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Environment

Q+A: How does climate change hit GDP?

(Reuters) - Southeast Asia faces one of the world’s highest climate change bills, the Asian Development Bank said on Monday, unless the region adapts to climate change and joins the rest of the world in cutting greenhouse gas emissions.

The destructive effects of higher temperatures, rising seas and fierce storms are likely to knock more off its gross domestic product (GDP) than the current financial crisis, the ADB said in a report.

The report, “The Economics of Climate Change in Southeast Asia: A Regional Review,” states that climate change could cost six percent of GDP in four countries, Indonesia, Philippines, Thailand and Vietnam by the end of this century.

Here are some questions and answers about the climate change economics behind the region’s first such report.

WHAT’S THE CLIMATE CHANGE-GDP CONNECTION?

The intense floods, droughts, landslides and storms that have lashed Southeast Asia in recent years have taken chunks out of its GDP earnings, by damaging property, assets, and human life.

With worsening climate change, the ADB expects rice production to dramatically decline, and rising sea levels to disrupt coastal economies by forcing millions to relocate from the seaside and islands.

Health services will also be stretched, and economic productivity lost, as more people die from thermal stress, malaria, dengue and other diseases.

Greenhouse gas emissions, the cocktail of gases including carbon dioxide (CO2) that are key contributors to climate change, tend to match GDP because many are produced through industrial activity.

A 3.5 percent fall in Britain’s GDP, for example, leads to about a 3.15 percent fall in CO2 emissions, according to calculations by Cambridge Econometrics. The current recession would help to cut carbon emissions by around six percent over 2009-10, it estimates.

HOW IS FUTURE, CLIMATE-RELATED, GDP-LOSS CALCULATED?

Using data from the Third Assessment Reports of the Intergovernmental Panel on Climate Change, (IPCC), economists calculate the impact of expected temperature rises on key markets (such as agriculture and forestry in Southeast Asia’s case) and the non-market impact on health and ecosystems.

Geographical factors and per-capita income are also fed into the models, as climate change is expected to hit certain low-lying areas, and the poor, first and hardest.

These factors helped push Southeast Asia’s climate bill to the top. About 80 percent of its 563 million people live within 100 kilometers of the coast and more than 200 million people live on less than $2-a-day.

They also punch in the numbers for climate catastrophes, such as the melting of the West Antarctic ice sheet, that would jolt more linear predictions out of whack, to give a range of best and worst-case scenarios.

HOW DOES THIS MAKE CLIMATE CHANGE A “MARKET FAILURE?”

Market success, in the form of GDP growth, is leading to a wide-range of environmental failures related to climate change which undermine future economic growth.

As private polluters who damage the public global climate by emitting greenhouse gases have generally not paid for the damage they cause, ex-World Bank chief economist Nicholas Stern, author of the 2006 Stern Review on the Economics of Climate Change, suggested climate change may be the greatest, most wide-ranging market failure ever.

He warned that without an annual investment of one percent of global GDP a year to offset the worst climate effects, up to 20 percent of global GDP would be jeopardized. In 2008 he upped the figure to two percent of GDP, after sharper than expected emissions growth.

HOW MUCH MONEY IS NEEDED TO AVERT THE WORST?

Estimates vary. The United Nations Framework Convention on Climate Change (UNFCCC) has put adaptation costs in the agriculture, coastal, forestry, fisheries, health, infrastructure, and water supply sectors at between $44 billion to $166 billion per year by 2030 globally. For developing nations, it is $28 billion to $67 billion.

The United Nations Development Programme projects even higher adaptation costs for developing countries, between $86 billion to $109 billion per year by 2015.

The ADB says Indonesia, the Philippines, Thailand and Vietnam need an average of $5 billion a year by 2020 to protect agriculture and coastal zones, through building sea walls and developing drought- and heat-resistant crops.

It says by 2060 the annual benefit of avoided damage from climate change is likely to exceed the annual cost.

Sources: Reuters, Cambridge Econometrics ( here ),

Asian Development Bank, Stern Review ( here )

Writing by Gillian Murdoch; Editing by Sanjeev Miglani

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