Transcript Climate change – economic impacts

Climate change –
potential economic impacts
New Zealand Society for Risk Management
Climate Change Seminar
10 July 2007
Outline
► Introduction
to economic framework for exploring
potential impacts
► Overview of potential economic impacts for New
Zealand
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Risk management process
Identify risks
Analyse risks
Evaluate risks
Monitor and review
Communicate and consult
Establish the context
Risk assessment
Treat No
risks?
Yes
Risk Management Process - overview
Reproduced from AS/NZS 4360:2004
with the permission of Standards New Zealand
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Economic framework
► In
risk management:
– Consequence x likelihood = risk
► In
economics:
– Impact x probability = expected impact
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Economic framework
► Size
–
–
–
–
–
–
of consequences/impacts depends on:
Magnitude of change
Rate of change
Variability and extreme events
Thresholds
Aggregate and cumulative risks
Mitigation and adaptation
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Economic framework
► What
is the market failure:
– Prices don’t reflect full costs, including environmental
costs such as the cost of greenhouse gas emissions
– Causes high emissions activities (e.g. energy sources,
industrial processes) to be under-priced relative to
activities producing fewer emissions
– Results in higher than optimal level of high emissions
activities relative to low emissions activities
– Leads to higher than optimal level of emissions and
degradation of the environment
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Economic framework
► Higher
than optimal:
– Where the costs of achieving a reduction in emissions
(including any forgone output) would be outweighed
by the benefits secured (though improvement in
environmental quality/avoidance of climate change
impacts)
► Optimal:
– Reduce emissions to the level where a further
reduction would add more to costs than it would add
to benefits
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Economic framework
► Climate
change:
– Uncertain likelihood/probability
– Uncertain consequences/impacts
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Economic framework
► Accommodating
uncertainty:
–
–
–
–
Sensitivity analysis
Scenario modelling
Probability distribution
Decision rules – maximin payoff, minimax regret,
index of pessimism, real option value
– Attitudes to risk – diffuse, insidious, delayed,
irreversible
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Climate changes
► Temperature
► Rainfall
► Wind
► Sea
level
► Extreme events
► Regional variations
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Economic impacts
► Stern
Review:
– Without mitigation, 5% to 20% of global annual GDP
► IPCC
estimate:
– Australia and New Zealand – 1.2% to 3.8% of GDP for
equivalent doubling of carbon dioxide concentrations
– Low confidence – excluded many currently identified
effects and adaptations
► Mitigation
and adaptation:
– Could slow economic growth slightly in short run
– Could have immediate benefits in reducing impacts of
current climate variability and extreme weather events
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Sectors
► Primary/land-based
► Industry
► Infrastructure
► Financial
► Public
health
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Primary/land based sectors
► Agriculture:
– Changes in temperature and rainfall patterns
– More frequent extreme weather events – droughts,
floods, storms, erosion, rural fires, reduced frost risk
– Agriculture is highly dependent on climate, but also
highly adaptive
– Increase in crop yields in some regions, decline in
others, change in risks to animal health
– Changes in crops grown, where grown, length/timing
of seasons
– Transitional costs in changing land uses
– Exotic pest and disease risks
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Primary/land based sectors
►
Agriculture:
– Pastoral sector – increase in productivity (at least initially) from
more carbon dioxide in atmosphere and extended growing
season, reduced feed quality in some regions due to drier
weather, droughts, pests and diseases
– Arable sector – higher yields from more carbon dioxide in
atmosphere and warmer conditions, but dependent on higher
fertiliser input and availability of water for irrigation
– Horticultural sector – may be some change in regional
distribution, change in timing of season, warmer and longer
growing season but some species require winter chill (e.g.
kiwifruit), may be some reduction in quality (e.g. grapes),
increased pest and disease risks
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Primary/land based sectors
► Agriculture:
– Export markets – depend also on what happens in
export destinations and countries of competing
producers, change in demand patterns (destinations
and timing of seasonal demand)
– Greater variability of production – rapid response to
international markets and prices is more difficult for
crops that require long-run investment such as
viticulture and forestry
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Primary/land based sectors
► Forestry:
– Higher temperatures, carbon dioxide and rainfall –
may increase forest growth and productivity in some
regions, whilst decline in other regions
– Change in species that can be grown and where
– Drier, hotter summers – limit planting to areas with
sufficient water supply, summer droughts increase
tree mortality
– Increased storm damage and forest fires
– Exotic pest and disease risks
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Primary/land based sectors
► Forestry:
– Increase in commercial planting for carbon capture
– Substitution of wood products for more emissions and
energy intensive alternatives such as concrete, steel
and aluminium
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Primary/land based sectors
►
Fisheries:
– Changes in sea temperatures, prevailing winds and currents –
affecting species habitat and nutrient upwellings
– Decline in stock (e.g. hoki), migration to other areas (e.g. tuna),
heat stresses and growing parasite threats (e.g. lobster)
– Aquaculture – warmer temperatures may increase growth rates
in some species and allow farming of different species
– Rivers and lakes – floods and droughts, changes in water level,
quality and temperature, disturbed breeding season and reduced
fish egg survival
– Toxic algal blooms, exotic pests and diseases
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Primary/land based sectors
► Tourism
and recreation:
– Like agriculture, highly adaptable to changes in
opportunities
– Warmer winters and drier, hotter summers – increase
some domestic tourism opportunities, extend tourist
and sports season in some areas, increase outdoor
recreation and sports
– Wetter winters and more frequent extreme weather
events – disrupt outdoor recreation and sports,
damage facilities
– Drier summers – more water shortages in some
tourist areas
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Primary/land based sectors
►
Tourism and recreation:
– Coasts – accelerated beach and cliff erosion, damage to coastal
properties
– Mountains – less snow based recreation
– Lakes – may lower some lake levels, requiring relocation of ports
and shore infrastructure
– Changes in habitats and damage to natural environment – affect
nature based tourism and recreation
– Increased risk of establishment of exotic pests and diseases –
threat to biodiversity, conservation, public health and recreation
– Reduced international and domestic travel if emissions cost
reflected in price of flights and other transport
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Industry
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Damage to stock and buildings from floods, storms and
subsidence
Change in insurance risk profile, claims and premiums
Exposure of outdoor workers in hotter summers
Higher transport costs if carbon priced into transport fuels
Changes in and/or more disruptions to supply chain
Change in demand for seasonal goods and services
Opportunities for research, innovation and
entrepreneurship
Development of new technologies, goods and services,
markets, businesses and jobs
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Infrastructure
damage – more subsidence from
hotter, drier summers and damage from extreme
weather events such as droughts, floods and
storms
► Coastal infrastructure:
► Infrastructure
– Floods, storms, increased wave heights, rising sea
levels
– Erosion and damage to transport infrastructure,
bridges, port facilities, utilities, settlements (housing,
businesses), farm land
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Infrastructure
►
Transport:
– Damage to infrastructure (e.g. roads, rail tracks,
bridge/embankment foundations, ports, runways) – subsidence in
hotter, drier summers and damage from extreme weather events
such as droughts, floods and storms
– Disruption of transport services and risks to safety from extreme
weather events and infrastructure damage
– Discomfort for travelers – higher temperatures, poorer air quality
– Increase in walking and cycling
– Incentive for development and use of more efficient vehicles,
electric vehicles, biofuels, changes in modes of transport,
reductions in travel
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Infrastructure
► Water:
– Damage to water and wastewater service
infrastructure, disruption to service, pressure on
drainage and stormwater systems from heavy rainfall
– Increased importance of water management, including
pricing and allocation
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Infrastructure
►
Energy:
– Infrastructure damage – more subsidence and other damage
from hot weather, floods and storms
– Increase in hydro and wind power – change in rainfall and wind
patterns, increasing energy production in some regions
– With carbon pricing:
• Renewable energy sources become cheaper relative to use of fossil
fuels
• Incentive for research and investment in renewable energy sources
– wind and solar energy, fuel cells – reducing the price of electricity
produced from these sources, increasing jobs locally
• Incentive for research and investment in energy efficiency, low
emissions technology and carbon capture, development of energy
management technologies and services
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Infrastructure
► Energy:
– Higher demand for air conditioning in summer, lower
demand for heating in winter, change in seasonal
demand patterns, more variability in demand from
extreme weather events
► Telecommunications
– damage to cables,
towers, etc.
► Damage to private property, affecting property
values and insurance claims and premiums
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Infrastructure
► Population:
– Changes in domestic migration patterns – for work
and retirement
– Increase in immigration/environmental refugees from
overseas – population growth and rising sea level in
Asia-Pacific region
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Financial
– more claims on weather related
damage, but fewer cold-weather related claims
► Investment – change in commercial risk profile,
change in where and what invest in
► Emissions trading – opportunities for
buying/selling entitlements domestically or in
international schemes
► Insurance
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Public health
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Injuries from extreme weather events – floods and storms
Exposure, respiratory and heat stress in hotter summers/heatwaves
Reduction in cold weather-related morbidity and mortality
Increased opportunities for physical recreation
Reduced availability and quality of drinking water in some areas
Rise in foodborne illness in hotter summers
Increased bacterial growth and pest activity (flies, rodents) in longer,
hotter summers and milder winters
Increased risk of subtropical pests and diseases establishing in New
Zealand – mosquito vectors for Ross River virus and dengue fever
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Economic impact assessment
►
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Can model possible/probable scenarios of economic
impacts on sectors
To assist planning and decision-making:
– Which risks to worry about most
– Which are the best mitigation or adaptation options
– Where to focus research efforts – on those uncertainties where
better information would make most difference to decisions
►
►
Accuracy depends on accuracy of model inputs,
including science
Monitor and review:
– To revise and refine model and revisit decisions as better
information becomes available
– To monitor for thresholds that would trigger reviewing or altering
decisions
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