The economic consequences of environmental degradation

Joint work with Elisa Lanzi, Jean Chateau and others

Paris, 24 October 2016

Rob Dellink OECD Environment Directorate

CIRCLE: Costs of Inaction and Resource scarcity: Consequences for Long-term Economic growth Calculating the costs of inaction:

– Quantify how changes in environmental quality, climate change, natural resources affect the economy, and prospects for long-term growth

Regional and sectoral quantitative approach where possible, coupled with more general insights where needed

– Market impacts: production function approach – Non-market impacts: valuation approach

2

The OECD CIRCLE project

CIRCLE methodology

3

Economic model Projects sectoral and regional economic activity, and projects corresponding environmental pressure (such as emissions)

Environmental model Links environmental pressure to

indicators of the state of the environment (such as

temperature change, pollutant concentrations, ...)

Impact models Links environmental indicators to

(sectoral) biophysical impacts (such as changes in crop yields

or incidence of illness)

Assessment of economic consequences

Links biophysical impacts to changes in economic variables

(such as changes in productivity of production factors)

CIRCLE project themes

Climate change

Air pollution

Land-water-energy nexus

Water

Biodiversity and ecosystems

Resource scarcity

4

Report published in November 2015

Report published in June 2016

Report to be published early 2017

Review paper published in 2016

Review paper published in 2015

Report on critical materials published in 2015; further work planned for the next biennium

6

Regional cost of selected climate impacts

Uncertainty ranges in 2060 due to uncertainty in ECS

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060

- South & South East Asia

OECD Pacific

Rest of Europe & Asia

OECD Europe

Latin America

OECD America

World

- Sub Saharan Africa

Middle East & North Africa

Source: OECD (2016), The Economic Consequences of Climate Change

7

Global importance of different impacts

Global GDP loss: 2035: 0.3-1.0%

Source: OECD (2016), The Economic Consequences of Climate Change

Agriculture

Coastal Zones

Energy Demand

Extreme Precipitation

Events

Health

Tourism Demand

Global damages 2060

Agriculture

Coastal Zones

Energy Demand

Extreme Precipitation

Events

Health

Tourism Demand

Global damages 2035

2060: 1.0-3.3%

8

Long-term damages

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100

Likely uncertainty range - central projection until 2100

Likely uncertainty range - central projection until 2060

Central projection until 2100

Central projection until 2060

Weitzman damage function-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100

Likely uncertainty range - central projection until 2100

Likely uncertainty range - central projection until 2060

Central projection until 2100

Central projection until 2060 (Committed by 2060)

Weitzman damage function-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100

Likely uncertainty range - central projection until 2100

Likely uncertainty range - central projection until 2060

Central projection until 2100

Central projection until 2060 (Committed by 2060)

Weitzman damage function

Source: OECD (2016), The Economic Consequences of Climate Change

9

Other important consequences

OECD country Current climate 2050

Mortality(thousands)

Costs(billion USD)

Mortality(thousands)

Costs(billion USD)

Canada 1 3 8 23Chile 0 0 1 4Mexico 1 4 12 36USA 11 2 63 27EU large 4 11 34 66 197Other OECD EU 8 17 44 104Other OECD 1 4 13 39Aus. & New Z. 1 2 3 9Japan 3 8 10 30Korea 1 2 6 17OECD total 38 75 226 487

RCP6.0 RCP8.5Most OECD countries 0.5 1.1Chile 0.3 0.6Mexico 0.4 0.9Non-OECD EU 0.3 0.7Brazil 0.1 0.2Russia 0.2 0.4India 0.0 0.1Indonesia 0.0 0.1China 0.2 0.5South Africa 0.4 0.8Other regions 0.0-0.1 0.0-0.3

…and many more that could not be quantified!

Urban flood damages

Premature deaths from heat stress

Loss of biodiversity and ecosystems

Tipping points

OECD country Current climate 2050

Mortality(thousands)

Costs(billion USD)

Mortality(thousands)

Costs(billion USD)

Canada 1 3 8 23Chile 0 0 1 4Mexico 1 4 12 36USA 11 2 63 27EU large 4 11 34 66 197Other OECD EU 8 17 44 104Other OECD 1 4 13 39Aus. & New Z. 1 2 3 9Japan 3 8 10 30Korea 1 2 6 17OECD total 38 75 226 487

RCP6.0 RCP8.5Most OECD countries 0.5 1.1Chile 0.3 0.6Mexico 0.4 0.9Non-OECD EU 0.3 0.7Brazil 0.1 0.2Russia 0.2 0.4India 0.0 0.1Indonesia 0.0 0.1China 0.2 0.5South Africa 0.4 0.8Other regions 0.0-0.1 0.0-0.3

Source: OECD (2016), The Economic Consequences of Climate Change

11

Disutility of

illness

Mortality

Market costs

Direct costs

Indirect costs

Labour productivity

Health expenditures

Direct costs

Indirect costs

Agricultural yields

Direct costs

Indirect costs

Non

-mar

ket c

osts

Health costs

Types of air pollution costs

Annual average total anthropogenic PM2.5 (µg/m3) Concentrations calculated with TM5-FASST (EU JRC Ispra)

12

Concentrations of air pollutants

2060

2010

2030

2060

13 Num

ber o

f dea

ths

per y

ear p

er m

illio

n pe

ople

, 206

0

Premature deaths 2010: 3 million

Premature deaths caused by outdoor air pollution

Projection 2060: 6 – 9 million

14 (GDP percentage change wrt no-feedback baseline, 2060)

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Cana

da

Chile

Mexic

o

USA

EU la

rge 4

Othe

r OEC

D EU

Othe

r OEC

D

Aus.

& Ne

wZ.

Japa

n

Kore

a

China

Non-

OECD

EU

Russ

ia

Casp

ian re

gion

Othe

r Eur

ope

Braz

il

Othe

r Lat.

Am.

Midd

le Ea

st

North

Afric

a

ASEA

N 9

Indon

esia

India

Othe

r Asia

South

Afric

a

Othe

r Afric

a

Wor

ld

OECD America OECD Europe OECD Pacific Rest of Europe & Asia LatinAmerica

MiddleEast &NorthAfrica

South and South-EastAsia

SubSaharan

Africa

Interaction effects Agriculture Labour productivity Health Expenditures

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Cana

da

Chile

Mexic

o

USA

EU la

rge 4

Othe

r OEC

D EU

Othe

r OEC

D

Aus.

& Ne

wZ.

Japa

n

Kore

a

China

Non-

OECD

EU

Russ

ia

Casp

ian re

gion

Othe

r Eur

ope

Braz

il

Othe

r Lat.

Am.

Midd

le Ea

st

North

Afric

a

ASEA

N 9

Indon

esia

India

Othe

r Asia

South

Afric

a

Othe

r Afric

a

Wor

ld

OECD America OECD Europe OECD Pacific Rest of Europe & Asia LatinAmerica

MiddleEast &NorthAfrica

South and South-EastAsia

SubSaharan

Africa

Interaction effects Agriculture Labour productivity Health Expenditures

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Cana

da

Chile

Mexic

o

USA

EU la

rge 4

Othe

r OEC

D EU

Othe

r OEC

D

Aus.

& Ne

wZ.

Japa

n

Kore

a

China

Non-

OECD

EU

Russ

ia

Casp

ian re

gion

Othe

r Eur

ope

Braz

il

Othe

r Lat.

Am.

Midd

le Ea

st

North

Afric

a

ASEA

N 9

Indon

esia

India

Othe

r Asia

South

Afric

a

Othe

r Afric

a

Wor

ld

OECD America OECD Europe OECD Pacific Rest of Europe & Asia LatinAmerica

MiddleEast &NorthAfrica

South and South-EastAsia

SubSaharan

Africa

Interaction effects Agriculture Labour productivity Health Expenditures

Projected market costs of outdoor air pollution, 2060

Market and non-market costs

15

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2015 2020 2025 2030 2035 2040 2045 2050 2055 20600

3,500

2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Billions of USD, 2010 PPP exchange rates

Market costs (direct)

Market costs (indirect)

Non-market costs (lower estimate)

Non-market costs (higher estimate)

Market costs

Non-market costs

0

35,000

Source: OECD (2016), The Economic Consequences of Outdoor Air Pollution

OTHER ENVIRONMENTAL ISSUES

17

The land-water-energy nexus

Energy Land

Energy security Food security Water security

Energy

Water Water

Agriculture

Policy objectives (III)

Economic activities (II)

Resources (I)

Socioeconomic drivers Climate change

Welfare Env. quality

Policies

Critical materials

THANK YOU!

For more information: www.oecd.org/environment/CIRCLE.htm

www.oecd.org/environment/modelling

rob.dellink@oecd.org