What is the economics of climate change and how does it depend on the science ?

1. The economics of climate change: the messages to AfricaPresentation for the CDM DNA ForumAddis Ababa, 6th October 2007Hannah Muthoni Ryder

2. What is the economics of climate change and how does it depend on the science? Analytical foundations Climate change is an externality with a difference: • Global • Long-term • Uncertain • Potentially large and irreversible 2

3. Projected impacts of climate change Global temperature change (relative to pre-industrial) 0°C 1°C 2°C 3°C 4°C 5°C Food Falling crop yields in many areas, particularly developing regions Falling yields in many developed regions Possible rising yields in some high latitude regions Water Significant decreases in water availability in many areas, including Mediterranean and Southern Africa Small mountain glaciers disappear – water supplies threatened in several areas Sea level rise threatens major cities Ecosystems Extensive Damage to Coral Reefs Rising number of species face extinction Extreme Weather Events Rising intensity of storms, forest fires, droughts, flooding and heat waves Risk of Abrupt and Major Irreversible Changes Increasing risk of dangerous feedbacks and abrupt, large-scale shifts in the climate system

4. Stabilisation and Commitment to Warming 400 ppm CO2e 5% 95% 450 ppm CO2e 550 ppm CO2e 650ppm CO2e 750ppm CO2e Eventual temperature change (relative to pre-industrial) 0°C 1°C 2°C 3°C 4°C 5°C 4

5. Mean losses in income per capita from scenarios of climate change • Essential to take account of risk and uncertainty • Models do not provide precise forecasts • Assumptions on discounting, equity, and risk aversion affect results

6. Taking urgent action makes good economics - delaying is dangerous and costly The cost of cutting emissions consistent with a 550ppm CO2e stabilisation trajectory averages 1% of GDP per year in 2050 – this can be achieved by deployment of available technologies and those expected to be commercialised in coming decades Delaying emissions reductions significantly constrains the opportunities to achieve lower stabilisation - strong mitigation is fully consistent with aspirations for growth and development in poor and rich countries 6

7. Why should Africa be concerned about climate change? Impacts will hit Africa early and hard Africa’s voice is crucial to establishing effective international action – including on: • Long-term global goals • Equitable distribution of effort across the globe • Incentives – through carbon price mechanisms – to reduce emissions globally • Technology Cooperation and transfer • Planning and policy change – moving beyond sticks and carrots 7

8. Transforming carbon finance • Increasing the size of global carbon markets – with ambitious global goals – can drive large flows across countries and promote action in developing countries • CDM has the potential to provide private sector finance and leverage, technology transfer, and sustainable development • Are limits to what CDM can achieve now – scaling up and reform involves more programme and policy orientation. • Nairobi framework and other initiatives crucial to this process.

9. Making the most of international institutions • Multi-dimensional role – more than a source of financing • Can find early opportunities for pilot projects, for enabling policy frameworks, etc. • Can help with risk management instruments for low carbon energy sources • Within the Clean Energy and Investment Framework, African Development Bank focuses on specific, relevant issues: • Access to energy • Adaptation to climate change • Access to carbon finance

10. Adaptation priorities • Adaptation unavoidable – will put strong pressure on developing country budgets and ODA • Adaptive measures in the energy sector have a role to play • International action has a key role in supporting global public goods for adaptation • Disaster response • Crop varieties and technology • Forecasting climate and weather 10

11. Conclusions • Unless emissions are curbed, climate change will bring high costs for human development, economies and the environment • The costs of taking action are modest relative to the costs of inaction • Decisive and strong action globally is urgent: delay means greater risks and higher costs • The options for financing low carbon economies in Africa are within reach – making the most of co-benefits and opportunities for growth and sustainable development 11