I just published a policy discussion of the best options that developing countries have to deal with climate change, focusing on mitigation versus adaptation. It’s published in India‘s most important policy-oriented platform #Ideas4India. Enjoy!
This is a re-blog from my article in Ideas4India. I’d like to thank Shivani Chowdhry and Rishabh Mahendra for this opportunity.
IPAG Business School
Pathways reflecting current climate action commitments by different nations mean a global warming level much higher than the level at which the world will be faced with manageable climate damages. Furthermore, developing countries are going to face the maximum brunt of these damages. In this post, Ingmar Schumacher argues that it is in the own interests of developing countries to pursue full international cooperation on mitigation of climate change.
Current climate action pledges are expected to propel the average world temperature towards a warming of 3°C by the end of this century. This warming far exceeds the threshold of 1.5°C, which is deemed to be a level at which the world will be faced with manageable climate damages. Furthermore, when it comes to climate damages, the developing countries are the ones that are going to face the brunt of these damages. Among the group of developing countries, it is India that is expected to suffer among the most. Within India, climate damages are affecting the poor population disproportionately more than the rich. Consequently, not only will this significantly increase the international and the within-country inequality, but it will also lead to lower economic growth, more climate migration, higher debt, lower human health, and lower political stability.
Faced with this prospect, what should developing nations do? The world has two main policies available when it comes to dealing with climate change. One is the mitigation of climate change via emission reductions, and the other is the mitigation of climate damages via adaptation. Each option, however, has its merits and problems.
Mitigation of climate change
If the world wants to limit climate change, then the only option available is to significantly curb carbon emissions. Accomplishing this has, however, proven a far from simple task. The world’s nations have tried to find a consensus on how to reduce carbon emissions ever since the first United Nations Climate Change Conference (COP) in Berlin in 1995. While it is well-known that the most efficient way to reduce emissions is through the creation of a carbon market either by placing a price on carbon or by introducing a cap-and-trade1 approach, politicians have emphasised the importance of equity concerns. One concern, for example, is whether developing nations ought to face lower constraints on emissions than developed ones, so that they could still catch up to the wealth levels of those richer countries. Another concern is that the developed countries should bear the biggest burden of emission reductions as their historic and thus cumulative emissions are the main drivers of climate change.
Equity concerns, however, have significantly muddled the debate and it is thus no surprise that the world’s nations have not yet managed to come to a consensus for a top-down, cooperative approach such as the creation of a global carbon market. Instead, at the COP-21 meeting in Paris in 2015, the global cooperative approach gave way to a decentralised, non-cooperative one where all nations can outline their Nationally Determined Contributions (NDCs), that is, their prospective emission reductions. The problem with these NDCs is that, in addition to efficiency and equity, they introduce a strategic dimension. If, for example, one region decides to take up a leadership role (think of Germany’s Energiewende) and reduces its emissions by more than it would be necessary to reach the 1.5°C target hoping all other regions would act the same, then other regions can benefit from this by curbing their efforts to reduce emissions, spend the money on other policies and the world would still achieve the somewhat safe 1.5°C target. Also, regions that are expected to be impacted to a lesser extent by climate change may simply not contribute to these emission reductions at all. Finally, regions can pursue a wait-and-see strategy by delaying the announcement of their anticipated emission reductions in order to observe the other regions’ efforts and then choose their best responses.
It is for these reasons that all NDCs combined fall short of the emission reductions needed to limit global warming to at most 1.5°C. Instead, the current NDCs lead us on a path to levels of 3°C warming or above. Faced with these challenging levels of warming, regions are often argued to have little choice but to start preparing for the damages to come.
Adaptation to climate damages
Due to the lack of sufficient international efforts to curb carbon emissions, every country nowadays devotes a significant budget to the adaptation of climate damages. For example, the European Union (EU) has a 2013 EU Strategy on Adaptation, the United Nations Environmental Program supports countries through its National Adaptation Plan, and the United Nations Framework Convention on Climate Change (UNFCCC) has a Green Climate Fund in order to aid developing countries’ adaptation needs. In its National Action Plan on Climate Change, and in its First NDC outline, India devotes most discussion to various adaptation measures. The apparent ‘need’ to consider adaptation measures is being emphasised in a growing literature and is specifically endorsed by the Intergovernmental Panel on Climate Change (IPCC) that argues that “[e]ffective climate policy aimed at reducing the risks of climate change to natural and human systems involves a portfolio of diverse adaptation and mitigation actions.” When faced with limited mitigation efforts, adaptation is argued to be a blessing for developing nations.
However, from a global perspective, it makes little sense to invest in adaptation. In fact, the more money is used for adaptation instead of mitigation the lower will be global well-being. The argument is simple: A euro invested in adaptation benefits only a small subset of the world’s population. For example, installing air conditioning (in India some regions reached 45°C in 2019) is a form of adaptation that only benefits a family, while a dam benefits at most a smaller proportion of a region’s inhabitants. Instead, a euro spent on reducing carbon emissions affects everyone on the planet. Imagine every person on the planet spends 100 euros on adaptation. This is a rather conservative amount, as, for example, the installation of an air conditioning unit already costs several thousand euros. The global total of this adaptation expenditure would amount to 780 billion euros. This is significantly more than the total expected costs of emission reduction (estimated to be 260-600 billion euros) required to limit warming to 2°C by 2030. In fact, recent estimates suggest that the annual costs of adaptation could amount to 125-270 billion euros from 2030 onwards, and it would reach the double by 2050. It is thus much cheaper to globally mitigate than to adapt.
An additional problem arises from the observation that other countries’ efforts to curb their emissions also depend on the expected costs of climate change. If adaptation is sufficiently effective and regions can adapt to climate change, then other countries can even afford to increase their emissions again as now the marginal climate damages are rather low. This may lead to a vicious circle of increased adaptation, followed by a rise in emissions, which subsequently requires an increase in adaptation again. The result will not only be much more climate change, but also escalating costs of adaptation. The adaptation option may thus easily turn out to be a curse for developing nations.
What should developing countries do?
Viewed from a global perspective, it is obvious that the optimal solution is a coordinated effort to curb carbon emissions to limit warming to an increase of 1.5°C compared to pre-industrial levels. With reduced international cooperation, and when viewed from an individual country’s perspective, strategic aspects start to play an important role, and adaptation turns out to be a relevant policy option.
But the expectations placed upon adaptation may be set too high. Recent empirical evidence (Henseler and Schumacher 2019) finds that the biggest burden of the climate damages is expected to fall upon the poor. Most worryingly, the data show that damages not only affect economic growth in poor countries, but also all factors of production (labour, capital, and productivity) are impacted. This suggests that the poor countries have not been able to shield their economic activity from climate damages. This may either be the case because there was not sufficient funding for adaptation, or because it turns out to be simply too difficult to adapt to the impacts of climate change.
Assuming it is possible for developing countries to adapt to climate change, budget limitations will be a significant stumbling block. As suggested above, hundreds of billions of euros will be necessary every year to adapt to the expected climate damages. This money will need to be pulled away from other public projects such as education, infrastructure or health, which in turn will reduce growth in the developing countries and will make it much harder for the poor to catch up to the rich or to finance the energy transition that is needed to achieve a sustainable energy production.
Another problem is that while the rich countries were the biggest emitters of carbon emissions until around 2010, it is now the developing countries that are starting to pollute the most. Nowadays, China is by far the biggest emitter of carbon (26% of global emissions), followed by the US (13%), and then India (7%). And the developing countries are catching up fast. India’s CO2 emissions grew steadily from 0.12 gt (gigatonne) in 1960 to 1 gt in the year 2000 and reached 2.45 gt in the year 2017. According to its NDCs India plans to reduce its energy intensity, but national emissions are going to increase nevertheless.
India is still developing. If it were to catch up to the current per capita GDP level of the US with a similar emission profile, then its emissions would increase by a factor of 10. This implies that India alone would produce two-thirds of today’s annual global carbon emissions. If China grows in a similar way, then India and China alone will be responsible for annual carbon emissions that are 1.5 times today’s amount. It goes without saying that this will lead to a level of climate change that the world is highly unlikely able to adapt to. However, when it comes to international climate agreements and strategic interaction, this growth potential in carbon emissions may give them a leverage that developed nations cannot ignore.
A forward-looking suggestion
In India, as is the case for most developing countries, currently 70% of the energy comes from fossil fuels. Given India’s National Electricity Plan, it is less likely that India will increase its per capita carbon emissions to the exorbitant level of the US. Nevertheless, in line with most developing countries, India’s carbon emissions are going to increase also in the future unless there is a significant game changer. Countries such as China and India are currently seeing the fastest growth, and the infrastructure that they develop now is going to be in place for several decades. Without a doubt, putting a green infrastructure in place now is going to be cheaper than scrapping fossil-based infrastructure ahead of the end of its lifetime and replacing it with renewable-based infrastructure.
A suggestion, therefore, is that developing nations start to negotiate with developed countries based on this history dependence. One of these potential game changers is, for example, a further boost to international cooperation. While the EU-India initiative on clean development and climate change is a good starting point, it is also clear that time is limited if the world wants to reduce carbon emissions. In order to reduce carbon emissions despite economic growth, developing countries need to have full access to the developed countries’ cheap and highly developed sustainable energy technologies, and they need finances in order to employ them at a large scale.
Another point is that the developing countries likely lack the means to fully adapt to climate change, and that in turn their emissions will grow to levels that lead to unsustainable warming. It is, therefore, also in the own interests of developing countries such as India to pursue full cooperation on mitigation, be it through carbon pricing or a global cap-and-trade programme (with potential equity adjustments). This will turn out to be a significantly cheaper way to deal with the climate problem than unilateral adaptation with smaller emission reductions, both at the global level and the sovereign one.
- Cap-and-trade refers to a regulatory system that aims at reducing carbon emissions and environmental pollution. Under a cap-and-trade programme, a limit (or ‘cap’) on certain types of emissions or pollutants is set, and companies are permitted to sell (or ‘trade’) the unused portion of their limits to other companies that are struggling to comply.
- Government of India (2008), ‘India: National action plan on climate change (NAPCC)’, Prime Minister’s Council on Climate Change. Available here.
- Hayden, ME, ‘How climate change is hitting India’, The Years Project.
- Henseler, Martin and Ingmar Schumacher (2019), “The impact of weather on economic growth and its production factors”, Climatic Change, 154:417-433.
- Pandve, Harshal T (2009), “India’s National Action Plan on Climate Change”, Indian Journal of Occupational & Environmental Medicine, 13(1):17-19. Available here.
- Sarkar, S (2017), ‘India is one of most vulnerable nations to climate change impacts’, thethirdpole.net, 12 November 2017.
- Schumacher, Ingmar (2019), “Climate Policy Must Favor Mitigation Over Adaptation”, Environmental and Resource Economics, 74:1519-1531.
- The World Bank (2013), ‘India: Climate Change Impacts’, Feature Story, 19 June 2013.
- UNFCCC (2015), ‘India’s Intended Nationally Determined Contribution: Working Towards Climate Justice’. Available here.
- Climate Action Tracker, ‘India: Country Summary’.