J.,T.Zhu,S.Tunaka,andM.Jenkins.2006.WaterResourceImpacts.InJ.
Smith and R. Mendelsohn, eds.,The Impact ofClimateChange onRegional
Systems:AComprehensiveAnalysisofCalifornia.Northampton,MA:Edward
ElgarPublishing.
Mansur, E., R. Mendelsohn, and W. Morrison. 2008. A Discrete Continuous
ModelofEnergy:MeasuringClimateChangeImpactsonEnergy.Journal
ofEnvironmentalEconomicsandManagement55:175193.
Mendelsohn,R.,A.Dinar,andL.Williams.2006.TheDistributional Impactof
ClimateChangeonRichandPoorCountries.EnvironmentandDevelopment
Economics11:120.
Mendelsohn, R., and M. Markowski. 1999. The Impact of Climate Change on
Outdoor Recreation. In Mendelsohn and Neumann, eds., The Impact of
ClimateChange on theUnited StatesEconomy. Cambridge, UK: Cambridge
UniversityPress.
Mendelsohn, R., and L. Williams. 2004. Comparing Forecasts of the GlobalImpactsofClimateChange.MitigationandAdaptationStrategiesforGlobal
Change9:315333.
.2007.DynamicForecastsoftheSectoralImpactsofClimateChange.In
M.Schlesinger,H.Kheshgi,J.Smith,F.delaChesnaye,J.Reilly,T.Wilson,
and C. Kolstad, eds., HumanInduced Climate Change:An Interdisciplinary
Assessment.Cambridge,UK:CambridgeUniversityPress.
Mendelsohn, R., W. Nordhaus, and D. Shaw. 1994. Measuring the Impact of
GlobalWarmingonAgriculture.AmericanEconomicReview84:753771.
Neumann,J.,
and
N.
Livesay.
2001.
Coastal
Structures:
Dynamic
Economic
Modeling. In R. Mendelsohn, ed., Global Warming and the American
Economy:ARegionalAnalysis.England:EdwardElgarPublishing.
Ng,W.,andR.Mendelsohn.2005.TheImpactofSeaLevelRiseonSingapore.
EnvironmentandDevelopmentEconomics10:201215.
.2006.TheImpactofSeaLevelRiseonNonMarketLandsinSingapore.
Ambio35:289296.
Nicholls, R.J. 2004. Coastal Flooding and Wetland Loss in the 21st Century:
Changes under the SRES Climate and SocioEconomic Scenarios. Global
EnvironmentalChange
14:
6986.
Nordhaus,W.D.1992.AnOptimalTransitionPathforControllingGreenhouse
Gases.Science258:13151319.
. 2007. Critical Assumptions in the Stern Review on Climate Change.
Science317:201202.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
19/24
Climate Change and Economic Growth 17
. 2008.AQuestion ofBalance:EconomicModeling ofGlobalWarming. New
Haven:YalePress.
Pearce, D., W. Cline, A. Achanta, S. Fankhauser, R. Pachauri, R. Tol, and P.
Vellinga. 1996. The Social Cost of Climate Change: Greenhouse Damage
and the Benefits of Control. InClimateChange 1995:Economic and Social
DimensionsofClimateChange.IntergovernmentalPanelonClimateChange.
Cambridge,UK:CambridgeUniversityPress,.
Pielke,R.Jr.,andC.W.Landsea.1998.NormalizedHurricaneDamages inthe
UnitedStates:192595.WeatherandForecasting13:621631.
Pielke,R.Jr.,andM.W.Downtown.2000.PrecipitationandDamagingFloods:
TrendsintheUnitedStates,193297.JournalofClimate13:36253637.
Rosenzweig,C.,andM.L.Parry.1994.PotentialImpactofClimateChangeon
WorldFoodSupply.Nature367:133138.
Smith,J.,
and
D.
Tirpak.
1989.
Potential
Effects
of
Global
Climate
Change
on
the
UnitedStates.Washington,DC:USEnvironmentalProtectionAgency.
Seo, N., and R. Mendelsohn. 2008a. A Ricardian Analysis of the Impact of
ClimateChangeonSouthAmericanFarms.ChileanJournalofAgricultural
Research68:6979.
. 2008b. Measuring Impacts and Adaptation to Climate Change: A
StructuralRicardianModelofAfricanLivestockManagement.Agricultural
Economics38:150165.
. 2008c. An Analysis of Crop Choice: Adapting to Climate Change in
Latin
American
Farms.
Ecological
Economics
67:
109116.
Sohngen, B., R. Mendelsohn, and R. Sedjo. 2002. A Global Model of Climate
Change Impacts on Timber Markets.Journal ofAgricultural andResource
Economics26:326343.
Stern,N.2006.TheSternReviewReport:TheEconomicsofClimateChange.London:
HMTreasury.
Tol,R. 2002a.NewEstimatesof the DamageCostsofClimateChange, Part I:
BenchmarkEstimates.EnvironmentalandResourceEconomics21:4773.
.2002b.NewEstimatesoftheDamageCostsofClimateChange,PartII:
DynamicEstimates.
Environmental
and
Resource
Economics
21:
135160.
Wang,J., R. Mendelsohn, A. Dinar,J. Huang, S. Rozelle, and L. Zhang. 2009.
The Impact of Climate Change on Chinas Agriculture. Agricultural
Economics40(forthcoming).
Wang,J.,R.Mendelsohn,A.Dinar,andJ.Huang.2008.HowChinasFarmers
Adapt to Climate Change. Policy Research Working Paper 4758. World
Bank,Washington,DC.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
20/24
18 Robert Mendelsohn
Weiss, H., and R. Bradley. 2001. What Drives Societal Collapse? Science 291:
609610.
Weyant,J., andJ. Hill. 1999. Introduction and Overview.TheEnergyJournal
(SpecialIssue:TheCostsoftheKyotoProtocol):p.xliv.
-
8/3/2019 Growth Commission Climate Control & Economic Growth
21/24
-
8/3/2019 Growth Commission Climate Control & Economic Growth
22/24
Eco-Audit
Environmental Benefits Statement
The
Commission
on
Growth
and
Development
is
committed
to
preserving
endangered forests and natural resources. The World Banks Office of the
Publisher has chosen to print these Working Papers on 100 percent
postconsumer recycled paper, processed chlorine free, in accordance with the
recommended standards for paper usage set by Green Press Initiativea
nonprofitprogramsupportingpublishersinusingfiberthatisnotsourcedfrom
endangeredforests.Formoreinformation,visitwww.greenpressinitiative.org.
TheprintingofalltheWorkingPapersinthisSeriesonrecycledpapersavedthe
following:
Trees* SolidWaste Water NetGreenhouseGases TotalEnergy
48 2,247 17,500 4,216 33mil.*40inchesin
heightand68
inchesindiameterPounds Gallons PoundsCO2Equivalent BTUs
-
8/3/2019 Growth Commission Climate Control & Economic Growth
23/24
The Commission on Growth and DevelopmentWorking Paper Series
51. Growth Challenges or Latin America: What Has Happened, Why, and How To Reorm The Reorms,
by Ricardo Ffrench-Davis, March 2009
52. Chiles Growth and Development: Leadership, Policy-Making Process, Policies, and Results,
by Klaus Schmidt-Hebbel, March 2009
53. Investment Efciency and the Distribution o Wealth, by Abhijit V. Banerjee, April 2009
54. Aricas Growth Turnaround: From Fewer Mistakes to Sustained Growth, by John Page, April 2009
55. Remarks or Yale Workshop on Global Trends and Challenges: Understanding Global Imbalances,
by Richard N. Cooper, April 200956. Growth and Education, by Philippe Aghion, April 2009
57. From Growth Theory to Policy Design, by Philippe Aghion and Steven Durlauf, April 2009
58. Eight Reasons We Are Given Not to Worry about the U.S. Defcits, by Jeffrey Frankel, April 2009
59. A New Bretton Woods? by Raghuram G. Rajan, June 2009
60. Climate Change and Economic Growth, by Robert Mendelsohn, June 2009
Forthcoming Papers in the Series:
Public Finance and Economic Development: Reections based on the Experience in China,
by Roger H. Gordon (June 2009)
Electronic copies of the working papers in this series are available online at www.growthcommission.org.
They can also be requested by sending an e-mail to [email protected].
-
8/3/2019 Growth Commission Climate Control & Economic Growth
24/24
www.growthcommission.org
Commissionon Growth and
DevelopmentMontek AhluwaliaEdmar Bacha
Dr. Boediono
Lord John Browne
Kemal Dervis
Alejandro Foxley
Goh Chok Tong
Han Duck-soo
Danuta Hbner
Carin Jmtin
Pedro-Pablo Kuczynski
Danny Leipziger, Vice ChairTrevor Manuel
Mahmoud Mohieldin
Ngozi N. Okonjo-Iweala
Robert Rubin
Robert Solow
Michael Spence, Chair
Sir K. Dwight Venner
Hiroshi Watanabe
Ernesto Zedillo
Zhou Xiaochuan
The mandate of the
Commission on Growth
and Development is to
gather the best understanding
there is about the policies
and strategies that underlie
rapid economic growth and
poverty reduction.
The Commissions audience
is the leaders of developing
countries. The Commission is
supported by the governments
of Australia, Sweden, the
Netherlands, and United
Kingdom, The William and
Flora Hewlett Foundation,
and The World Bank Group.
Grim descriptions of the long-term consequences of climate change havegiven the impression that the climate impacts from greenhouse gasesthreaten long-term economic growth. However, the impact of climate change onthe global economy is likely to be quite small over the next 50 years. Severe
impacts even by the end of the century are unlikely. The greatest threat that
climate change poses to long-term economic growth is from potentially excessive
near-term mitigation efforts.
Robert Mendelsohn,Professor, Yale University