Estimates of the economic cost of climate change have attracted interest from policy makers and the public and generated heated debates. These estimates, however, have mostly been framed in terms of the impact on country‐level or global GDP, which does not capture the full impact of climate change on people’s well‐being.
In particular, climate change impacts will be highly heterogeneous within countries. If impacts mostly affect low‐income people, welfare consequences will be much larger than if the burden is borne by those with a higher income. Poor people have fewer resources to fall back upon and lower adaptive capacity. And – because their assets and income represent such a small share of national wealth – poor people’s losses, even if dramatic, are largely invisible in aggregate economic statistics.
Investigating the impact of climate change on poverty thus requires an approach that (1) focuses on people that play a minor role in aggregate economic figures and are often living within the margins of basic subsistence, and (2) an exploration of future socioeconomic development pathways, in addition to future changes in climate and environmental conditions.
In this working paper (download from right-hand column or view via links below) an analysis of hundreds of baseline scenarios for future economic development in 92 countries in the absence of climate change shows that the drivers of poverty eradication differ across countries.
Two representative scenarios were then selected - one is optimistic regarding poverty and is labeled “prosperity;” the other scenario is pessimistic and labeled “poverty.” Results from sector analyses of climate change impacts—in agriculture, health, and natural disasters—are introduced into the two scenarios. By 2030, climate change is found to have a significant impact on poverty, especially through higher food prices and reduction of agricultural production in Africa and South Asia, and through health in all regions. But the magnitude of these impacts depends on development choices.
In the prosperity scenario with rapid, inclusive, and climate-informed development, climate change increases poverty by between 3 million and 16 million in 2030. The increase in poverty reaches between 35 million and 122 million if development is delayed and less inclusive (the poverty scenario).
A few robust insights can be drawn from this exercise undertaken in this working paper:
There is no magic bullet to reduce poverty. Each country is different and requires different levers to increase the income of the poorest and take people out of poverty. In middle‐income countries such as China, Brazil or South Africa, aggregate wealth is high enough for redistribution and social protection tools to bring the zero the extreme poverty rate by 2030. In low‐income countries, resources are insufficient to fight poverty with redistribution. There, the most obvious lever is demography, as a smaller and more educated population is more likely to earn higher income per capita. In some countries, such as Vietnam or Ethiopia, in which most poor people work in the agricultural sector, structural change has to be accompanied by higher productivity growth in the agricultural sector in order to eradicate poverty. Turning these priority levers into policy recommendations would however require investigating the determinant of our inputs, looking for instance at how increasing productivity for unskilled agricultural workers can be achieved with better connectedness to markets, wide economic reforms, or improvement in education.
The quantitative impacts of climate change on poverty are uncertain, but they are likely to be significant, even over the relatively short‐term. Our analysis only covers a small fraction of all climate change impacts – for instance it does not account for the impact on ecosystem services – but still find that 120 million people may be trapped in poverty because of climate change impacts. By 2030, however, climate change remains a secondary driver of poverty, and is less important than demographics, socioeconomic factors, and policy changes. We cannot conclude whether this remains valid over the longer term.
The quantitative impacts of climate change on poverty are much smaller in a world where socioeconomic trends and policies ensure that development is rapid, inclusive, and climate‐informed than in a world where extreme poverty would persist even without climate change. Development policies therefore appear as good adaptation policies. Climate change is however creating a renewed urgency: if poverty is not reduced rapidly, then the impact of climate change will make it even more difficult to eradicate poverty later. We have a window of opportunity to eradicate poverty and build resilience before most of the impacts from climate change materialize and make it more difficult to achieve our goals.