2 july: department for international development - climate change and development policy
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Climate Change and Development PolicyBy Finn Tarp and Channing Arndt
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Introduction
• 2009 was a year of turmoil in the global economy• UNU-WIDER developed its 3-crisis work programme
(2010-13) in response to three large scale global phenomena:– Finance– Food– Climate change
• Alongside our traditional (foundational) focus on: poverty and inequality
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Policy Challenges for Climate Change• Adaptation: steps to reduce vulnerability to
climate shocks and sustain economic development
• Mitigation: steps to reduce emissions of GHGs and hence climate warming and uncertainty
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UNU-WIDER’s Response
• The ReCom aid, environment and climate change initiative• Development Under Climate Change (DUCC)
– Looking at the Zambezi and MENA regions + Vietnam and others• Collaboration with AERC
– Building research capacity for climate research• A series of contributions to the IPCC process• Consultations and conferences
– At different levels (national governments, RIO+20 and much more)– September 2012 WIDER development conference: bringing
researchers, policy makers together to share knowledge and debate issues -> formulating effective policy
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Conference Background: Where Did the World Find Itself in 2012?• Financial crisis lingering on AND future of
development finance unclear• The global food system (architecture) clearly
still under pressure• Climate scientists even more pessimistic about
future global warming (4 degrees rather than 2)
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Conference Messages: Back to “Big” Development Economics• As a profession we must not shy away from thinking deeply about:
– Large scale (global) phenomena– Uncertainty/extreme (low probability) events are critical
challenges– Conflict and global governance
• True across finance, food, and climate change • Developing optimal policy designs will require:
– Continuing to move out of the “silos”– Integrating data/knowledge from natural and social science– Recognising global solutions require deep understanding of
national interests
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Documentation of WIDER Work
• General overview: www.wider.unu.edu/climateresearch• Recom position paper:
www.wider.unu.edu/climateresearch/article/aid-environment-climate-change • DUCC website: see www.wider.unu.edu/ducc • UN Global Pulse: see
http://www1.wider.unu.edu/ducc/article/un-selects-ducc-project-watch-part-big-data-climate-challenge
• AERC on-line course: http://www.wider.unu.edu/publications/newsletter/articles-2011/en_GB/06-2011/
• A reference to the IPCC AR5: http://www.ipcc.ch/ • September 2012 WIDER Development Conference web-site: see
www.wider.unu.edu/Climate2012• Academic output: see
http://www.wider.unu.edu/publications/en_GB/index-revised-2010/
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Five Specific Lessons: Climatic Change Special Issue• Zambeze River Valley (DUCC)
– Arndt, Channing and Finn Tarp. "Climate Change Impacts and Adaptations: Lessons Learned from the Greater Zambeze River Valley and Beyond." Climatic Change. 130(1) (2015): 1-8.
– Converting uncertainty into risk– Importance of extreme events– Timing of impact– Inseparability of development and climate agendas– Assimilating climate information
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2014-18 UNU-WIDER Work Programme
• 15 Major Research Projects – ongoing within three themes: http://www.wider.unu.edu/research/en_GB/index/
• Transformation– remains at the core of economic development– requires that economic growth reallocate resources towards more productive sectors
• Inclusion– inequality is a key challenge for economic growth and redistribution, but also translates into power asymmetries
that can endanger democratization and human rights
• Sustainability– a multifaceted concern with environmental, social and economic dimensions– fundamental policy and investment decisions in energy, water resources, infrastructure, and agriculture interact
strongly with environmental issues at the global, regional, and national levels
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Two Major Current Projects
• Southern Africa Regional– Climate impacts for South Africa– Bioenergy– Regional growth strategies
• African Energy Futures– Regional and continental collaboration– Hydropower exploitation/potential– System linkages
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Questions for Today
• What are the implications of climate change for growth and development prospects to about 2050?– Focus on South Africa
• Is a regional energy strategy anchored in hydropower viable for Africa?– Focus on Southern Africa with explicit modeling
for South Africa, the major demand source.
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Related Academic Publications• South Africa Impacts (Southern Africa Regional)
– Cullis, James, Theresa Alton, Channing Arndt, Anton Cartwright, Alice Chang, Sherwin Gabriel, Yohannes Gebretsadik, Faaiqa Hartley, Gerald de Jager, Konstantin Makrelov, Gordon Robertson, C. Adam Schlosser, Kenneth Strzepek, and James Thurlow. “An uncertainty approach to modelling climate change risk in South Africa.” UNU-WIDER working paper 2015/045. April 2015.
• Regional Energy - Grand Inga (African Energy Futures)– Arndt, Channing, Rob Davies, Sherwin Gabriel, Konstantin
Makrelov, Bruno Merven, Faaiqa Hartley, and James Thurlow. "A sequential approach to integrated energy modelling in South Africa." Applied Energy. Forthcoming.
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Questions for Today
• What are the implications of climate change for growth and development prospects to about 2050?– Focus on South Africa
• Is a regional energy strategy anchored in hydropower viable for Africa?– Focus on regional hydropower with explicit
modeling for South Africa, the major demand source.
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Multi-sector Modeling Framework
Agriculture (food, exports)
Economy (growth, jobs,
welfare, inequality)
Global change (temperature, rainfall, world product prices)
Rivers (runoff, streamflow)
Flooding (frequency, severity)
Sea level rise (land loss, salination)
Energy (hydropower)
Infrastructure (roads, ports, houses)
Cyclones (storm surges)
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Integrated Modeling Framework
CLIRRUN/PITMAN
WRYM
IRRDEM/Smith IPSS
ADJUSTED FOR RSA MODELS
GCM HFDs LTAS Scenarios
Water supply to urban and industry
Development/Demand
Scenario(s)
Water supply (Local hydropower)
Baseline Climate
Scenario(s)
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Sectors
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Water Management Areas
Cape Town
Durban
Johannesburg
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Spatial variation on potential climate change impacts on the average annual catchment runoff by 2050. Median impacts from resulting from the HFDs analysis for the UCE scenario.
All models show drying in the west, and most models show wetting in the east, but with some models showing some drying. Generally increases over Lesotho.
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Climate Change Impact Channels• World commodity prices
– Consistent with unconstrained emissions scenario
• Road infrastructure– Costs to maintain the same road network
• Water supplies – Affects agriculture, industry and households
• Dryland agriculture– Crop yield deviations
• Simulations are cumulative
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Change in GPD Relative to Baseline
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Change in Agricultural Value Added
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South Africa Impacts Summary
• Based on the impact channels considered, we expect:– Mild negative implications for overall GDP growth – Increased costs to maintain the same transport
infrastructure resulting in consistent losses– Potentially strong economic impacts for
• Dry land agriculture (broad confidence intervals) • Water availability in certain WMAs• Infrastructure on a localized basis• Particular zones vulnerable to sea level rise
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Questions for Today
• What are the implications of climate change for growth and development prospects to about 2050?– Focus on South Africa
• Is a regional energy strategy anchored in hydropower viable for Africa?– Focus on Southern Africa with explicit modeling
for South Africa, the major demand source.
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Hydro-power potential in Africa
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Congo River: Inga I and II
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Congo River: Inga Falls
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Modeling Focus
• Grand Inga in the DRC as the major potential new source of supply.
• South Africa as the major source of demand.
• Building in regional/continental demands is in process.
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Economic Model (SAGE)• Standard Recursive Dynamic Model
– Past investment and profitability determines capital accumulation rates– Upward sloping labor supply curves
• Additional features:– Electricity investments amortized via electricity tariffs (+O&M costs)– Energy coefficients are a function of energy prices and investment funds
• 2007 SAM merged with 2007 Energy Balance Table– 62 sectors; 49 products; 9 factors; 14 representative households– Detailed energy subsectors (fuel and power)– See Arndt et al. (2012) SAJE; Davies and Thurlow (2014) IFPRI SAM
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Energy Model (SATIM)• Version of TIMES
– Inter-temporal bottom-up partial equilibrium model
– Only use power component
• Solves for least-cost power plant mix – Subject to constraints (i.e.,
electricity demand; reserve margins; and resource limits)
– Given system parameters (i.e., load curves; fuel prices; existing plants; new plant options)
Coal-fired
Nuclear
Hydropower
Solar (PV)
Solar (thermal)
Wind
Gas-fired
Diesel
Imports
Coal-to-liquid
Gas-to-liquid
Refined oil
Gas
Coal
Crude oil
Electricity
Petroleum
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Convergence
2006 2010 2014 2018 2022 2026480
490
500
510
520
530
540
550
560
Coupled runs every yearCoupled runs two yearsCoupled runs every four years
Year of coupled run
Ele
ctri
city
dem
and
in 2
030
(GW
h)
Baseline
Carbon Tax
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Policy Scenarios• Baseline
– Tracks “business-as-usual” scenario (Alton et al. 2014 Applied Energy)
1. Carbon tax – US$30 per ton of CO2 from domestic burning fossil fuels– Gradually introduced over 2015-2024– Recycle revenues by uniformly lowering indirect tax rates
2. Lift import restrictions3. Combined “tax with imports” scenario
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Electricity Demand and Prices
2010
2013
2016
2019
2022
2025
2028
2031
2034
-10
-8
-6
-4
-2
0
2
Carbon TaxImport policyTax with imports
Cha
nge
from
bas
elin
e (%
)
2010
2013
2016
2019
2022
2025
2028
2031
2034
-10
0
10
20
30
40
50Total demand (GWh) Average price (R/GWh)
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Electricity Supply Mix
Baseline Baseline Carbon Tax
Import policy
Tax with imports
Baseline Carbon Tax
Import policy
Tax with imports
2010 2025 2035
0
100
200
300
400
500
600 Coal Nuclear Renewables Imported Diesal, gas and waste
Elec
tric
ity su
pply
(GW
h)
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Emissions Reductions
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
-25
-20
-15
-10
-5
0
5
Carbon Tax
Import policy
Tax with importsCha
nge
from
bas
elin
e (%
) 13.3
11.4
13.0
10.2
Final per capita tCO2
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Economic Outcomes
Baseline Deviation from baseline, 2035Carbon
TaxImport Policy
Tax with Imports
Cumulative investment cost (US$ bil.) 94.90 19.10 -12.70 -53.80 GDP growth (%) 3.49 -0.98 0.20 0.49 Employment (%) 1.80 -1.56 0.05 -1.07 Wages (%) 1.15 -1.46 0.14 -0.82 Household welfare (%) 1.91 -0.96 0.24 0.61 Low-income (p0-50) 1.93 -1.17 0.24 0.33 Middle-income (p50-90) 1.85 -1.00 0.24 0.53 High-income (p90-100) 1.96 -0.84 0.25 0.79
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Conclusions: Regional Energy Strategy• Carbon tax on its own:
– Small negative economic impact, incl. reduced household welfare
• Lifting import restrictions without a tax:– Lowers investment costs and emissions, but gains are small
• Combining a carbon tax with import liberalization:– Halves investment costs and meets emissions targets without reducing growth
or welfare (but employment falls)
• Regional energy strategy offers a less expensive approach to “decarbonizing” the South African economy– Also addresses political economy concerns over adjustment costs
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www.wider.unu.eduHelsinki, Finland