Economic Implications of Climate Change

Smita Sirohi
Principal Scientist

NCAP, N.Delhi
smita@ncap.res.in

Winter School, IARI, N.Delhi

FOCUS OF PRESENTATION

Fiscal repercussions
Overall Economy Sectoral Approach
Agriculture Livestock

Commercial opportunities
Carbon Trading

Anticipated Monetary Losses

Climate change may cost 5% global GDP

The business and political leaders should realise that measures to bring

down emission levels would not cost more than 0.2 percent of the global

GDP, but it could cost up to 3 percent of world GDP by 2020 and 5 percent

of world GDP by 2030, if the temperature goes up by 2-4 degree Celsius

- R. K. Pachauri, Jan. 24, 2008, Davos

Stern Climate Change Report

Implications for India

Economic loss due to temperature rise estimated between 9-25%. GDP loss may be to the tune of 0.67%.

100-cm sea level rise can lead to welfare loss of $1259 million in India equivalent to 0.36% of GNP.

Absolute impacts are large

Impacts measured in billions of 1998 US$
TOTAL (2.5 degree) United States China Japan EU Russia India Other high income High-income OPEC Eastern Europe Middle income Lower-middle income Africa Low income Global (1994 output levels) 32 2 19 245 -3 20 -6 5 3 40 25 8 17 2,285

Positive numbers are damages; negative are benefits

Source: Nordhaus, 1998

Health and Sea Level Effects of Climate Change

In terms of income equivalent variations (millions of 1997 US$)

Source: Roson, 2003

Simultaneous Health and Sea level shock in 2050

Percentage Variation of industrial output, relative to baseline 1997

Source: Roson, 2003

Sectoral losses: agriculture

Impact on Agriculture % of market income billions of 1998 US$ United States China Japan EU Russia India Other high income High-income OPEC Eastern Europe Middle income Lower-middle income Africa Low income Global Output weighted Population weighted 1994 output levels 0.06 -0.37 -0.46 0.49 -0.69 1.08 -0.95 0.00 0.46 1.13 0.04 0.05 0.04 4 -3 -17 42 -3 4 -14 0 2 18 1 0 0

0.13 0.17 36

Positive numbers are damages; negative are benefits

Source: Nordhaus, 1998

Warming scenario of 2.0o C rise in mean temperature and a 7% increase in mean precipitation level- 12% reduction in net revenues for the country as a whole.
Most negatively affected : Coastal and inland regions of Gujarat, Maharashtra, and Karnataka Small loss: High-value agricultural regions of Punjab, Haryana, and Western Uttar Pradesh. The agriculturally low-value, hot and dry districts of Rajasthan and Central India are negatively impacted Districts in many Eastern states (Andhra Pradesh, Orissa and West Bengal) benefit mildly from warming.

Dinar et. al. (1998)

Profound economic implications even after accounting for farm-level adaptation. The loss in farm level net revenue is estimated to range between 9% and 25% for a temperature rise of 20C-3.50C. Kumar and Parikh (1998)

Potential Implications for Indian livestock sector

Increase in cost of milk production Reduction in conception rates Reduction of the total area where high yielding dairy cattle can be economically reared.

Economic Losses Due to Heat Stress

400 350 300

Rs. crores

250 200 150 100 50

BI+JH TN MP+CH UP+UT

0
AP AS

MH

GU

HR

OR

PU

RA

KA

KE

All India Total Rs.2661.62 crores (at current prices)

WB

Heat Waves and mortality of livestock: some evidence

Extreme events and livestock losses

1999 tropical cyclone Orissa: death toll about 55,000 cattle 19531997: about 93.7 thousand cattle lost on an average each year due to floods. 2000: heavy rains and flooding during the Southwest monsoon, caused the death of nearly 93 thousand cattle, of which 83.6 thousand died in the state of West Bengal 1987 drought: affected over 168 million cattle in India, due to decline in feed and fodder availability and serious water shortages.
Gujarat, 18 million cattle out of 34 million were reported to have died before it rained the next year.

19992000 drought Rajasthan : affected 34.5 million cattle; subsequent year about 40 million cattle affected by drought
7.8 million ha of cropped area damaged fodder availability fell from 144 to 127 million tons

Migration

Banni grassland region of Gujarat state: 45% pastoral families migrate with livestock during draught

Increased incidence of disease

Foot and Mouth Disease:

Meteorological parameters explain 52 and 84% variations in the seasonality of disease in cattle in hyper-endemic division of Andhra and meso-endemic region of Maharashtra states, respectively (Ramarao 1988). Disease outbreak correlated with the mass movement of animals which in turn is dependant on the climatic factors (Sharma et al. 1991).

Clinical mastitis:

Higher incidence during hot and humid weather due to increased heat stress and greater fly population associated with hothumid conditions (Singh et al. (1996)

Tick infestation:

Hothumid weather conditions aggravate the infestation of cattle ticks like,Boophilus microplus, Haemaphysalis bispinosa and Hyalomma anatolicum (Singh et al. 2000; Basu and Bandhyopadhyay 2004; Kumar et al. 2004).

Business Opportunities: Carbon Trading

What is carbon trading?

Carbon trading is emissions trading specifically for
carbon dioxide (calculated in tones of CO2 equivalent) and currently makes up the bulk of emissions trading. It is one of the ways countries can meet their obligations under the Kyoto Protocol to reduce carbon emissions and thereby mitigate global warming.

Genesis of CDM
1991: Negotiations to formulate an international treaty on global climate protection began. May 1992 negotiations completed in the form of UNFCCC June 1992: The Rio Earth Summit, UNFCCC opened for signatures 21 March 1994: UNCCCC comes into force Conference of Parties

December 1997 Third COP Kyoto, Japan.

Market Mechanisms under Kyoto Protocol

Came into force from 16th Feb., 2005.

Three cooperative mechanisms

International Emissions Trading Joint Implementation (JI) Clean Development Mechanism (CDM)

Potential benefits of CDM

attract capital for projects that assist to a more prosperous but less green house gas-intensive economy; encourage and permit the active participation of both private and public sectors; provide a tool for technology transfer, if investment is channeled into projects that replace old and inefficient technologies which lead to high emissions and help define investment priorities in projects that meet sustainable development goals.

Status of CDM Projects

Status of CDM projects At validation Request for registration Request for review Correction requested Under review Total in the process of registration Withdrawn Rejected by EB Registered, no issuance of CERs Registered. CER issued Total registered Total number of projects (incl. rejected & withdrawn)
As on 1st Feb., 2008

Number 1915 45 47 48 10 150 9 52 621 288 909 3035

India: 840 projects (28%)

370313 thousand CERs till 2012

CER prices
Euro 15-16

Financial Risks
finance all or part of project activity; financially contribute towards the incremental cost of the project over and above the baseline technology, or finances the removal of market barriers; provide loan or lease financing at concessional rates agree to buy CERs as they are produced by the project (Pembina 2003).

What if India also subjected to reduction commitments?

Change in GDP relative to 2001

abare, 2006

When people do not pay for the consequences of their actions we have a market failure

Thank You