The Economics of Climate Change

1. The Economics of Climate Change • Are there winners and losers? • Issues • Geography • Sectors of the economy affected most • Involvement of corporations • Valuing the environment and recommending policy

2. Geographic Impact • Winners • Canada • Northeastern U.S. • Russia • Northeastern Europe • Losers Drought: Mid latitudes Continental interiors Africa, Asia US – Midwest, SW Low lying areas: Bangladesh Indonesia US – Atlantic, Gulf coast

3. Haves vs. have nots • Winners • Developed Countries • Can afford the costs to avoid damage (mitigation) • Or to adapt to new climate (adaptation) • Barriers built in Venice, St. Petersburg, London, NYC? • Losers • Developing Countries • Cannot afford costs of mitigation or adaptation • Often also the most vulnerable due to location or reliance on agriculture

4. Areas of the economy affected most • Winners • For geographies that benefit from climate change: • Agriculture: CO2 can increase crop productivity, shift of crop or prime yield • Ex: wheat to corn • Grapes/wine making • Tourism increase • Property values increase • Losers • For geographies that are harmed by climate change • Agriculture: crop failures due to extreme heat or lack of water • Less tourism • Property values decrease • Extreme weather

5. The Economics of Climate Change • Other areas affected adversely by climate change • Insurance • 2004 $145 billion, 2005 $200 billion in losses • Price of insurance rising • Health care • Increased loss of life due to extreme heat, disease or lack of water • Estimated 160 to 230 million will be at risk for malaria and 1.2 to 2.2 billion at risk for water shortage by 2050 • Increased cost for health care

6. Local impacts • Winners • Lilacs will bloom earlier • Poison ivy will spread north • Bald eagle hatchlings survival rate will increase • Construction industry: year round outdoor work • Losers • Dairy cows give less milk • Maple sugaring trees will not thrive • Apple orchards will produce less fruit • Skiing industry • Less corn due to increase in pests

7. The Economics of Climate Change • How economists make recommendations to policy • Cost effectiveness • Compare costs vs. benefits • Look at cost to mitigate and adapt • Look at damage estimates based on mitigation and adaptation levels

8. Costs involved • Cost to mitigate • Estimated between .2 and 3.2% of a country’s GDP • For US, that is equivalent to a range of $23.5 to $376 billion • Stern recommends an investment of 1% of global GDP to combat climate change. Global GDP is currently at 35 trillion so this would mean an investment of $350 billion • Cost to adapt • 90% of impacts can be adapted in rich countries • 50% of impacts can be adapted in poor countries • (Stern report)

9. Estimated cost of damages as % of GDP Costs involved

10. Costs involved • Cost of future damage • Most accept an estimated value between 1 to 2.5% of a country’s GDP on average • For US, that is equivalent to a range of $117.5 to $293.75 billion • Stern estimate is 5 – 20% of global GDP • Damage not evenly distributed, some will incur more • Africa 4%, India 5%, US less than 1% decline (Nordhaus)

11. Valuation issues • Valuation is tricky • Uncertainty about future CO2 level, temperature, amount of adaptation, future population • Weighing the present vs. the future (discounting: higher rate = more weight to today’s generation) • Valuing goods based on incorrect market price • Valuing goods without a price (non-market) • Example: value of life • Political/corporate interests can influence the process

12. Uncertainty • Estimated number of people facing water shortages • 1° C = 1.25 – 2.25 billion • 2° C = 2.1 – 3 billion • This could represent as much as 40% of the population, depending on the population growth rate • These figures assume no change in mitigation or adaptation

13. Impact of discount rate • Benefits and costs received in the future are often discounted to reflect a preference for current consumption • This in essence gives preference to today’s generation at the expense of future generations • This is very sensible to do when valuing monetary investments

14. Impact of discount rate • The question is whether it is appropriate to use a discount rate when valuing the earth’s ecosystem • Choice of rate can greatly alter forecasts • For ex: at a 1% rate, one would spend $126 million today to avoid $1 billion in damages in 2200. At a 5% rate, one would spend $32,000 today.

15. Impact of discount rate • Stern used a .1% rate, Nordhaus used a 3% rate thus contributing to their different findings • Stern: planet is essential for survival and irreplaceable, so it must be treated differently from other goods • Nordhaus: must discount due to future wealth

16. Pricing of goods • Do prices correctly reflect their scarcity, value or impact on the environment? • Yes – insurance rates • No - too low: gas, SUV’s? • Property rates: Florida coast is higher than New York despite increase risk of hurricane. Value inflated due to government subsidized insurance • Too high: alternative energy?

17. Challenges for the economy • Shift away from the use of fossil fuels would require restructuring our: • Transportation systems • Source of electricity generation • Job shifting • Already coal mining is seeing a change in the industry with a rate of 9,000 less jobs per year from 1980-1995

18. Challenges for you • What can you do to alleviate your contribution to climate change? • Transportation • Choose alternative energy means of transportation or at least one that gets good gas mileage • Take public transportation or carpool when possible • Electric energy • Turn off lights when not in room • Use longer life light bulbs • Choose alternative energy on your electric bill • Combat deforestation • Recycle paper • Buy notebooks using recycled paper • Avoid disposable products

19. Challenges for you • Ten conservation tips from the Office of Environmental Sustainability: • Bring a refillable coffee mug to get your morning coffee. Each dorm resident received one from UAS; check in your dorm office if you did not get yours. Mugs are also available for purchase at the Outtakes Store and the Corner Café. Refillable mug users get a discount on their coffee! • Turn off the water when brushing your teeth. • Recycle your batteries – look for battery collection week during Recyclemania. • Turn off your computer before going to bed and unplug your cell phone charger when not using it. • Reuse paper, when possible print on both sides of the paper. • Use the cold water cycle for washing full loads of clothes. • Instead of buying bottled water, buy a refillable one and fill it at fountains. • Turn off the lights when leaving a room. • Create your own recycling center in your room. Check the dollar store for small trash bins. Set up one for paper and one for glass, aluminum and plastic. Empty into the larger bins provided in common areas. • Remember that even the smallest actions add up to a lot when everyone pitches in.

20. Questions? • Contact info: • Office of Environmental Sustainability • Mary Ellen Mallia • UNH 212 • 956-8120 • mmallia@uamail.albany.edu • www.albany.edu/gogreen