Long-term Integrated Impact Assessment
Economic assessment under Climate Change up till 2100
What do the results tell us?
The results of the long term integrated impact assessment, comparing a "low emissions – low growth" with a "high emissions – high growth" pathway, show that there is a notable difference between the direct economic effect of climate change on an economic activity and the resulting economic impacts to a country or a region. Secondly, the results show that the picture changes quite radically, when these effects are put in a broader economic context. Nearly all sectors across regions face negative impacts, especially under the "high emissions – high growth" pathway.
What can we do with the results?
The assessment allows for a comprehensive assessment of adaptation strategies, which not only looks at the current socioeconomic state of affairs but also considers how economic agents will respond to the effects of climate change in a future socioeconomic context. Our projections have shown that the latter element may have larger impacts on the economic consequences than the mere changes in climate.
How are the results obtained?
The long-term macroeconomic projections are derived from the global computable general equilibrium model GRACE, which integrates the impacts of climate change on specific economic activities. The model projects the consequences of climate change on main macroeconomic indicators, such as GDP, sector composites and prices in eight regions of Europe, in addition to a region that covers the rest of the world. Future economic impacts of climate change are projected with reference to given pathways for population, economic growth and emissions, while climate projections are based on the same emission pathways.
The "high emissions – high growth" scenario is based on the assumptions underlying the socioeconomic pathway described in SSP5, combined with the emissions in RCP8.5. The two pathways were matched by imposing a charge on CO2 emissions in a perfect global CO2 emission quota market. This price stays below 10 US$/tC until 2070, and then increases at nearly 10 percent per year on the average until 2090, when the carbon price reaches 55 US$/tC. The "low growth – low emissions" alternative combines the socioeconomic pathway in SSP4 with emissions in RCP4.5. Here, the assumed carbon price increases from 15 US$/tC in 2014 by 6-8 percent per year until 2080, reaching 1 150 US$/tC. From then on, the price increases slowly to 1 300 US$/tC in 2090.
The two socioeconomic pathways (SSPs) differ in three respects. Firstly, the population grows faster in SSP5 than in SSP4. In SSP5, there is a positive growth in most European regions throughout this century. The rate of growth in the population in the rest of the world declines until 2075, when it turns negative. In SSP4 there is a rapidly declining growth rate over the entire century, and it is negative in all European regions from 2070. Secondly, economic growth is higher in SSP5 than in SSP4. GDP per capita in 2090 is four times GDP in 2015 in most European regions in SSP5, while tripling in SSP3. Exceptions are the two eastern European regions, which exhibits a somewhat higher economic growth in both pathways. Finally, the differences in GDP/capita between regions level out in SSP5, while being sustained in SSP4. This is best illustrated by the GDP/capita in the rest of the world. It is less than half of the average European GDP/capita in 2090 in SSP4, while being slightly lower than the average European level in SSP5.
What are the broader applications?
Besides informing about the macroeconomic indicators in a national accounts format, the projections also indicate changes in sector prices and prices on the primary factors of production, labour, capital and natural resources.
Key Messages and Conclusions
Challenges to adaptation cannot be mitigated by high economic growth
The impacts of climate change under the "high emissions-high growth" scenario will be stronger and will occur much earlier than under the more moderate "low emissions-low growth" scenario. By mid-century, income per capita will already be one third lower than the level anticipated for the end of this century under the "low emissions-low growth" scenario. The economic impacts under the "high emission – high growth" pathway will also grow incrementally: from a 0.15 percent reduction in the growth rate in Europe between 2010 and 2050 to a reduction of 0.2 percent per year in the second half of the century. This means that there will be fewer resources available for adaptation, while at the same time the impacts of climate change and consequently also the need for adaptation will be considerably higher under a high-growth scenario.
Impacts of climate change on GDP by region in the "low growth – low emission" alternative
Impacts of climate change on GDP by region in the "high growth – high emission" alternative
In a broader economic context almost all sectors face negative impacts
The results of the assessments show a notable difference between the direct economic effect of climate change on an economic activity and the resulting economic impacts to a country or a region. This is illustrated in the four figures below.
When climate change effects are put in a broader economic context (see lower two figures), nearly all sectors across regions face negative impacts, and especially under the "high emissions – high growth" pathway (lower right side). Differences between sectors and regions are to some extent leveled out.
Direct effects of climate change in 2090 in the "low growth – low emissions" alternative. European average (bars) and ranges over European regions (lines)
Direct effects of climate change in 2090 in the "high growth – high emissions" alternative. European average (bars) and ranges over European regions (lines).
Economic impacts of climate change by sector in 2090 in the "low growth – low emissions" alternative. European average (bars) and ranges over European regions (lines)
Economic impacts of climate change by sector in 2090 in the "high growth – high emissions" alternative. European average (bars) and ranges over European regions (lines)
In the above figures the bars show the average direct cost of climate change (in percent) for certain sectors, while the vertical lines indicate the ranges across regions. Comparing the upper two figures, the "high growth – high emission" pathway (right side) give stronger impacts with wider ranges across regions in both directions than under a "low emissions – low growth" pathway (left side).
These projections describe the economic situation under an automatic adaptation scenario, i.e. taking into account how different economic agents will respond to climate change and make a comprehensive assessment of the resulting market effects, including the changes in trade patterns across regions. The responses within one single sector of the economy in one single region will have economic effects for all sectors across all regions.