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Winter School, IARI, N.Delhi

Economic Implications ofClimate Change

Smita SirohiPrincipal Scientist

NCAP, N.Delhismita@ncap.res.in

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FOCUS OF PRESENTATION

Fiscal repercussions

Overall Economy

Sectoral Approach Agriculture

Livestock

Commercial opportunities

Carbon Trading

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Anticipated Monetary Losses

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Climate change may cost 5% global GDP

The business and political leaders should realise that measures to bring

down emission levels would not cost more than 0.2 percent of the global

GDP, but it could cost up to 3 percent of world GDP by 2020 and 5 percent

of world GDP by 2030, if the temperature goes up by 2-4 degree Celsius

- R. K. Pachauri, Jan. 24, 2008, Davos

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Stern Climate Change ReportImplications for India

Economic loss due to temperature rise

estimated between 9-25%. GDP loss may

be to the tune of 0.67%.

100-cm sea level rise can lead to welfare

loss of $1259 million in India equivalent to

0.36% of GNP.

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Absolute impacts are large

TOTAL (2.5 degree)

United States 32China 2Japan 19EU 245Russia -3India 20Other high income -6High-income OPEC 5Eastern Europe 3Middle income 40

Lower-middle income 25Africa 8Low income 17

Global 2,285(1994 output levels)

Impacts measured in billions of 1998 US$

Positive numbers are damages; negative are benefits

Source: Nordhaus, 1998

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Health and Sea Level Effects of ClimateChange

In terms of income equivalent variations (millions of 1997 US$)

Source: Roson, 2003

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Simultaneous Health and Sea level shock in 2050

Percentage Variation of industrial output, relative to baseline 1997

Source: Roson, 2003

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Sectoral losses: agriculture

Impact on Agriculture% of market income billions of 1998

US$

United States 0.06 4China -0.37 -3Japan -0.46 -17EU 0.49 42Russia -0.69 -3India 1.08 4Other high income -0.95 -14High-income OPEC 0.00 0Eastern Europe 0.46 2Middle income 1.13 18Lower-middle income 0.04 1Africa 0.05 0

Low income 0.04 0

Global

Output weighted 0.13Population weighted 0.171994 output levels 36

Positive numbers are damages; negative are benefits

Source: Nordhaus, 1998

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Warming scenario of 2.0o C rise in mean temperature and a7% increase in mean precipitation level- 12% reduction innet revenues for the country as a whole. Most negatively affected : Coastal and inland regions of

Gujarat, Maharashtra, and Karnataka

Small loss: High-value agricultural regions of Punjab, Haryana,and Western Uttar Pradesh.

The agriculturally low-value, hot and dry districts of Rajasthanand Central India are negatively impacted

Districts in many Eastern states (Andhra Pradesh, Orissa andWest Bengal) benefit mildly from warming.

Dinar et. al. (1998)

Profound economic implications even after accounting for

farm-level adaptation. The loss in farm level net revenue isestimated to range between 9% and 25% for atemperature rise of 20C-3.50C.

Kumar and Parikh (1998)

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Potential Implications for Indian livestocksector

Increase in cost of milk production

Reduction in conception rates

Reduction of the total area where highyielding dairy cattle can be economically

reared.

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Economic Losses Due to Heat Stress

0

50

100

150200

250

300

350400

AP

AS

BI+JH

GU

HR

KA

KE

MP+CH

MH

OR

PU

RA

TN

UP+UT

WB

Rs.crores

All India Total Rs.2661.62 crores (at currentprices)

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Heat Waves and mortality of livestock: someevidence

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Extreme events and livestock losses

1999 tropical cyclone Orissa: death toll about 55,000 cattle

19531997: about 93.7 thousand cattle lost on an average each year dueto floods.

2000: heavy rains and flooding during the Southwest monsoon, causedthe death of nearly 93 thousand cattle, of which 83.6 thousand died in thestate of West Bengal

1987 drought: affected over 168 million cattle in India, due to decline in

feed and fodder availability and serious water shortages. Gujarat, 18 million cattle out of 34 million were reported to have died before itrained the next year.

19992000 drought Rajasthan : affected 34.5 million cattle; subsequentyear about 40 million cattle affected by drought 7.8 million ha of cropped area damaged fodder availability fell from 144 to 127

million tons

Banni grassland region of Gujarat state: 45% pastoral families migratewith livestock during draught

Migration

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Increased incidence of disease

Foot and Mouth Disease: Meteorological parameters explain 52 and 84% variations inthe seasonality of disease in cattle in hyper-endemic divisionof Andhra and meso-endemic region of Maharashtra states,respectively (Ramarao 1988).

Disease outbreak correlated with the mass movement ofanimals which in turn is dependant on the climatic factors

(Sharma et al. 1991).

Clinical mastitis: Higher incidence during hot and humid weather due to

increased heat stress and greater fly population associatedwith hothumid conditions (Singh et al. (1996)

Tick infestation: Hothumid weather conditions aggravate the infestation of cattle ticks

like,Boophilus microplus, Haemaphysalis bispinosa and Hyalommaanatolicum (Singh et al. 2000; Basu and Bandhyopadhyay 2004;Kumar et al. 2004).

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Business Opportunities: Carbon Trading

What is carbon trading?

Carbon trading is emissions trading specifically for

carbon dioxide (calculated in tones of CO2 equivalent)

and currently makes up the bulk of emissions trading.

It is one of the ways countries can meet their obligations

under the Kyoto Protocol to reduce carbon emissions

and thereby mitigate global warming.

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Genesis of CDM

1991: Negotiations to formulate aninternational treaty on global climateprotection began.

May 1992 negotiations completed in theform of UNFCCC

June 1992: The Rio Earth Summit,

UNFCCC opened for signatures 21 March 1994: UNCCCC comes into force

Conference of Parties

December 1997 Third COP Kyoto, Japan.

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Market Mechanisms under Kyoto

Protocol

Came into force from 16th Feb., 2005.

Three cooperative mechanisms

International Emissions Trading

Joint Implementation (JI)

Clean Development Mechanism (CDM)

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Potential benefits of CDM

attract capital for projects that assist to a moreprosperous but less green house gas-intensiveeconomy;

encourage and permit the active participation ofboth private and public sectors;

provide a tool for technology transfer, ifinvestment is channeled into projects that replaceold and inefficient technologies which lead to high

emissions and

help define investment priorities in projects thatmeet sustainable development goals.

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Status of CDM Projects

Status of CDM ro ects Number

At validation 1915

Re uest for re istration 45

Request for review 47Correction re uested 48

Under review 10Total in the rocess of re istration 150

Withdrawn 9Rejected by EB 52Registered, no issuance of CERs 621

Registered. CER issued 288

Total registered 909

Total number of projects (incl. rejected & withdrawn) 3035

As on 1st Feb., 2008

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India: 840 projects (28%)

370313 thousand CERs till 2012

CER prices

Euro 15-16

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Financial Risks

finance all or part of project activity;

financially contribute towards theincremental cost of the project over and

above the baseline technology, or financesthe removal of market barriers;

provide loan or lease financing atconcessional rates

agree to buy CERs as they are producedby the project (Pembina 2003).

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What if India also subjected to reductioncommitments?

Change in GDP relative to 2001

abare, 2006

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When people do not pay for the

consequences of their actions we have

a market failure

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Thank You