Thursday, July 7, 2016

Estimation of climate change damage functions for 140 regions in the GTAP9 database

Climate change damage (or, more correctly, impact) functions relate variations in temperature (or other climate variables) to economic impacts in various dimensions, and are at the basis of quantitative modeling exercises for the assessment of climate change policies. This document provides a summary of results from a series of meta-analyses aimed at estimating parameters for six specific damage functions, referring to: sea level rise, agricultural productivity, heat effects on labor productivity, human health, tourism flows, and households' energy demand. All parameters of the damage functions are estimated for each of the 140 countries and regions in the Global Trade Analysis Project 9 data set. To illustrate the salient characteristics of the estimates, the change in real gross domestic product is approximated for the different effects, in all regions, corresponding to an increase in average temperature of +3°C. After considering the overall impact, the paper highlights which factor is the most significant one in each country, and elaborates on the distributional consequences of climate change.

Tables 7-1 and 7-2 present our estimates, corresponding to an increase in average temperature of +3°C4 for the five categories above and their total algebraic sum. We highlight with a green background color the positive net variations in GDP, with a yellow background moderate reductions (from -1% to -5%) and with a red background the large reductions (below -5%). In addition, we identify, for each country, which among the three types of impact is the one which contributes the most to the overall effect on GDP.5 A quick inspection of Tables 7-1 and 7-2 reveals a number of thought-provoking facts. Only a few countries (Mongolia, Canada, and central-northern European countries, including Russia) are expected to get moderate gains from a +3°C increase in temperature, and these gains are typically due to an increase in tourists' arrivals (and diminished outgoing domestic tourists). Many countries (whose estimates are highlighted in red) are expected to suffer from dramatic reductions in GDP. The most negatively affected countries are Togo in Africa (-18.29%) and Cambodia in South-East Asia (-18.25%), where again Tourism is the most important factor. In addition to tourism income, variations in agricultural and labor productivity are also very relevant in many countries. Sea level rise, on the other hand, never appears as the primary factor, because of its limited incidence on total land and the relative small share of land income on GDP. Remarkably, Tourism is (possibly with Heat) the least studied effect of climate change, maybe because it causes a redistribution of income and wealth, but it has negligible consequences at the global level.
by Roberto Roson and Martin Sartori
The World Bank 
Policy Research Working Paper WPS7728; June 23 2016

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