Climate Change: A Good Investment

Curbing greenhouse gas emissions is economically attractive: the benefits outweigh the costs. In fact, mitigating climate change can be seen as an investment in the future of a whole Region. These are the outputs of an Asian Development Bank (ADB) technical assistance project, co-financed by the Government of the United Kingdom and the Government of Japan. This project was conducted with the scientific support of the CMCC Foundation – Euro-Mediterranean Center on Climate Change, that provided WITCH and ICES, the two global dynamic economy–energy–environment models used in the study.

Think of climate change as a development challenge involving investments, innovation, research, energy efficiency, clean energy sources, limits to deforestation and to GHG emissions related to land-use. You will soon realize that curbing GHG emissions is economically attractive. Also, taking part in global climate policy which aims to keep global warming below 2°C brings benefits that prevail on costs. In other words: “the costs of participation in a global stabilization agreement are likely to be a good investment, with indicative ratios of net benefits to net costs ranging from 5 to 11”.

The quote is taken from “SouthEast Asia and the economics of global climate stabilization”, the report of the project “Strengthening Planning Capacity for Low-Carbon Growth in Developing Asia”. This  project was developed by the Asian Development Bank, co-funded by the Government of the United Kindom and the Government of Japan. It also saw  the scientific collaboration of the CMCC Foundation  which provided a team of experts – Francesco Bosello, Massimo Tavoni, Carlo Orecchia and Giacomo Marangoni – to perform WITCH and ICES, the two global dynamic economy–energy–environment models used in the study in order to evaluate costs and benefits of mitigation policy. The project focuses on the five countries—Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam—that account for more than 90% of Southeast Asia’s emissions.

The project takes into account middle-term mitigation policies which are officially included in the decarbonization plans of the five countries addressed. Moreover, it analyzes these strategies and their effects in a longer term perspective. The study examines potential regimes for regulating global GHG emissions through 2050. These include (i) business as usual (BAU); (ii) fragmented national climate policies; (iii) a global climate stabilization agreement that is likely to keep warming below 3°C, by limiting GHG concentrations to 650 parts per million (ppm) CO2 equivalent by the end of the century (650 ppm scenario); and (iv) a more ambitious target that is likely to avoid warming of more than 2°C, by limiting GHG concentrations to 500 ppm CO2 equivalent (500 ppm scenario).

The last target is the more ambitious scenario, for it requires the highest costs in the short term and timely action. Specifically, policy costs of emissions mitigation are found to be 2.5%–3.5% of regional GDP over the 2010–2050, while delayed mitigation leads to higher policy costs, the report states. For example: a 10-year delay in implementation of the 500 ppm scenario could increase 2050 policy costs by 60%, which is a greater increase than for the world as a whole.

Land-use and land degradation are considered to be key topics in mitigation policies for the region. Reducing deforestation is essential to mitigation costs at least through the medium term.

Energy efficiency improvement through adoption of more efficient technologies and changes in behavior is the biggest single source of long-term emission reduction, while the development and availability of advanced low-carbon energy technologies critically affect overall economic costs of climate stabilization. Realizing the potential of advanced low-carbon energy sources to contain decarbonization costs requires up-front investments in research, with investment needs found to reach over $2 billion annually in Southeast Asia by the early 2020s under the 500 ppm scenario.

Does it sound like an expensive investment? Actually, these analyses provide a clear message: the resource requirements for low-carbon technologies are a smaller share of GDP than what the region has spent in recent years on fossil fuel subsidies. In 2010, governments in the region spent more than 3% of GDP on fossil fuel subsidies, which is much higher than the estimated costs of climate stabilization under the 500 ppm scenario after co-benefits are considered. Reducing these subsidies in a gradual and targeted manner—as Indonesia has done in early 2015—can free the resources needed to finance a low-carbon transition, while setting the right price signals for low-carbon development, the authors claim.

The upside to the policy costs of climate stabilization is that substantial co-benefits are generated in the short to medium term by avoided climate change, and in terms of health, congestion, and transportation accidents.

According to the report published by the Asian Development Bank, to find effective pathways toward low-carbon development and emissions consistent with climate stabilization is a development challenge for Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam, and a concrete investment in the future of the whole Region

“SouthEast Asia and the economics of global climate stabilization”
David A. Raitzer, Francesco Bosello, Massimo Tavoni, Carlo Orecchia, Giacomo Marangoni, and Jindra Nuella G. Samson
Asian Development Bank, 2016
ISBN 978-92-9257-304-1 (Print), 978-92-9257-305-8 (e-ISBN)

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