ProdukHukum BankIndonesia
Climate Change and
developing countries
Denis Medvedev, Dominique van der Mensbrugghe,
and Hans Timmer
The World Bank
Bank Indonesia Annual International Seminar
Macroeconomic Impact of Climate Change
Nusa Dua, Bali, August 1‐2, 2008
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
• Climate impact has come earlier than expected and
developing countries are most vulnerable, with large impacts
on India
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
• Climate impact has come earlier than expected and
developing countries are most vulnerable, with large impacts
on India
• Current analysis includes distributional impacts within
countries and poor are hit hardest
Development strategies are central focus
• Developing countries have to become key players in climate
change policies
• Climate change policies must be integrated into development
strategy
ENVISAGE: Model features
• Standard dynamic global CGE, used for long‐term scenarios,
trade and migration analysis, MDG studies, and linked to
micro‐simulation tools.
• Flexible aggregation (regions and sectors) and time frame.
• 2004 GTAP‐based base year including IEA‐based energy
demand and trade (MTOE) and estimates of CO2 emissions by
sector and fuel.
• Integrated climate module with links from emissions to
radiative forcing to temperature change to change in
agricultural productivity.
• Flexible energy demand system
• Multiple emissions controls—carbon taxes, caps, cap and
trade, demand exemptions.
Energy demand nest
Energy bundle
Electric bundle
Non‐electric bundle
Existing and alternative
technologies
Oil and gas bundle
Coal bundle
Coal and alternative
technologies
Oil bundle
Oil and alternative
technologies
Gas bundle
Gas and alternative
technologies
Key dynamic assumptions
• UN population forecast—labor force growth equated to
growth of working age population (15‐65).
• Rural to urban migration in developing countries.
• Savings rate driven by growth and youth and elderly
dependency rates.
• Productivity in agriculture is exogenous (2.5% per annum).
• Productivity in manufacturing is higher than in services (2%).
• Productivity is calibrated through 2015 and then fixed.
• Autonomous energy efficiency improvement (AEEI) increases
by 1% per annum (in all regions and sectors).
• Capital account is exogenous.
Four scenarios
First preliminary work
Still lots of caveats
• Baseline, or business‐as‐usual, with climate change damages
to agriculture (Cline, 2007)
• Baseline without climate change damages
• Global mitigation scenario—targeting 515 ppm carbon
concentration by 2050 via a global uniform tax
• Country‐specific mitigation scenario—targeting 515 ppm
carbon concentration by 2050 via a country‐specific tax
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
Developing countries accelerated
Forecast
Real GDP, percentage change
8
Developing countries
6
4
2
High-income countries
0
1980
1985
Source: World Bank
1990
1995
2000
2005
2010
Baseline GDP at constant prices
8
160
Developing growth rate, left‐axis
7
140
6
120
5
100
4
80
High‐income growth rate, left‐axis
3
60
2
40
1
20
0
0
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Developed, right‐axis
Source: Simulations with World Bank’s ENVISAGE model.
$2004 trillion
Percent per annum
Developing, right‐axis
Baseline emissions
40
5.0
World growth rate, left‐axis
35
4.5
Developing, right‐axis
30
25
3.5
20
3.0
15
2.5
10
2.0
5
1.5
0
2005
2010
2015
2020
2025
2030
Source: Simulations with World Bank’s ENVISAGE model.
2035
2040
2045
2050
High‐income, right‐axis
Gigatons of Carbon (GtC)
Percent per annum
4.0
Baseline emissions intensity
Tons of carbon emissions per million $ of output (current prices)
500
World
450
Developing
400
350
300
250
200
150
100
50
0
2005
2010
2015
2020
2025
2030
Source: Simulations with World Bank’s ENVISAGE model.
2035
2040
2045
2050
High‐income
Country‐specific carbon taxes to reduce
emissions in 2050 by half
2050 tax per ton of carbon, in 2004US$
Japan
Middle East and North Africa
EU 27 and EFTA
Latin America and the Caribbean
United States
Rest of developing East Asia
Europe and Central Asia
Rest of South Asia
Indonesia
Sub Saharan Africa
China
India
0
200
400
Source: Simulations with World Bank’s ENVISAGE model.
600
800
1000
1200
1400
Percent reduction in emissions
Percent reduction in CO2 emissions relative to baseline in 2050
World total
India
China
Sub Saharan Africa
Indonesia
Europe and Central Asia
Rest of South Asia
Latin America and the Caribbean
United States
Rest of developing East Asia
EU 27 and EFTA
Middle East and North Africa
‐80
‐70
‐60
‐50
‐40
‐30
‐20
‐10
0
$143 per ton of carbon in 2050
Model comparison of carbon taxes
$2000/tC in 2050
PACE
10
GRAPE
17
MERGE
40
WIAGEM
39
32
AMIGA
COMBAT
22
MiniCAM
58
IPAC
40
48
IMAGE
MESSAGE
37
FUND
86
48
GEMINI
SGM
46
AIM
39
57
EPPA
70
GTEM
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Note: Stabilization scenario intended to stabilize radiative forcing at 4.5 W/m2 by 2150 relative to pre‐industrial.
Percent reduction in CO2 emissions next to bars.
Source: Weyant et al, The Energy Journal, Special Issue, Nov. 2006, pp. 1‐32.
Carbon tax revenues
Percent of GDP in 2050
World total
High income countries
Latin America and the Caribbean
Country‐specific tax
Sub Saharan Africa
Uniform tax
Middle East and North Africa
India
Rest of developing East Asia
Indonesia
Rest of South Asia
Europe and Central Asia
China
0.0
0.5
1.0
1.5
Source: Simulations with World Bank’s ENVISAGE model.
2.0
2.5
3.0
3.5
4.0
Mitigation and energy‐intensive exports
Percent difference in nominal energy‐intensive manufacturing exports in 2050
between mitigation via country‐specific and uniform global carbon tax
Rest of South Asia
Rest of developing East Asia
Japan
Latin America and the Caribbean
Europe and Central Asia
United States
EU 27 and EFTA
Indonesia
Sub Saharan Africa
India
China
‐20
‐15
‐10
‐5
0
5
10
Source: Simulations with World Bank’s ENVISAGE model.
15
20
Impact of mitigation policies on output
Percent difference in real GDP in 2050 relative to baseline
World total
China
Canada
Europe and Central Asia
India
Rest of South Asia
Indonesia
Rest of developing East Asia
United States
Country‐specific tax
Sub Saharan Africa
Uniform tax
Latin America and the Caribbean
Middle East and North Africa
EU 27 and EFTA
Japan
‐4.5
‐4.0
‐3.5
‐3.0
‐2.5
‐2.0
‐1.5
‐1.0
‐0.5
0.0
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
• Climate impact has come earlier than expected and
developing countries are most vulnerable, with large impacts
on India
Concentration, forcing and temperature
3
600
Concrentation ppm
Concentration
2
400
Temperature
300
1
200
100
0
0
2005
2015
2025
Source: Simulations with World Bank’s ENVISAGE model.
2035
2045
Radiative forcing (W/m2) and temperature (°C) 1900=0
500
Impacts of Climate Change
Real income, percent difference from baseline with no damages in 2050
World total
India
China
Sub Saharan Africa
Rest of South Asia
Rest of developing East Asia
Latin America and the Caribbean
Middle East and North Africa
Indonesia
Europe and Central Asia
EU 27 and EFTA
United States
Canada
‐6
‐5
‐4
‐3
‐2
‐1
Source: Simulations with World Bank’s ENVISAGE model.
0
1
Climate change damages and food imports
Percent difference in nominal agriculture imports in 2050 from baseline with no
damages
World total
United States
Japan
China
EU 27 and EFTA
Europe and Central Asia
Rest of developing East Asia
Indonesia
Volume
Middle East and North Africa
Price
Sub Saharan Africa
Latin America and the Caribbean
Rest of South Asia
India
‐50
0
50
Source: Simulations with World Bank’s ENVISAGE model.
100
150
200
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China
• Climate impact has come earlier than expected and
developing countries are most vulnerable, with large impacts
on India
• Current analysis includes distributional impacts within
countries and poor are hit hardest
Trends in the poverty headcount index
Observed, 2000
BaU, 2050
BaUnd, 2050
GBLct, 2050
GBLut, 2050
13.35
0.02
0.02
0.02
0.02
Eastern Europe and Central Asia
0.94
0.00
0.00
0.00
0.00
Latin America and Caribbean
9.01
2.29
2.24
2.39
2.34
Middle East and North Africa
3.14
0.59
0.48
0.97
0.59
South Asia
35.14
0.01
0.00
0.01
0.01
Sub‐Saharan Africa
43.52
1.52
1.42
1.61
1.57
Developing countries
19.18
0.44
0.42
0.47
0.45
East Asia and Pacific
46.13
0.30
0.28
0.33
0.31
Eastern Europe and Central Asia
10.67
0.00
0.00
0.00
0.00
Latin America and Caribbean
23.43
6.13
6.05
6.43
6.22
Middle East and North Africa
22.20
6.54
5.96
9.00
6.61
South Asia
81.64
0.34
0.23
0.40
0.36
Sub‐Saharan Africa
74.75
8.66
8.05
8.95
8.79
Developing countries
48.46
1.98
1.86
2.11
2.02
US$1 (PPP) per day poverty line
East Asia and Pacific
US$2 (PPP) per day poverty line
Impact incidence of climate damages and mitigation
Percent change in real income or consumption relative to baseline
8
6
4
No damages from climate change
Global mitigation via uniform tax
2
0
‐2
‐4
0
Source:
10
20
30
40
50
Simulations with World Bank’s GIDD model.
60
70
80
90
100
Climate change and agricultural prices
Producer price in agriculture, impact of damages in 2050 (percent)
World total
India
Rest of South Asia
Sub Saharan Africa
Latin America and the Caribbean
Rest of developing East Asia
Indonesia
Middle East and North Africa
Europe and Central Asia
United States
China
EU 27 and EFTA
Japan
0
5
10
15
20
25
Source: Simulations with World Bank’s ENVISAGE model.
30
35
The urbanization of poverty
Composition of the poorest 10 percent of the population in developing countries
2000
Agriculture
Non-agriculture
Source:
Simulations with World Bank’s GIDD model.
2050
Climate change and agricultural employment
$addtional employment in agriculture in 2050 as percent of total labor force
Rest of LAC
Brazil
Sub Saharan Africa
Rest of MENA
MENA Energy exporters
Rest of Europe and Central Asia
Russia
Rest of South Asia
India
Rest of developing East Asia
Indonesia
China
Canada
Japan
EU 27 and EFTA
‐0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Take away messages
• Standard SRES ‘worse case’ baseline scenarios are too
optimistic
• Cap‐and‐trade system could and should imply major resource
transfers to developing countries
• Negative effects from climate change on agricultural output
will be significant, impacting income, trade and poverty
• Poor are hardest hit from climate change and food security
could become a major concern, particularly in South Asia
from developing countries
developing countries
Denis Medvedev, Dominique van der Mensbrugghe,
and Hans Timmer
The World Bank
Bank Indonesia Annual International Seminar
Macroeconomic Impact of Climate Change
Nusa Dua, Bali, August 1‐2, 2008
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
• Climate impact has come earlier than expected and
developing countries are most vulnerable, with large impacts
on India
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
• Climate impact has come earlier than expected and
developing countries are most vulnerable, with large impacts
on India
• Current analysis includes distributional impacts within
countries and poor are hit hardest
Development strategies are central focus
• Developing countries have to become key players in climate
change policies
• Climate change policies must be integrated into development
strategy
ENVISAGE: Model features
• Standard dynamic global CGE, used for long‐term scenarios,
trade and migration analysis, MDG studies, and linked to
micro‐simulation tools.
• Flexible aggregation (regions and sectors) and time frame.
• 2004 GTAP‐based base year including IEA‐based energy
demand and trade (MTOE) and estimates of CO2 emissions by
sector and fuel.
• Integrated climate module with links from emissions to
radiative forcing to temperature change to change in
agricultural productivity.
• Flexible energy demand system
• Multiple emissions controls—carbon taxes, caps, cap and
trade, demand exemptions.
Energy demand nest
Energy bundle
Electric bundle
Non‐electric bundle
Existing and alternative
technologies
Oil and gas bundle
Coal bundle
Coal and alternative
technologies
Oil bundle
Oil and alternative
technologies
Gas bundle
Gas and alternative
technologies
Key dynamic assumptions
• UN population forecast—labor force growth equated to
growth of working age population (15‐65).
• Rural to urban migration in developing countries.
• Savings rate driven by growth and youth and elderly
dependency rates.
• Productivity in agriculture is exogenous (2.5% per annum).
• Productivity in manufacturing is higher than in services (2%).
• Productivity is calibrated through 2015 and then fixed.
• Autonomous energy efficiency improvement (AEEI) increases
by 1% per annum (in all regions and sectors).
• Capital account is exogenous.
Four scenarios
First preliminary work
Still lots of caveats
• Baseline, or business‐as‐usual, with climate change damages
to agriculture (Cline, 2007)
• Baseline without climate change damages
• Global mitigation scenario—targeting 515 ppm carbon
concentration by 2050 via a global uniform tax
• Country‐specific mitigation scenario—targeting 515 ppm
carbon concentration by 2050 via a country‐specific tax
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
Developing countries accelerated
Forecast
Real GDP, percentage change
8
Developing countries
6
4
2
High-income countries
0
1980
1985
Source: World Bank
1990
1995
2000
2005
2010
Baseline GDP at constant prices
8
160
Developing growth rate, left‐axis
7
140
6
120
5
100
4
80
High‐income growth rate, left‐axis
3
60
2
40
1
20
0
0
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Developed, right‐axis
Source: Simulations with World Bank’s ENVISAGE model.
$2004 trillion
Percent per annum
Developing, right‐axis
Baseline emissions
40
5.0
World growth rate, left‐axis
35
4.5
Developing, right‐axis
30
25
3.5
20
3.0
15
2.5
10
2.0
5
1.5
0
2005
2010
2015
2020
2025
2030
Source: Simulations with World Bank’s ENVISAGE model.
2035
2040
2045
2050
High‐income, right‐axis
Gigatons of Carbon (GtC)
Percent per annum
4.0
Baseline emissions intensity
Tons of carbon emissions per million $ of output (current prices)
500
World
450
Developing
400
350
300
250
200
150
100
50
0
2005
2010
2015
2020
2025
2030
Source: Simulations with World Bank’s ENVISAGE model.
2035
2040
2045
2050
High‐income
Country‐specific carbon taxes to reduce
emissions in 2050 by half
2050 tax per ton of carbon, in 2004US$
Japan
Middle East and North Africa
EU 27 and EFTA
Latin America and the Caribbean
United States
Rest of developing East Asia
Europe and Central Asia
Rest of South Asia
Indonesia
Sub Saharan Africa
China
India
0
200
400
Source: Simulations with World Bank’s ENVISAGE model.
600
800
1000
1200
1400
Percent reduction in emissions
Percent reduction in CO2 emissions relative to baseline in 2050
World total
India
China
Sub Saharan Africa
Indonesia
Europe and Central Asia
Rest of South Asia
Latin America and the Caribbean
United States
Rest of developing East Asia
EU 27 and EFTA
Middle East and North Africa
‐80
‐70
‐60
‐50
‐40
‐30
‐20
‐10
0
$143 per ton of carbon in 2050
Model comparison of carbon taxes
$2000/tC in 2050
PACE
10
GRAPE
17
MERGE
40
WIAGEM
39
32
AMIGA
COMBAT
22
MiniCAM
58
IPAC
40
48
IMAGE
MESSAGE
37
FUND
86
48
GEMINI
SGM
46
AIM
39
57
EPPA
70
GTEM
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Note: Stabilization scenario intended to stabilize radiative forcing at 4.5 W/m2 by 2150 relative to pre‐industrial.
Percent reduction in CO2 emissions next to bars.
Source: Weyant et al, The Energy Journal, Special Issue, Nov. 2006, pp. 1‐32.
Carbon tax revenues
Percent of GDP in 2050
World total
High income countries
Latin America and the Caribbean
Country‐specific tax
Sub Saharan Africa
Uniform tax
Middle East and North Africa
India
Rest of developing East Asia
Indonesia
Rest of South Asia
Europe and Central Asia
China
0.0
0.5
1.0
1.5
Source: Simulations with World Bank’s ENVISAGE model.
2.0
2.5
3.0
3.5
4.0
Mitigation and energy‐intensive exports
Percent difference in nominal energy‐intensive manufacturing exports in 2050
between mitigation via country‐specific and uniform global carbon tax
Rest of South Asia
Rest of developing East Asia
Japan
Latin America and the Caribbean
Europe and Central Asia
United States
EU 27 and EFTA
Indonesia
Sub Saharan Africa
India
China
‐20
‐15
‐10
‐5
0
5
10
Source: Simulations with World Bank’s ENVISAGE model.
15
20
Impact of mitigation policies on output
Percent difference in real GDP in 2050 relative to baseline
World total
China
Canada
Europe and Central Asia
India
Rest of South Asia
Indonesia
Rest of developing East Asia
United States
Country‐specific tax
Sub Saharan Africa
Uniform tax
Latin America and the Caribbean
Middle East and North Africa
EU 27 and EFTA
Japan
‐4.5
‐4.0
‐3.5
‐3.0
‐2.5
‐2.0
‐1.5
‐1.0
‐0.5
0.0
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China and India
• Climate impact has come earlier than expected and
developing countries are most vulnerable, with large impacts
on India
Concentration, forcing and temperature
3
600
Concrentation ppm
Concentration
2
400
Temperature
300
1
200
100
0
0
2005
2015
2025
Source: Simulations with World Bank’s ENVISAGE model.
2035
2045
Radiative forcing (W/m2) and temperature (°C) 1900=0
500
Impacts of Climate Change
Real income, percent difference from baseline with no damages in 2050
World total
India
China
Sub Saharan Africa
Rest of South Asia
Rest of developing East Asia
Latin America and the Caribbean
Middle East and North Africa
Indonesia
Europe and Central Asia
EU 27 and EFTA
United States
Canada
‐6
‐5
‐4
‐3
‐2
‐1
Source: Simulations with World Bank’s ENVISAGE model.
0
1
Climate change damages and food imports
Percent difference in nominal agriculture imports in 2050 from baseline with no
damages
World total
United States
Japan
China
EU 27 and EFTA
Europe and Central Asia
Rest of developing East Asia
Indonesia
Volume
Middle East and North Africa
Price
Sub Saharan Africa
Latin America and the Caribbean
Rest of South Asia
India
‐50
0
50
Source: Simulations with World Bank’s ENVISAGE model.
100
150
200
Developing countries are taking center stage
• Growth in developing world is much faster than expected
during the 1990s and cheapest mitigation options are in
developing countries, especially in China
• Climate impact has come earlier than expected and
developing countries are most vulnerable, with large impacts
on India
• Current analysis includes distributional impacts within
countries and poor are hit hardest
Trends in the poverty headcount index
Observed, 2000
BaU, 2050
BaUnd, 2050
GBLct, 2050
GBLut, 2050
13.35
0.02
0.02
0.02
0.02
Eastern Europe and Central Asia
0.94
0.00
0.00
0.00
0.00
Latin America and Caribbean
9.01
2.29
2.24
2.39
2.34
Middle East and North Africa
3.14
0.59
0.48
0.97
0.59
South Asia
35.14
0.01
0.00
0.01
0.01
Sub‐Saharan Africa
43.52
1.52
1.42
1.61
1.57
Developing countries
19.18
0.44
0.42
0.47
0.45
East Asia and Pacific
46.13
0.30
0.28
0.33
0.31
Eastern Europe and Central Asia
10.67
0.00
0.00
0.00
0.00
Latin America and Caribbean
23.43
6.13
6.05
6.43
6.22
Middle East and North Africa
22.20
6.54
5.96
9.00
6.61
South Asia
81.64
0.34
0.23
0.40
0.36
Sub‐Saharan Africa
74.75
8.66
8.05
8.95
8.79
Developing countries
48.46
1.98
1.86
2.11
2.02
US$1 (PPP) per day poverty line
East Asia and Pacific
US$2 (PPP) per day poverty line
Impact incidence of climate damages and mitigation
Percent change in real income or consumption relative to baseline
8
6
4
No damages from climate change
Global mitigation via uniform tax
2
0
‐2
‐4
0
Source:
10
20
30
40
50
Simulations with World Bank’s GIDD model.
60
70
80
90
100
Climate change and agricultural prices
Producer price in agriculture, impact of damages in 2050 (percent)
World total
India
Rest of South Asia
Sub Saharan Africa
Latin America and the Caribbean
Rest of developing East Asia
Indonesia
Middle East and North Africa
Europe and Central Asia
United States
China
EU 27 and EFTA
Japan
0
5
10
15
20
25
Source: Simulations with World Bank’s ENVISAGE model.
30
35
The urbanization of poverty
Composition of the poorest 10 percent of the population in developing countries
2000
Agriculture
Non-agriculture
Source:
Simulations with World Bank’s GIDD model.
2050
Climate change and agricultural employment
$addtional employment in agriculture in 2050 as percent of total labor force
Rest of LAC
Brazil
Sub Saharan Africa
Rest of MENA
MENA Energy exporters
Rest of Europe and Central Asia
Russia
Rest of South Asia
India
Rest of developing East Asia
Indonesia
China
Canada
Japan
EU 27 and EFTA
‐0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Take away messages
• Standard SRES ‘worse case’ baseline scenarios are too
optimistic
• Cap‐and‐trade system could and should imply major resource
transfers to developing countries
• Negative effects from climate change on agricultural output
will be significant, impacting income, trade and poverty
• Poor are hardest hit from climate change and food security
could become a major concern, particularly in South Asia
from developing countries