the effects of climate change on economy and policy

8/9/2019 The Effects of Climate Change on Economy and Policy

1/19

THE EFFECTS OF CLIMATE CHANGE ON ECONOMY

AND MICROECONOMIC POLICY FOR THE

MITIGATION

Written by:

1Tanuwidjaja, Gun awan

1MSc. Environment al Management (NUS), S.T. (ITB)

Urban Planner & Researcher,

Green Impact IndonesiaIntegrated Urban, Drainage and Environmental Planning and DesignEmail: [email protected]://greenimpactindo.wordpress.com/about/

This paper was prepared originall y prepa red for MSc. Environmental Management,

Environmental Econ omic Course in 2005. But we are encouraged to share thi s due

to the importance impact of Climate Change on the Economy. Further we would l ike

to present some climate change effects and their impacts on economic

activities. Later w e also w ould like to disc uss of conceptual tools in

microeconomics that cou ld be used for policy analysis and our expectations to

make a change.

Atmosphere holds an important function of preserving earth as the habi tat for all

li ving organi sms. The earth i s maintained by the greenhouse effect. Thi s effect sta rts

with Earth surface receiving radiation from the Sun and reflecting it into the space.

The greenhouses gases later absorb the radiant heat from Earth and transmit it back

to lower atmosphere keeping the earth warm. This p rocess wil l be described in

Figure 1.1 The greenhouse gases (GHG) a re wate r vapor, carbon dioxide, ozone,

methane and nitrous oxide, further described Table 1.2

Since 1750, three kinds of anth ropological activities had been contributing to massive

amount of greenhouse gases to atm osphere. They a re use of fossil fuel,

deforestation, and cultivation of rice using inorganic fertil izers. 3 The increase of

greenhouse gases volume seem s to raise the global average surface temperature

since that time. The Third Assessment Report (TAR), p roduced by International

Panel on Climate Change (IPCC), revealed that in the 20th century the temperature

has ri sen to 0.6 0 .2C. 4 This trend will be described in Figure 2 and 3. 5


2/19

The global warming may not be the only impact from greenhouse effect. In fact the

irreversible global clim ate instabil ity in hundreds of years which ha ve been detected

by IPCC li kely caused by clim ate change. It is further described in Table 2 and Figure

4.6 Three examples of impacts from global cl imate instabil ity are:7

Water deficiencies

Rising sea level and increase number of hurricanes

Increase numbe r of forest fi res.

Because of longer drought and higher earth surface temperature, lack of water

supply will become a major problem in tropics region especial ly for the agricultural

sector. Lack of water may increase p rodu ctions cost, cause crop failures and affect

farmers livelihood. Of cou rse the economic development is also affected by the se

catastrophes.

Many urban areas in the world face flooding because they are located in the low

flood plains or coastal areas. Apparently rising of sea-level and increasi ng numbers

of hurricanes worsen the impact of flood, for example Katrina Hurricanes. In the 28th

August 2005 Katrina struck New Orleans with 175 mph or Category 5. The hurricane

has injured 187,862 people and made 196,395 people falling ill. It was predicted that

600,000 houses and 6,000 busine sses were affected and 2/3 of them were

destroyed. The damages were enormous because 70% the city is belo w sea-level

and New Orlean s levee s cannot sustain the Katrina storm surge.8

Insurance businesses have forecasted the damage of Kat rina at $25 Bill ion Dollars

but total loss by Katrina actually can be greater. Referring the Financial Times, it

can reach $100 Billion.9

The Indonesia forest fires can al so de scribe the clim ate change effect. Beside of loss

of anim al and plant, apparently the haze from the event has damaged the people

health and affected economic activities in neighbouring countries. In 1997, the total

loss for Indonesia, Singapore and Malay sia reported to reach US$ 4.5 Bil li on. All

these phenomena sho w that global climate change really affects the economic

development and probably contributes to the recent global economic recession. 10


3/19

Further we a re going to di scuss th ree microeconomics conceptual tools to pre scribe

policy to mi tigate the climate change. The tool s I select are:

The economic system and natural environment

Environmental goods as quasi-publ ic goods and market failure

Valuation of environmental goods and service s threshold value s method

Economic system i s not an independent system. This is showed in the improved

economic system concept by Knee se, Ayres and DArge (1970). The concept

actually explained the relationship between the nature and the economic. The natural

environment provides the raw material s for the system, receives its pol lution and

provides the am enities. So the environment could not be abandoned or the natu ral

resources deficiencies as well as environmental degradation would harm the

economy fu rther as described Figure 5, Appendix. 11 This i s al so the reason for the

endowments to improve environment qual ity in the model a s suggested by

Thampapillai (2002) which described in Figure 6. 12

The problem of climate change derives from the market failure for atmosphere

services. Atmosphe re i s a qua si-publ ic good which is non-rivalry and non-diminish-

abil ity in consum ption also zero marginal costs to a certain point. On the other hand,

it shifts into a private good after faili ng to provide fresh air, stabile climate, rain, etc

that forces people to compete for thi s. The other market failure i s the free -rider

problem. This i s because people can get fresh ai r and can em it pollution to the air

freely. It means that eve ryone would compete to use as well as pollute the air without

concerning the envi ronmental condition as well as other needs. Thi s i s actual ly the

real current condition. If thi s i s continued the envi ronmental degradation as well as

economic recession wil l be worsened. 13

From two concepts can be concluded that the valuation of atmosphere functions

should be done to determ ine the policy to reduce the pollution and mitigate it. IPCC

apparently has developed several good clim ate models but sti ll i t produces several

different results of m itigation costs due to different m ethodologies. 14

Further I decide to select the Threshold Values Methods in valuing the clim ate

change. The threshold values from Krutil la and Cicchetti (1972) introduces the

valuation of rare environments.15 This study actually showed that in certain level the

pollution m itigation cost actual ly exceeds the profit from the e conomic production.


4/19

And thi s would cause From TAR of IPCC, I took the cost-effective g raph from Manne

and Richels (1997) and Edmonds et al . (1997). 16

Figure 7: Relationship between presentdiscounted costs f or stabilizing theconcentr ation of carbo n dioxide in theatmosphere at alt ernative levels f rom t wo

studies. Costs are discounted at 5 %/y r overthe time period 1990 to 2100. Sources:Manne and Richels (1997) and Edmonds etal. (1997).

17

These analyses searched the relation ships between steady stat e concentrations and

marginal cost to reduce the CO2 concentrations from present stat e. The se studies

examined three global emissions t rajecto ry, one prescribed by IPCC (1995), named

WGI; another prescribed by Wigley et al. (1996), named WRE; and a minimum-cost

emissions path, all with di scount rate of 5% f rom 1990 to 2100. The researches

concluded that cost to remove CO2 to reach 450 ppmv is g reater than to reach 750

ppmv.18 This shows that the right to em it CO2 i s quasi-public goods or semi-public

goods. It means in certain level the pollution right have to be limited because it

abatement or m itigation cost would be very expensive in the certain level. And it

means that only im proving environmental technology would not answer the current

situation. Because everyone would get more benefit f rom their economy activities

rathe r than concerning the environmental degradation.

On the othe r hand, real integrated strategy in reducing em ission and mitigating the

climate change impact is needed. And the economy mea sure such as carbon trading,

environmental taxes, eco-friendly incentives are extrem ely important. I hope the se

policies can reduce the free rider problems and help Government in improving the

environment. It also can promote the more eco-friendly economic activi ties which can

be sustainable for the World.


5/19

Appendix

Figure 1: The Earths annual and global mean energy balance. Of the incoming solarradiation, 49% (168 Wm2 ) is absorbed by the surface. That heat is retu rned to the

atmosphere as sen sible heat, as evapot ran spiration (latent heat ) and as thermalinfrared radiation. M ost of this radiation is absorbed b y the atmo sphere, which in turnemi ts radiation both up and do wn. The radiation lost to space comes from cloud tops

and atm ospheric regions much colder than the surface. Thi s causes a greenhouseeffect. Source: Kiehl and Trenberth, 1997: Earths Annual Global Mean EnergyBudget, Bul l. Am. M et. Soc. 78, 197-208. 19


6/19

Table 1: Greenhouse Gase s and Their Propertie s. 20

Greenhouse Gas Human Sou rces Average

Time inTroposphere

Relative

WarmingPotential(comparedto CO2 )

Carbon dioxide

(CO2 )

Fossil fuel burning, especially

coal (70 -75%)

50-120 yea rs 1

Methane (CH4 ) Rice paddie s, guts of cat tle andtermites, landfills, coal seam s,and natural gas leaks from oil

and gas production andpipelines

12-18 years 23

Nitrous Oxide (N2O) Fossil fuel burning, ferti lizers,live-stock wastes, and nylonproduction

114-120years

296

Chlorofluorocarbons

(CFCs)

Air conditioners, refrigerato rs,

plastic foams

11-20 years

(65-110years instrat osphere)

900-8,300

Hydrochloro-fluorocarbons

(HCFCs)

Air conditioners, refrigerato rs,plastic foams

9-390 470-2.000

Hydrofluorocarbons(HCFCs)

Air conditioners, refrigerato rs,plastic foams

15-390 130-12,700

Halons Fire extinguishers 65 5,500

Carbon

tetrachloride

Cleaning solvents 42 1,400


7/19

Figure 2: Indicators of the human influence on the atmosphere during the industrialarea. 21


8/19

Figure 3: Variation s of the Earths surface tempera ture for past 140 and 1000years.22


9/19

Table 2: Examples of Impacts f rom projected changes in extreme climate event s.23


10/19

Figure 4: The costs of catastrophic weather events have exhibited a rapid upward

trend in recent decade s. Yearly economic losses f rom large events increased 10.3-

fold from US$4 bil li on yr-1 in the 1950s to US$40 bil li on yr-1 in t he 1990s (all in 1999US$). The insured portion of these losses rose from a negligible level to US$9.2

bi llion annuall y during the same period, and the ratio of prem iums to catastrophelosses fell by two-thirds. Notably, costs a re large r by a factor of 2 whe n losses fromordinary, non-catastrophic weather-related events are included. The numbersgenerally include cap tive self-insurers but not the less-formal types of self-insurance. 24


11/19

Figure 5: The economic system revised for material balance. 25


12/19

Figure 6: The economic system revi sed - material balance and ent ropy.26 Additionalexternal ities flow added by the writer of thi s paper.


13/19

The Writers Description

I. Personal Information

u name : unawan anuw a a

e-ma : gun e ya oo.c om

website : http://gr eenimpacti ndo.word press.com/o e one : + n ones a

Place of Bir th : Bandung

a e o r : o ugus

ex : a e

a ona y : n ones an

o er anguage : n ones an

Language Skill : Indonesian, English

II. Education Backgrounds

Formal Educ ation

ame o

InstitutionCity/Countr y

u y me

(Months/Years)

ra ua e rom

(M onth and Year)Specializat ion GPA

a ona

Universit yof

Singapore

Singapore 1 year October 2006

c

Environment

Management

.

from scale

of 5

Bandung

Institute of

Technology

(Institut

Teknologi

Bandung)

Bandung /

Indonesia5 years July of 2001

Bachelor of

Architecture

2.73

from scale

of 4

III. Info rmal Education

StudyT ime (Y ears) Name of Institution Course Name & Spe cialization

ngapore ns u e o anner pa a annng or a us ana e

Singapore (1-day seminar)

ee uan ew c oo u c o cy essons o o earn rom mercan

Cities" by Prof Alan Altshuler (Half-day

seminar)

a ona n vers y o ngapore, acu yo

Engineering, PAC (Professional Acti vities

Centre)

or ourse n as

To Petrochemicals ( 3-days seminar)

ngapore ns u e o anner es na on esor s, e ex ave

(1-day seminar)

ngapore ns u e o anner, a ays a

Institute of Pl anner and Uni versiti

Kebangsaan Malaysi a

em nar o annng o s an ar

Development R egion (1-d ayse minar )

2001 The Bri tish Instit ute IELTS Prep aration Co urse

anguage en er ng s r ng ourse

Architecture G unadharma ( IMA-

Gunadharma)

rc ec ure epar men u o a ra n ng


14/19

StudyT ime (Y ears) Name of Institution Course Name & Spe cialization

- a n nge a s ng s ourse ng s ourse eve o

- a n nge a s ng s ourse ng s ourse eve o

IV. Working Exper ience

ame o

Institute/Companies

City/ Countries Position Job Descriptionon rac

Periodsreen mpac n onesa

Integrated Urban,

Drainage and

Environmental Planning

Consult ant

an ung anager eam ea er an

Urban Pl anner

ar c o

now

and Development,

Institute of Water

Resources, Ministry of

Public Wor ks, Republic of

Indonesi a,

and Management

Expert

now

urong onsu an s e

Ltd., Planning Division

ngapore anner ys ca anner ovem er

to Oct ober 2008

a ona ar s oar ,

Republic of Singapore

ngapore nern esearc er uy o

Aug 2006

Agency for R esearch

and Development,

Institute of Water

Resources, Ministry of

Public Wor ks, Republic of

Indonesi a,

Bandung/ Indonesia Junior

Researcher

GIS Expert

Assistant (Arc View

3.2), i n Pol der Team

Jan 2005 - A ug

2005

a yam ra asapur

Engineering

an ung n on es a un or rc ec ,

Estimator

ouse, ac ory an

Caf Design

ug - ec

2004

. r n as uana ama an ung n onesa un or rc ec par men es gn ug - ug

2003

PT. Imesco Dito Jakarta/ Indonesia Junior Architect Junior Architect Jan 2002 Aug

2002

an ung n onesa un or

Researcher

r an eveopmen

Research,

especi ally on Urban

Garbage

Management

ug - an

2002

CV. Cipta Bina Sar ana Bandung/ Indonesia Wor k Trainee Junior Architect May- J uly 2001

ASPEK Bandung/ Indonesia Program

FacilitatorCommunity

Recovery

Program (CRP-

HUI) in RW 11,

Cibangkong

District

Garbage

Manage ment ,Mechanis m Ma king

and Contr olling of

Cooperati ve Credit

Unit

Jan 2000 - A ug

2001


15/19

V. Research, Planning & Design Works

Name of Proj ect Position Year

n er reen mpac n ones a

ss s ance or recora e o

Spati al Planning, Public Wor ks

Department (2 009), Sus tainable

Urban Impro vement Program(SUSIP) - Executive Presentation

eam ea er an r an anner ec

ra nage as er an

Revit alisation in Summarecon,

Kelapa Gading, J akart a, I ndonesia

eam ea er an r an anner pr ec

osp a r e m nar y es gn an

Study i n Pangalengan , West Ja va,

Indonesi a (Proposal to KPBS, Milk

Producer Cooperative in

Pangalengan)

eam ea er an en or rc ec pr ug

ommun y ase eve opmen

Revitalisation in PT Newmont

Nusa Tenggara, Sumba, Nusa

Tenggara Barat, Indonesia

(Proposal)

eam ea er an nvronmen a s ug

ra on a ar e a pp ng,

Database and Analysis i n the

framework of Implementing

Presidential Decree No 11 2/2007

on Development of Traditional

Market and Relocation of Modern

Market in I ndonesia (Pro posal to

Ministry of Trade of Republic of

Indonesi a)

eam ea er an r an anner ug

n egra e a er esources

Management Plan for Barang kal

River, sub catchment of Brantas

River Basin, i n relation with Soci al

Aspect and Institution Capacity

Building (Proposal to JICA)

eam ea er an nvronmen a s ug

9 Pearl Elementary School in

Bandung

Team Leader and Architect 2003

roposa ers a o c oo

(Proposal)

eam ea er a n rc ec

Under Jurong Consultants Pt e

Ltd.

Preliminary Study and Brief

Development C oncept of QEZ3,

Petrochemical Complex, Qatar

Planner 2007 to 2008

era ass e a e as er an,

Greater Mohali Area, Punjab, India

anner o

Libya Africa Economic City Planner 2007 to 2008

onog r n us r a ar , n onesa anner o


16/19

Name of Proj ect Position Year

(Guanxi State Far m - Biofu el Plant)

as er an n ay n usr a

Servic e Ce ntre

anner

Master Plan Zhangzhou Waterfront

City, China

Assi stant Planner 2006-2007

as er an n erna onaTech City, T amil N adu, India

ss san anner

c nv ronmen a

Management P rogram

eo ewp a co age as er

Plan in Kranji Singapore

anner nv ronmen a s

n er ng neerng

BTC Caf Junior Architect 2004

Kopomas Fac tor y Junior Architect 2004

rva e ouses an ung unor rc ec, es gn

Development

Under PT. Trinitas Buan a Utama

ena ouses n an ung u o oor na or

Bukit Resi k Exclusi ve Aparment Studio Co ordinator 2002 2003

e an . arman e

Housing

u o oor na or

Under PT. Imesco Dito

r va e ouses n a ara un or r c ec

ree ance ro ec

ang ong ow os ous ng,

Bandung Indonesia

na ear u en

es gn eveopmen o

SETRA Hot el, Spa and Cot tages,Bandung Indonesia under Cipta

Bina Sarana

unor rc ec , es gn

Development

as er an o pu r ous ng e

Plan, Jakart a under Prof Ir.

Danisworo

un or rc ec

VI. Awards, Prestige, Activities, and Publication

wa r s

Prestig e

es sser a on rzes rom e , a ona n vers yo ngapore, -

Shell Grant Bursar yHolder i n MEM Na tional Uni versi ty of Si ngapore , 2005-2006

Second Champion of Design Competition of Informal Traders Stand held byTh e Municipal\

Govern ment of Kota Bandung, Praksis dan IMA-Gunadharma IT B Year 2001

c v es an ung n epen en v ng e n er ( )

2003 - 2004 : Voluntary Attendant for Difable (Disable) Person

2003 : Coordi nator Research T eam in Accessibility Issue for Difable (Disabl e) Perso n in Several

Location in Bandung

Forum Gelar Kota Bandung (City Development Discussio n Foru m)

2002 : Foru m Gel ar Kota Secretariat

2001 : Junior Researcher

Ikatan Mahasiswa Arsitektur Gunadhar ma IT B (Guna dhar ma Student Union of Architect ure

Depart ment o f ITB)


17/19

2001 Member of L egislative Bodies of IMA - Gunadharma

Member of Sus tainable Human Settlement Discussi on Group

Co ordin ator of TOR Team of Sustainable Human Settl ement Seminar

1999 2000 Coordinator of Gra dasi (Archit ect ure Bulletin of IMA-G)

OSIS SMAK I BPK Penabur (Student Union of BPK Penabur Senior High School)

OSIS SMP St Aloysius (Student Union of St Al oysius Junior Hig h School)

Publication s Integration o f Sustainable Pl anni ng Policy and D esign of Low-Cost Apartment, in the Context ofSustai nable Urban Development, National Seminar of Low-Cost Apart ment, Maranatha

University, Bandung, Indonesia, 2009.

Bamboos as Sustainable and Affordable Material for Housing as one of alternatife material of L ow-

Cost Apartment, Nati onal Seminar of Lo w-Cost Ap artment, Maranatha University, Bandung,

Indonesi a, 2009.

Guidelines f or Developing Polder System in Indonesia, Agency for Research and De velopment,

Institute of Water Resources, Ministr y of Public Wor ks, Republic of Indonesia, 2008-2 009.

Developi ng a Landscape E valuation Tool for Developing Countries, Cas e Studies Bi ntan Island,

Indonesi a, MSc Environm ent Management Program, National Uni versity of Singap ore (Bes t

Disser tation Award)

Report of Res earch in Accessibilit y Iss ue for Difa ble (Disable) Perso n in Several Location in

BandungReports of Bandung Urban Discussi on Forum on Urban Solid Waste Management , January 2002.

Reports of Bandung Urban Discussion Forum in Housing Needs, August 2001.

Thesis of Design Studio, Cas e of Low Econo my Flat for C ibang kong Village, Bandung, Indonesia

(Kelurahan Cibang kong), Theme Pattern Language Arc hitect ure

Semi nar Report of Housing Devel opment Based on LowEconomy People.

1Houghton J. T. et al. (eds. ), Climat e Change 2001: The Sci entif ic Basis, Int ergovernmental

Panel on Climate Change, p.90, http://www.ipcc.ch2Miller G.T. (2004), Envi ronmental Science, Working With the Earth, Thomson Brooks/C ole,

South Melbourne, p. 282

3Miller G.T. (2004), Envi ronmental Science, Working With the Earth, Thomson Brooks/C ole,

South Melbourne, p. 283

4Houghton J. T. et al. (eds. ), Climat e Change 2001: The Sci entif ic Basis, Int ergovernmental

Panel on Clim ate Change, p.101, http://www.ipcc.ch

5 http://www.ipcc.ch6 McCarthy J.J. et al. (eds), Technical Summary, Cli mate Change 2001: Impacts,

Adaptation, and Vulnerability, The Intergovernmental Panel on Climate Change,

Pp.29, 42 http://www.ipcc.ch

7Miller G.T. (2004), Envi ronmental Science, Working With the Earth, Thomson Brooks/C ole,

South Melbourne

And

McCarthy J.J. et al. (eds), Technical Summary, Climate Change 2001: Impacts, Adaptation,

and Vulnerability, The Intergovernmental Panel on Climate Change, p.29, http://www.ipcc.c h


18/19

8

www.cnn.c om9

www.inf lationdata.co m10

www.haze-onlin e.or.id

11Kneese A.V., Ayres R.U., and DArge R.C. (197 0), Economics and Env ironment: A Material

Balance Approac h, Resources for the Future, Washington D.C.12

Thampapillai D.J. (2002), Environmental Economics: Concepts, Methods, and Pol icies,

Oxf ord Univ ersities, Melbourne

13Thampapillai D.J. (2002), Environmental Economics: Concepts, Methods, and Pol icies,


14 Summary for Policymakers, Cli mate Change 2001: Synthesis Repo rt,

Intergovernmental Panel on Climate Change, http://www.ipcc.ch 15

Thampapillai D.J. (2002), Environmental Economics: Concepts, Methods, and Pol icies,


16 Banu T. et al., Summary For Policymakers, Cli mate Change 2001: Mitigation, The

Intergovernmental Panel on Climate Change, p. 615, http://www.ipcc.ch

And

Manne, A. S., and R. G. Richels, (1997), On Stabil izing CO2 Concent rations - Cost-

Effective Emi ssion Reduction Strategies. Envi ronmental Modeling & Assessment,

2(4), p.251-266.

And

Edmonds, J., M. Wise, and J. Dooley, 1997: Atm ospheric Stabilization and the Role

of Energy Technology. In Climate Change Policy, Risk Prioritization and U.S.

Economic Growth. C. E. Wal ker, M. A. Bloomfield, M. Thorning, (eds. ), American

Council for Capital Formation, Washington DC, Pp.71-94





19Houghton J.T. et al. (eds.), Climate Change 2001: The Scientific Basis, Int ergovernmental

Panel on Clim ate Change, p.90, http://www.ipcc.ch

20

Miller G.T. (2004), Environmental Science, Working With the Earth, Thomson Brooks/Cole,South Melbourne, p. 282

21 http://www.ipcc.ch

22 http://www.ipcc.ch

23McCarthy J.J. et al. (eds), Technical Summary, Cli mate Change 2001: Impacts,


p.29, http://www.ipcc.ch


19/19

24 McCarthy J.J. et al. (eds), Technical Summary, Clim ate Change 2001: Impacts,


p.42, http://www.ipcc.ch

25 Kneese A.V., Ayres R.U., and DArge R.C. (197 0), Economics and Env ironment: A Material

Balance Approac h, Resources for the Future, Washington D.C.

26 Thampapillai D.J. (2002), Environmental Economics: Concepts, Methods, and Pol icies,


the effects of climate change on economy and policy

Documents