Economics of Climate Change in the Pacific

Submitted by Anton Cartwright | published 11th Feb 2014 | last updated 25th Feb 2014
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Introduction

Climate change has been identified as one of the critical challenges of this century for the Pacific region. The region’s vulnerability arises from its unique geography and environment, the fragility of its economic structure, its distinctive demographics, and the interactions between these different factors. Many of the Pacific developing member countries (DMCs) of ADB have limited agricultural land and high population densities, with their economic activities mostly concentrated on low-lying coastal areas. Rising sea level is thus projected to significantly impact their coastal cities and communities as well as damage infrastructure and human habitats. Moreover, over the past several decades, the Pacific region has experienced increases in annual mean temperature, in variability of rainfall pattern, and in intensity of rainfall events. In the last decades, extreme weather events have also increased in frequency and intensity. Increasing temperatures as well as changes in rainfall patterns are likewise expected to adversely impact the region’s water resources and its agriculture and health sectors.

Given these threats to the economic prosperity, stability, and human security of the Pacific DMCs, the region’s leaders and policymakers have recognized climate change as a formidable challenge. Tackling this challenge effectively will require (i) detailed assessments of vulnerability and adaptation needs that sufficiently capture local climate as well as socioeconomic characteristics; (ii) economic analyses to assess the impacts of climate change and to guide the selection of adaptation actions at both national and local levels; and (iii) reliable databases and information that must underlie the conduct of such assessments and analyses.

This study aims to estimate the range of potential economic impacts of climate change for specific sectors and for overall economies of the region under various emissions scenarios. It comprises three components.

The first component, climate modeling, presents a high-resolution simulation of future climate over the Pacific region by dynamically downscaling global climate data using a regional climate model to generate locally relevant climate information. This component mostly relies on the use of general circulation models and climate downscaling using a regional climate model. The second component, sector impact assessment, quantifies the potential sectoral impacts of climate change in the Pacific on agriculture, fisheries, tourism, coral reefs, and human health. Finally, the third component, economic impact assessment, employs an economic modeling framework that integrates a set of climate projections and physical impacts to provide estimates of the potential economic impact of climate change for a given area.

While the study covers all of the Pacific DMCs, specific results are presented for Fiji, Papua New Guinea (PNG), Samoa, Solomon Islands, Timor-Leste, and Vanuatu.

Annual mean temperature is projected to rise in the Pacific relative to that of the 1981-2000 period. Most countries, or particular areas within countries, would experience up to a 1.8°C rise by 2050 under a medium emissions scenario. By 2070 under the same scenario, Fiji and Samoa are projected to experience a temperature rise of approximately 2°C on average from the 1990 level. PNG, Solomon Islands, Timor-Leste, and Vanuatu are expected to experience a temperature increase of more than 2.5°C on average by 2070, with some areas in these countries experiencing an increase of nearly 3°C in the same period relative to the 1990 level.

The analysis also suggests a significant increase in the frequency of both El Niño and La Niña events in the future. In general, these would be accompanied by an intensification of extreme weather events, extreme temperature, extreme wind, and extreme rainfall. However, cyclone frequency is generally projected to decline. On balance, weather risk may increase or decrease depending on location. High-range estimates suggest all the Pacific DMCs except Kiribati face a sea-level rise of more than 1.0 meter by 2100 under the medium emissions scenario.

Sector Impact Assessment

Overall, global warming is expected to negatively impact crop productivity in the Pacific. The largest yield losses are projected for sweet potato in PNG and the Solomon Islands, with losses in excess of 50% of yield for the former by 2050 under the medium emissions scenario. For sugarcane, losses would be relatively small in 2050, but would rise in Fiji by 2070 to a more substantial 7% to 21%. Maize would have moderate losses of 6% to 14 % in Timor-Leste and Vanuatu by 2050, with a rise to 14% to 17% by 2070 in the former. Results also show cassava and taro would be significantly impacted. Rainfed agriculture appears to be particularly vulnerable to the impacts of climate change.

Fisheries are also likely to be adversely impacted. Under a high emissions scenario, catches of skipjack tuna for the western Pacific are estimated to decline by an average of more than 20%, and for PNG by as much as 30%. Across the entire region, total catch is projected to decrease by 7.5% under the same scenario by 2100. For bigeye tuna, small decreases in catch (usually less than 5%) are projected by 2035. Catches are projected to decrease by 10% to 30% for many Pacific DMCs under the high emissions scenario in 2100.

Climate change would likely also impact tourism, which is another key economic sector of the region. As the world warms up, the Pacific region as a whole would become a less attractive tourism attraction and total tourism revenues are projected to fall. By the end of the century, tourist numbers are projected to be approximately one-third lower than in a business-as-usual scenario. Under all climate scenarios, the impact of climate change would be to reduce tourism revenues by 27% to 34% for the Pacific region as a whole.

Both the loss of fisheries and tourism are related to the projected impacts of climate change on coral reefs. Mass coral bleaching due to thermal stress has already occurred in the Pacific region and is expected to recur with the foreseen increases in future sea temperatures. The estimate of present coral area in the Pacific in 2000 is around 80% of what would have been in the absence of thermal stress (in the pre-industrial era). The analysis indicates that the Pacific would experience an increase in thermal stress that would likely result in a significant decline in coral reef cover, from 88% in the base year (1995) to 55% in 2050 and 20% in 2100.

Finally, climate change would adversely impact human health in the Pacific region. The human health costs are valued in terms of forgone income as well as additional expenditure for treatment of illnesses. Mortality and morbidity costs together are expected to reach 0.8% of GDP by 2100 under a high emissions scenario. Most of the estimated health costs would arise from respiratory disorders, followed by malaria, and deaths from tropical storms. By 2100, approximately 80% of total mortality cost is projected to be caused by respiratory disorders due to climate change, and 14% by vector-borne diseases, particularly malaria.

Economic Impact Assessment

Overall, the results suggest net negative impacts of climate change for the Pacific by 2050 in all scenarios regardless of which model is used. Losses are projected to rise over time under all scenarios, and would be largest with high emissions scenarios. If the world were to stay on the current fossil-fuel intensive growth model (the business-as-usual scenario), total climate change cost in the Pacific is estimated to reach 12.7% of annual GDP equivalent by 2100. Even under a low emissions scenario in which the global economy is assumed to restructure itself to be service-oriented, the economic loss would still reach 4.6% of the region’s annual GDP equivalent by 2100. If the atmospheric concentration of greenhouse gases were to reach 450ppm and thus maintain global warming at approximately 2oC, the economic cost would be smaller but still would reach between 2% and 3% of GDP by 2100. The results suggest that PNG would experience the most significant losses from projected climate change, reaching 15.2% of its GDP by 2100, followed by Timor- Leste at 10.0%, Vanuatu, 6.2%, Solomon Islands, 4.7%, Fiji, 4.0%, and Samoa, 3.8%.

The negative effect on agriculture contributes the most to the total economic cost of climate change in the Pacific—approximately half of total economic cost amounting to 5.4% of GDP in 2100 under a high emissions scenario. Cooling cost follows second. A warmer climate would put pressure on the rapidly rising energy demand for space cooling in households and buildings around the Pacific. When income and population growth in the urban areas are considered, the cost of cooling is estimated to reach $1,017 million or 2.8% of the region’s annual GDP equivalent by 2100. Economic impacts in the coastal areas would also be significant. The impacts in the coastal areas would consist of three components: dryland loss, wetlands loss, and forced migration. The total impact in the coastal areas, through all three channels, is projected at $469 million or 1.3% of the region’s annual GDP equivalent by 2100.

It should be noted that none of the above estimates includes the potential large cost of rare but catastrophic extreme events.

It is estimated that the Pacific region would require $447 million on average every year until 2050 (approximately 1.5% of GDP) to prepare for the worst case (95th percentile) of climate change under the business-as-usual scenario. The cost could be as high as $775 million or 2.5% of GDP per annum. The cost of adaptation would be significantly lower under lower emissions scenarios. If the world manages to stabilize CO2 concentration below 450ppm, the adaptation cost is expected to be as low as $158 million or 0.5% of GDP per annum during the same period.

Policy Recommendations

Climate change is not a stand-alone environmental issue but a development agenda that the Pacific DMCs need to give high priority. If not adequately addressed, climate change could overturn the region’s development achievements. Important policy considerations include the following:

1. Mainstreaming climate change actions in development planning is crucial to minimize the impacts of climate change.

Mainstreaming climate change actions requires merging new development efforts into a comprehensive policy framework that combines various sector approaches, policies, and strategies for achieving climate- resilient and sustainable development. To serve as guiding principles, adaptation to climate change needs to be well-integrated into a comprehensive policy framework. Such climate mainstreaming should be harmonized with existing climate change programs and policies at both the sectoral and national level.

2. A forward-looking adaptation strategy is key to addressing the multitude of climate change impacts, with low-regret options and built-in flexibility as a basis for a robust adaptation pathway. 

To effectively address a wide range of uncertain climate outcomes, national development planning efforts should consider adopting a forward-looking adaptation strategy. Such a strategy needs a thorough appraisal and screening of all available and potential adaptation measures to enable the country at risk to choose which of them are the most socially acceptable, most economically viable, most technically feasible, and most compliant with local development priorities.

A robust adaptation pathway is one that allows for flexibility in dealing with future climate vulnerability in the face of newly available evidence. It requires the continued monitoring and review of ongoing climate change measures to avoid locking in long-term investments in potentially inefficient undertakings.

3. Adopting a risk-based approach to adaptation and disaster-risk management can help prioritize climate actions and increase the cost-efficiency of adaptation measures.

The region’s disaster-risk management must be better aligned with climate change risks. This would require (i) appropriate policies, technical skills, and institutional setups to integrate and mainstream climate actions and disaster-risk management into development planning; (ii) establishment in the communities of a cross-sectoral, cross-agency coordination system for disaster risk management and climate change adaptation; and (iii) improved data and knowledge to assess climate, disaster, and fiscal risks.

4. Climate proofing infrastructure can help improve long-term sustainability.

Climate proofing should be considered as early as possible in the project design stage. Although climate proofing could increase the upfront costs of the infrastructure projects, such higher costs could be economically justified by lower total life cycle costs over the long lifetime of most infrastructure and by the high probability of climate-related damage in the Pacific.

5. Improving knowledge and the capacity to deal with climate uncertainties is a key issue for the Pacific DMCs.

Fine-scaled models and various decision-support tools can help provide the authorities of the Pacific DMCs with valuable location-specific information and analysis that can capture local characteristics of climate change impacts. This, in turn, will allow for more effective climate-risk assessment to support development planning and decision making, ranging from public investment in infrastructure to actions at the household and community levels.