What is Climate Change Going to Cost?

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UNESCO, Nairobi, Kenya

The economics of climate change is a new field, and one that is complicated by the difficulty of saying for sure if a specific event is due to climate change or natural variation. Estimates of what climate change will cost vary greatly – but are all big, running to hundreds of billions of dollars per year. Experts tend to agree with the 2007 Stern Review on the Economics of Climate Change, which said the costs of doing nothing would be much higher. The costs of climate change will include

  • Direct damage to infrastructure and crops from extreme weather events such as floods, storms and droughts. Since
  • 1980, the economic damages of weather-related disasters around the world has totalled over an estimated US$1 trillion.
  • Loss of lives.
  • Costs of tackling health problems such as disease outbreaks and the injuries people sustain in extreme events.
  • Loss of ecosystem services – such as crop pollination by insects.
  • Costs of mitigating climate change and moving towards low-carbon economies.
  • Costs of adapting agriculture, health and other sectors to the impacts of climate change.

Counting the cost of climate change in Namibia

When most of a country’s wealth is in the wild, shifts in natural systems can wreak havoc with its economy. Namibia is a case in point. Its natural legacy underpins much of the national bank balance — and also leaves it highly vulnerable to the impacts of climate change. In fact, research by IIED suggests the impacts on natural resources alone could reduce the country’s GDP by 1 to 6 per cent. Employment opportunities could shrink and wages fall, with incomes for unskilled labor dropping by 24 per cent in a worst-case scenario. So along with ‘climate-proofed’ policies and activities, Namibia needs a strategy to deal with displaced farmers and farm workers.

In 2007, the Intergovernmental Panel on Climate Change projected that climate change could reduce GDP across Africa by 2 to 4 per cent by 2040, a figure that could climb up to 10 or even 25 per cent by 2100. Small-scale farmers would be the most heavily impacted, with crop revenues falling by as much as 90 per cent by the end of the century, and drought expansion costing up to US$26 billion in dry-land losses. A 2009 report that Christian Aid produced summarized studies that concluded that: 

  • In Cameroon, a 14 per cent reduction in rainfall was predicted to cause losses of US$4.65 billion. A seven percent reduction in rainfall would reduce the country’s net revenue by six and a half per cent per hectare.
  • In Ethiopia, marginal temperature increases will reduce net farm revenue by up to US$997 per hectare.
  • In Zimbabwe, a 3.3°C increase above temperatures experienced before the Industrial Revolution would decrease annual farm revenues by US$0.4 billion.

The costs of climate change in coastal Egypt

Researchers have estimated that a 50 centimeter increase in sea level would cause losses of US$2.5 billion in Egypt’s Port Said Governorate. The same increase in sea level would flood 30 per cent of Alexandria, which is home to four million people and 40 per cent of Egypt’s industrial sector. The economic costs of such an impact are estimated to be in the range of US$30 billion. A report commissioned by the Organisation for Economic Co-operation and Development (OECD) estimates the economic costs of damage to port cities from flooding, storm surge and high winds caused by climate change. It indicates that in Alexandria alone, US$563.28 billion of assets could suffer damage or be lost because of coastal flooding alone by 2070. It says coastal adaptation would cost upward of US$1.7 billion in Port Said and US$2 billion in Alexandria.

Costs of adapting to climate change

In 2013, the UN Environment Programme published a report that estimated the annual cost of adaptation across Africa would be US$7-15 billion by 2020. This figure could rise to US$150-350 billion by 2070 without rapid global cuts in greenhouse gas emissions. Of course, estimates are just that. Past trends can give us insight into what projected costs will look like, but changing conditions and external factors will inevitably drive experts to update their findings. What we do know is that climate change has already cost the world trillions of dollars, not to mention the environmental damage and lives lost.

Climate finance

Much of the money needed for activities that mitigate and adapt to climate change in Africa will have to come from public and private sources in industrialised countries. This is a principle with which all parties to UN Framework Convention on Climate Change (UNFCCC) have agreed. The UNFCCC has set up four funds: The Least Developed Countries Fund; the Special Climate Change Fund; the Adaptation Fund and the Green Climate Fund.
The Global Environment Facility, the World Bank, European Commission and other donors also have a number of other climate funds, such as the World Bank’s Carbon Finance Unit, which uses money from governments and companies in OECD countries to pay for project-based greenhouse gas emission reductions in non-OECD countries. The World Bank’s Climate Investment Funds are made up of four funding windows to help developing countries pilot low-emissions and climate-resilient development.
• The Pilot Program for Climate Resilience, with US$1.3 billion pledged as of mid-2013, includes projects in Mozambique, Niger and Zambia.
• The Forest Investment Program, with US$639 million pledged as of mid-2013, includes projects in Burkina Faso, Democratic Republic of Congo and Ghana.
• The Clean Technology Fund, with US$5.2 billion pledged as of mid-2013, includes projects in Egypt, Morocco, Nigeria and South Africa and Tunisia.
• The Program for Scaling Up Renewable Energy in Low Income Countries, with US$505 million pledged as of mid-2013, includes projects in Ethiopia, Kenya, Liberia, Mali and Tanzania.
The private sector also plays a role in climate finance — through investments in renewable energy projects and planting trees, for instance. So far, however, finance from all of these sources is just a small fraction of what will be needed.