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The Economics of Climate Change Impacts and Policy Benefits at City Scale : A Conceptual Framework

Hallegatte, S. (1,2) ; F. Henriet (3) ; and J. Corfee-Morlot (3) ; OECD Environment Working Paper 4, ENV/WKP(2008)3.

jeudi 18 décembre 2008, par Stéphane Hallegatte

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(1) Centre International de Recherche sur l’Environnement et le Développement

(2) Ecole Nationale de la Météorologie, Météo-France

(3) Organisation for Economic Cooperation and Development

Abstract :

Cities are particularly vulnerable to climate change and climate extremes because they concentrate many activities, people and wealth in limited areas. As a result they represent an interesting scale for assessment and understanding of climate change impacts as well as for policy assessment.

This paper provides a conceptual backdrop for urban economic impact assessment of climate change and its specific aim is to provide both a conceptual and a methodological framework for OECD work in this area. The scope includes the assessment of the potential incidence and economic cost associated with changes in extreme events in cities. Given the broad uncertainties about how climate policies play out, this paper proposes to address these through a comparison of impacts under different mitigation strategies and different adaptation scenarios. Such an approach provides a means to bracket uncertainty about both mitigation and adaptation responses. The focus here is on model-based analysis of future scenarios, including a framing of uncertainty for these projections, as one valuable input into the decision-making process. It is of course imperative that cities not wait for perfect information, that they take action now to incorporate up to date knowledge about climate change into near-term decisions and long-term planning.
Assessing local economic impacts of climate change enhances understanding about how urban development interacts with climate change over time and highlights public policy or private choices to address and limit such impacts. The paper highlights the main assessment difficulties, methods and tools, and selected examples across these areas. A number of challenges are unique to climate change impact assessment and others are unique to the problem of working at local scales. The paper also identifies the need for additional research, including on the need for more integrated approaches to address climate change as a part of the urban development challenge and on approaches to assess the economic impacts of climate change at local scale.

There is a back and forth relationship between development and climate change. That is, development, greenhouse gas mitigation and adaptation choices are intertwined and proceed in parallel with each other. Nevertheless the assessment of the economic impacts of climate change requires a step-wise analysis and starts from assumptions or scenarios about the future of development. The paper is therefore organised along a simple causal chain that begins with socio-economic development to global climate change to economic damages at the city level. It does not attempt to address the important question of how to use such information to support adaptation decision making. The focus remains more narrowly on the dimension of impacts assessments at local scale.

As a first step, the paper identifies the need for a global socioeconomic and emission scenario to derive information needed to carry out an impact assessment. It is then necessary to downscale the socio-economic scenario using assumptions about key issues such as future rates of urbanization and the pace and shape of urban economic development. A second step is to develop regional climate predictions from global emission scenario and climate predictions, using downscaling methodologies. The third step draws upon this information to estimate the physical and economic impacts of climate change at local scale, taking into account that all economic agents will respond to climate impacts by implementing adaptation strategies.
Cities function as integrated systems, consisting of many closely interlinked sectors of economic activity and types of infrastructure. The evaluation of economic impacts begins by identifying and estimating direct economic losses at the sector level. But these direct losses can be amplified by spatial or sectoral diffusion into the wider economic system, causing significant systemic losses that depend on complex interactions across a range of different economic factors. As a result, direct losses are only a fraction of total economic losses ; indirect losses also need to be estimated. To carry out a complete assessment, local co-benefits (and co-costs) of adaptation and mitigation should also be taken into account.

Despite the uncertainties surrounding the analysis, economic impact estimates allow for a better understanding of the human activities affected by climate. City-scale assessments of the impacts of climate change can provide local decision-makers with a better understanding of the benefits of aggressive mitigation strategies, by “localising” that understanding, and have immediate value to bring attention to climate change amongst local decision-makers and to inform debate about the range of possible response options. Ideally such assessments are developed in consultation with stakeholders who bring essential insights and local knowledge about long term development preferences that should be incorporated into socio-economic scenarios. By providing up to date information about climate change risks, such assessments also provide one important input to adaptation decision making.

Keywords : climate change, General Macroeconomics, global warming, government policy, natural disasters, regional economics, Regional, Urban and rural Analyses, sustainable development

JEL Classification : Q01, Q51, Q54, Q56, Q58

Contact Information :

OECD Project leader : Jan Corfee-Morlot,

Lead author : Stéphane Hallegatte,

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