ON CLIMATE CHANGE AND ECONOMIC GROWTH

The economic impact of climate change is usually measured as the amount by which the climate of a given period will affect output or GDP in that period. This paper draws attention to some of the dynamic effects through which climate change may affect economic growth and hence future output. In particular, the paper looks at saving and capital accumulation. With a constant savings rate, a lower output due to climate change will lead to a proportionate reduction in investment which in turn will depress future production (capital accumulation effect). If the savings rate is flexible, forward looking agents may change their savings behavior to accommodate the impact of future climate change. Again this alters growth prospects (savings effect). In an endogenous growth context, the two effects may be exacerbated through changes in labour productivity and the rate of technical progress. Simulations using a simple climate-economy model suggest that the capital accumulation effect is important, especially if growth is endogenous, and may be larger than the direct impact of climate change. The savings effect is less pronounced and its sign is ambiguous. In most cases, the savings effect is negative, that is, faced with climate change households increase current consumption rather than saving more to compensate for future damages. The indirect effects are relatively larger for smaller direct effects; the indirect effects are also relatively larger for growth mechanisms more prevalent in richer countries. Ignoring the growth effects of climate change thus leads to a substantial underestimate of the impacts of climate change, particularly in richer economies.economic growth, climate change

William Beveridge's sixth giant: environmental sustainability

Today, William Beveridge would worry about the environment, writes Sam Fankhauser. He reflects on the LSE's Beveridge Festival and explains why environmental sustainability needs to be prioritised with the determination, leadership, and strong government commitment that Beveridge envisaged in 1942 - only this time at a global scale

With or without you? Why the European Union’s climate targets will be harder to meet post-Brexit

The UK has played an important role in shaping and advancing European action on climate change. Without it, other Member States will find themselves picking up the slack or the EU will miss its greenhouse gas target for 2030, write Maria Carvalho and Sam Fankhauser

Climate change and migration in developing countries: evidence and implications for PRISE countries

Headline issue: This paper informs the development community about the effects of climate change on migration patterns within and out of developing countries. It concentrates on the economic aspects of migration and on information that is relevant for the six semi-arid countries that are the focus of the PRISE (Pathways to Resilience in Semi-Arid Economies) project: Burkina Faso, Senegal, Kenya, Tanzania, Pakistan and Tajikistan. Policy intervention is required to reduce potential negative impacts in both the sending and receiving region. Badly managed migration is associated with high economic, social and psychological costs. Key findings: To ensure effective migration choices and a good management of the wider socio-economic effects, policy-makers should: Provide sufficient information about the costs and benefits of migrating, including psychological and social, along with more clarity about alternative adaptation options. Release credit constraints, present in all PRISE countries and in particular in Senegal and Tajikistan, to offset the up-front costs incurred by potential migrants, particularly high in areas with poor transportation infrastructure. Improve institutional quality to ensure the incentives to migrate are not reduced, in particular in the context of land tenure security when people are not able to sell their land or are not confident of reclaiming it upon return. Define the legal status of environmental migrants, for example, through a process led by the UN or UNHCR, in order to give people certainty about their legal situation. Put in place safeguards against distress migration, for example in the event of conflict, which can force people to choose sub-optimal migration strategies, leading to maladaptation. Support the areas affected by outward migration by promoting links between migrants and their region of origin; “managed retreat” from severely affected regions may be a last resort if they become inhospitable. Support the absorptive capacity of the receiving jurisdictions, in particular urban labour markets and public services, to manage the socio-economic implications of the arrival of migrants in a new destination. Direct migrants away from environmentally vulnerable areas where they move to for different reasons, as is the case in Senegal where more than 40 per cent of new migrant populations are located in high risk flood zones

Climate policy and power producers: the distribution of pain and gain

Climate policies do not affect all power producers equally. In this paper, we evaluate the supply-side distributional consequences of emissions reduction policies using a simple and novel partial equilibrium model where production takes place in technology-specific sites. In a quantitative application hydro, wind and solar firms generate power combining capital and sites which differ in productivity. In contrast, the productivity levels of coal, gas and nuclear technologies are constant across sites. We parameterise the model to analyse the effects of stylised tax and subsidy schemes. Carbon pricing outperforms all other instruments and, crucially, leads to more equitable outcomes on the supply side. Technology-specific and uniform subsidies to carbon-free producers result in a greater welfare cost and their supply- side distributional impacts depend on how they are financed. Power consumption taxes have exceptionally high welfare costs and should not be the instrument of choice to reduce emissions or to finance subsidies aiming to reduce emissions

Four key measures to implement Britain’s Net Zero Strategy

Sam Fankhauser and Simon Dietz write that the current policy mix of different taxes, subsidies, and regulation creates uneven incentives to cut emissions while it also fails to force individuals to change their behaviour. They outline four strategic interventions necessary for the success of the government’s Net Zero Strategy

Climate change adaptation in dynamic economies

Headline issue: Adaptation presents developing countries with the ultimate dual challenge – building a rapidly evolving, sustainable economy within an environment increasingly altered by the impacts of climate change. To meet this challenge, adaptation policy must find balance and create synergy between the two, as climate resilience and economic resilience go hand in hand. Economic development is associated with structural change, including an evolving sector composition, the emergence of new comparative advantages and skills, and shifts in consumer demand as a result of rising incomes – all of which has implications for adaptation. Existing attempts to adapt developing economies to climate change have nonetheless ignored these economic dynamics. Current approaches to adaptation often seek to preserve current structures, for example by protecting agricultural output, which neither acknowledges nor takes advantage of the fact that the status quo is evolving. This policy brief explores the implications of dynamic economic development for adaptation to climate change. Policy lessons are derived from two case studies, the country of Colombia and the Indian state of West Bengal. The case studies are illustrative and used to identify broader policy lessons. Key findings: Economic development plans must not underestimate climate risks. Particularly when it comes to agriculture, current development plans often promote development models or set development objectives that are impractical or risky in the light of climate change. Development plans have to become more climate-aware. Conversely, adaptation plans must not underestimate the dynamism of modern economies. Badly designed adaptation plans may hinder development by focusing too much on the status quo (e.g. in situ measures to maintain agricultural output) instead of embracing more transformative forms of adaptation (e.g. rural diversification). Development planners and adaptation planners need to work more closely together. This will force economic planners to consider sectoral growth dynamics in light of climate risks and adaptation planners to factor into their planning the evolving economic system. It will make it easier to identify potential synergies and manage climate-risk – development trade-offs. One area for such trade-offs is productivity, where some improvements may come at the expense of higher climate risk. Economic growth offers an opportunity to alter for the long term the risk profile of countries with respect to climate change. There is the possibility to build climate resilience into decisions from the outset. To do this, adaptation plans need to systematically identify the opportunities, or ‘entry points’, where proactive adaptation can be factored into development strategies and long-term investment plans

Do international factors influence the passage of climate change legislation?

The number of climate change laws in major economies has grown from less than 40 in 1997 to almost 500 at the end of 2013. The passage of these laws is influenced by both domestic and international factors. This paper reviews the main international factors, drawing on a powerful new dataset of climate legislation in 66 national jurisdictions. We find that the propensity to legislate on climate change is heavily influenced by the passage of similar laws elsewhere, suggesting a strong and so far under-appreciated role for international policy diffusion. International treaties like the Kyoto Protocol work in two ways. The impact of the Kyoto Protocol itself is limited to countries with formal obligations under the treaty. In addition, the prestige of hosting an international climate summit is associated with a subsequent boost in legislation. Legislators seem to respond to the expectations of climate leadership that these events bestow on their host. Policy relevance: A global solution to climate change will ultimately have to be anchored in domestic legislation, which creates the legal basis for countries to take action. Countries are passing climate legislation in a growing number. This paper asks to what extent they are motivated to do so by international factors, such as existing treaty obligations. We find that the Kyoto Protocol has been a less important factor in explaining climate legislation outside Annex 1 than the passage of similar laws elsewhere. This suggests that international policy diffusion plays an important and so far under-appreciated role in global climate policy, complementing formal treaty obligations