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What is the Economics of Climate Change?

Nicholas Stern

The science of climate change

Climate change is a serious and urgent issue. There is now an overwhelming body of scientific evidence that human activity is causing global warming, with the main sources of greenhouse gases, in order of global importance, being electricity generation, land-use changes (particularly deforestation), agriculture and transport; the fastest growing sources are transport and electricity.


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Technical summary climate change 2001: impacts, adaptation, and vulnerability

Scope and Approach of the Assessment

Mandate of the Assessment

The Intergovernmental Panel on Climate Change (IPCC) was established by World Meteorological Organization and United Nations Environmental Programme (UNEP) in 1988 to assess scientific, technical, and socioeconomic information that is relevant in understanding human-induced climate change, its potential impacts, and options for mitigation and adaptation. The IPCC currently is organized into three Working Groups: Working Group I (WGI) addresses observed and projected changes in climate; Working Group II (WGII) addresses vulnerability, impacts, and adaptation related to climate change; and Working Group III (WGIII) addresses options for mitigation of climate change.

This volume—Climate Change 2001: Impacts, Adaptation, and Vulnerability—is the WGII contribution to the IPCC’s Third Assessment Report (TAR) on scientific, technical, environmental, economic, and social issues associated with the climate system and climate change. 1 WGII’s mandate for the T AR is to assess the vulnerability of ecological systems, socioeconomic sectors, and human health to climate change as well as potential impacts of climate change, positive and negative, on these systems. This assessment also examines the feasibility of adaptation to enhance the positive effects of climate change and ameliorate negative effects. This new assessment builds on previous IPCC assessments, reexamining key findings of earlier assessments and emphasizing new information and implications from more recent studies.


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Vulnerability to Climate Change and Reasons for Concern: A Synthesis

This chapter synthesizes the results of Work Group II of the Third Assessment Report (TAR) and assesses the state of knowledge concerning Article 2 of the United Nations Framework Convention on Climate Change (UNFCCC). The TAR’s task is to define what is known about the effects of climate change: how sensitive systems are, what adaptive capacity they have, and what their vulnerability is. It is not the goal of this assessment to determine whether these effects are tolerable or are considered dangerous.

The goal of this chapter is to synthesize information on climate change impacts in a manner that will enable readers to evaluate the relationship between increases in global mean temperature and impacts. The chapter focuses on certain “reasons for concern” that may aid readers in making their own determination about what is a “dangerous” climate change. Each reason for concern is consistent with a paradigm that can be used by itself or in combination with other paradigms to help determine what level of climate change is dangerous.


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Adaptation to Climate Change in the Context of Sustainable Development and Equity

Adaptation refers to adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts. It refers to changes in processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change.

Estimates of likely future adaptations are an essential ingredient in impact and vulnerability assessments. The extent to which ecosystems, food supplies, and sustainable development are vulnerable or “in danger” depends both on exposure to changes in climate and on the ability of the impacted system to adapt. In addition, adaptation is an important policy response option, along with mitigation. There is a need for the development and assessment of planned adaptation initiatives to help manage the risks of climate change.


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Climate Change, Competitiveness and Trade

Aaron Cosbey and Richard Tarasofsky

A Chatham House Report

June 2007

This report considers the implications of the Kyoto Protocol on competitiveness and addresses the WTO-compatibility of measures to offset competitive losses.

 From the outset the Kyoto Protocol and the United Nations Framework Convention on Climate Change have had to contend with perceived tension between effective action to slow climate change and maintenance of competitiveness. This report explores the nature of the concerns over competitiveness, trying to dissect them in a meaningful way and assess the need for concern. It employs a definition of competitiveness that applies as between firms, as opposed to any general notion of the competitiveness of nations.

Two types of competitiveness concerns are identified and addressed. The first – the ‘non-Party problem’ – is that implementation may create an uneven playing field, with firms and sectors from non-Parties enjoying an unfair advantage because they are not subject to carbon constraints. The second – the ‘implementation problem’ – is that Parties may create unfair competitive advantages for domestic industry by the manner in which they implement their Kyoto commitments.


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A Guidebook to the Green Economy

Issue 4: A guide to international green economy initiatives

United Nations Division for Sustainable Development, UNDESA

In June 2012 at the United Nations Conference on Sustainable Development (Rio+20), after months of challenging negotiations, governments agreed that green economy was an important tool for sustainable development. They also agreed that the green economy needs to be inclusive and should drive economic growth, poverty eradication, employment and decent work for all, whilst maintaining the healthy functioning of the Earth’s ecosystems. Importantly, the Rio+20 outcome document also recognises that capacity building, information exchange and experience sharing will be critical for implementing green economy policies. In this context, it invites the United Nations (UN) to work with partners to provide support to developing countries and to develop toolboxes, best practices, methodologies and models, and platforms to aid green economy policy design and implementation.

Following Rio+20, the UN Division for Sustainable Development (UNDSD) began publishing a new series of guidebooks on the green economy which aim to provide useful resource guides for practitioners and other stakeholders on various emerging green economy issues. Issue 1 of A Guidebook to the Green Economy provided a guide to the history and emerging definitions of green economy and related concepts such as green growth and low-carbon development 1. It also included a concise guide to approximately 90 recent green economy publications including reports, policy papers, toolkits and national strategies.


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The economics of avoiding action on climate change

Eleven of the past 12 years were the warmest on record, atmospheric concentrations of carbon dioxide (CO2) are higher than at anytime over the past 650,000 years and glacier melt threatens the availability of water to 500 million people in South Asia and 250 million people in China. So reports the Chairman of the Intergovernmental Panel on Climate Change (IPCC). Yet the world has failed to act despite such outcomes having been predicted for 20 years or more. Could part of the reason be that economists have been fiddling to produce figures recommending inaction while the planet gets set to burn?

Although economists first applied their craft to climate change in the early 1970s, “greenhouse economics” has been a minority interest until recently. Those conducting economic studies tended to believe control costs matched or outweighed the benefits of avoiding damages. This changed in October 2006 when a UK government backed and funded report by Sir Nicholas Stern, an ex-Chief economist of the World Bank, concluded international action to reduce emissions was economically justified. Economic Nobel laureates clamored to make statements of support. Does this apparent awakening of mainstream economists offer hope, a case of better late than never?


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Climate Change and Economic Development: A Pragmatic Approach

Two major problems promise to dominate economic and social policy during the twenty first century. These are global climate change and the growing gap between the rich and the poor. Economists are facing these issues at a time when many of the standard tools of economic analysis—for example, competitive general equilibrium and the theoretical system that supports it—have fallen into disfavor in analysing global issues involving uncertainty and irreversibility. This is both a challenge and an opportunity for development economics. This paper first examines economic models of human development and climate change, drawing, where possible, on the situation in Pakistan. We then outline an approach to coping with climate change based on new perspectives in behavioural and development economics, and on the likely consequences of global warming for Pakistan. We focus on adaptation to climate change rather than on mitigation strategies. 


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Sharing our Resources: A Vision for Addressing Cross Border Water Scarcity Caused by Climate Change

April 2010

The multilateral Indus Water Treaty of 1960 enabled India and Pakistan to share their rivers and has survived three wars if you count Kargil. Now, sixty years later, tensions over a series of Indian dams being built upstream in Kashmir and increased water scarcity in the region, is threatening the treaty. History has proven that the Indus Treaty can keep the peace, but will this "history" be less applicable as the environment changes? A serious challenge will be how each country manages its resources—within and across the boundaries.


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COP15-Copenhagen Postmortem

From Hopenhagen to Brokenhagen

At the end of an exhausting two weeks of talks, near walk outs, demonstrations, seminars, sit-ins and haggling over emissions numbers and finance, the UN Climate Change Conference in Copenhagen will be remembered more for what did not happen than what actually transpired at the end. What was needed was a strong, binding treaty to limit greenhouse gas emissions into the atmosphere. What we got instead were some vague pledges by world leaders to limit global warming to no more than 2 degrees Celsius above pre-industrial levels. How it will be done and who will do it has been deliberately left unanswered. In the meantime, the National Academy of Science in the USA warns us that if the planet warms beyond 2 C, it will cause the meltdown of the Greenland ice sheet, resulting in 7 meter high waves that will flood most of the small island states and coastal areas. Many small island states and African countries wanted deeper cuts to limit global warming to 1.5 C, but that did not happen.


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