Climate Change Information Sheet 23

Limiting emissions: The challenge for policymakers

• Climate change will have economic consequences. The damage it causes plus the measures people take to adapt to a new climate regime will impose quantifiable market costs as well as non-quantifiable, non-market costs. The fact that some important types of damages cannot be easily monetized makes current damage estimates highly uncertain.
• Damages will be unevenly distributed and sometimes irreversible. Although developed countries are responsible for more than two thirds of historical greenhouse gas emissions and approximately 75% of current annual emissions, their strong economies and institutions leave them better positioned than other countries to cope with changes in climate. The annual costs to developed countries of a world with twice the pre-industrial levels of carbon dioxide could equal 1–3% of their aggregate gross domestic product (GDP). The estimated costs for developing countries are 2–9% of GDP. Again, it must be emphasized that these estimates include only readily monetized damages and thus understate the likely costs. Some studies have created a "vulnerability index" showing that developing countries are, on average, about twice as vulnerable to the negative impacts of climate change as are developed countries; small island developing countries are about three times as vulnerable.
• Policies for minimizing risks by reducing greenhouse gas emissions will also come with a price-tag. Estimates of how much such policies will cost vary widely. For example, cost estimates for stabilizing emissions from the developed countries vary from –0.5% of GDP (that is, a net savings of US$ 60 billion) to +2% of GDP (equal to a net loss of US$ 240 billion). The costs (and potential benefits) of adaptation measures are less well understood. Nevertheless, it seems that for both emissions reduction and adaptation, policymakers can often seek to minimize climate change damage while actually benefiting their national economies.
• While some damage from human-induced climate change seems inevitable, policymakers can try to limit the risks. The earth's climate has periodically warmed and cooled during natural cycles that have lasted from decades to millennia. The climate will continue to vary due to these cycles and to the human-enhanced greenhouse effect. The risks posed by rapid climate change due to human action, however, are qualitatively different than those posed by the climate variations that humanity has experienced since the start of civilization. The Climate Change Convention does not seek to avoid all future human-induced climate change, but rather to minimize it and slow the rate of change to ensure that ecosystems and human societies can adapt.
• Climate change policies should be viewed as an integral part of sustainable development. Actions to address climate change can promote both socio-economic development and environmental protection (such as reduced urban smog). Climate change strategies should be integrated into national development plans for all economic sectors.
• Early action to limit the risks of climate change can have multiple benefits. Many researchers believe it will be possible to reduce climate change damages and adaptation costs while generating economic benefits, such as more cost-effective energy systems and greater technological innovation. Some climate change policies can also bring local and regional environmental benefits, such as reductions in air pollution and increased protection for forests and thus biodiversity. The scientific, technical, and socio-economic literature shows that such "no regrets" opportunities are available in most countries. It also suggests that the risk of net damage, a concern for risk aversion, and the precautionary principle together provide a rationale for actions that go beyond "no regrets" - that is, for actions to reduce emissions that do indeed have net costs beyond climate change benefits.
• Policymakers should not overlook the importance of equity. Choosing policies that are both cost-efficient and fair is not easy. Traditional economics rigorously explores how to formulate flexible and cost-effective policies; it has less to say about equity. Because countries differ considerably in their vulnerability to climate change, the costs of damage and adaptation will vary widely unless special efforts are made to redistribute them. Policymakers can pursue equitable solutions by promoting capacity building in poorer countries and reaching collective decisions in a credible and transparent manner. They could also develop financial and institutional mechanisms for sharing risks among countries.
• The fact that some climate change impacts will not be felt for many decades also raises the issue of intergenerational equity. Future generations are not able to influence directly the choice of policies made today. What's more, it might not be possible to compensate them for any negative effects on their well-being. This concern should be factored into current policies.
• To be effective, policies will require support from the public and from key interest groups. Governments cannot act alone to cut emissions - individuals, communities, and businesses must also cooperate. Education and public information is vital. For example, increased energy consciousness would encourage people to adopt any number of minor changes in their lifestyles, such as riding public transport, using more efficient lighting and appliances, and re-using materials to reduce the need for exploiting natural resources. Local authorities could start restructuring communities to minimize commuting distances by placing homes closer to shops and offices; they could also introduce standards that encourage building designs that take maximum advantage of sunlight and solar heating. Many other changes in the high-consumption lifestyles of the rich countries are also possible.
• Cooperation is also essential at the international level. There are different views on whether or not specific policies and measures should be coordinated globally, proponents arguing that coordination ensures fairness and a "level playing field" for business, opponents believing that national flexibility is more cost-effective. But the need for internationally-agreed targets and timetables for emissions reductions and for financial and technological cooperation is more universally accepted. Policymakers must therefore be sensitive to both national conditions and to international trends and concerns.
• The prudent response to climate change is to adopt a portfolio of actions aimed at mitigation, adaptation, and research. The economic literature suggests that the optimal policy mix will necessarily differ among countries and over time. The challenge is not for all countries to agree on what is the single best policy and to maintain it for the next 100 years. Rather, each country should select a prudent strategy and adjust it over time in light of new information and changing circumstances. By constructing a balanced portfolio of policy options aimed at reducing emissions, adapting to climate change, and improving the knowledge base, national policymakers can reduce the risks of rapid climate change while promoting sustainable development.