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Chapter

1
Understanding the Links between
Climate Change and Development

I
n about 2200 bce a shift in the Medi- Societies have always depended on the
terranean westerly winds and a reduc- climate but are only now coming to grips
tion in the Indian monsoon produced with the fact that the climate depends on
300 years of lower rainfall and colder their actions. The steep increase in green-
temperatures that hit agriculture from the house gases since the Industrial Revolution
Aegean Sea to the Indus River. This change has transformed the relationship between
in climate brought down Egypt’s pyramid- people and the environment. In other
­building Old Kingdom and Sargon the words, not only does climate affect develop-
Great’s empire in Mesopotamia.1 After only ment but development affects the climate.
a few decades of lower rainfall, cities lin- Left unmanaged, climate change will
ing the northern reaches of the Euphrates, reverse development progress and compro-
the breadbasket for the Akkadians, were mise the well-­being of current and future
deserted. At the city of Tell Leilan on the generations. It is certain that the earth will
northern Euphrates, a monument was halted get warmer on average, at unprecedented
half-­built.2 With the city abandoned, a thick speed. Impacts will be felt everywhere, but
layer of wind-­blown dirt covered the ruins. much of the damage will be in developing
Even intensively irrigated southern Meso- countries. Millions of people from Bangla-
potamia, with its sophisticated bureaucracy desh to Florida will suffer as the sea level
and elaborate rationing, could not react fast rises, inundating settlements and contami-
enough to the new conditions. Without the nating freshwater.4 Greater rainfall variabil-
shipments of rainfed grain from the north, ity and more severe droughts in semiarid
and faced with parched irrigation ditches Africa will hinder efforts to enhance food
and migrants from the devastated northern security and combat malnourishment.5 The
cities, the empire collapsed.3 hastening disappearance of the Himalayan
and Andean glaciers—which regulate river
flow, generate hydropower, and supply clean
water for over a billion of people on farms
Key messages and in cities—will threaten rural liveli-
Development goals are threatened by climate change, with the heaviest impacts on poor hoods and major food markets (map 1.1).6
countries and poor people. Climate change cannot be controlled unless growth in both rich and That is why decisive, immediate action
poor countries becomes less greenhouse-gas-intensive. We must act now: country develop- is needed. Even though the debate about
ment decisions lock the world into a particular carbon intensity and determine future warming. the costs and benefits of climate change
Business-as-usual could lead to temperature increases of 5°C or more this century. And we mitigation continues, the case is very strong
must act together: postponing mitigation in developing countries could double mitigation costs, for immediate action to avoid unmanage-
and that could well happen unless substantial financing is mobilized. But if we act now and act
able increases in temperature. The unac-
together, the incremental costs of keeping warming around 2°C are modest and can be justified
ceptability of irreversible and potentially
given the likely dangers of greater climate change.
catastrophic impacts and the uncertainty
about how, and how soon, they could occur
Map 1.1

38 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

Map 1.1 ​ ​More than a billion people depend on water from diminishing Himalayan glaciers
‡ ‡‡‡‡‡‡‡‡‡‡‡‡‡‡‡ ‡
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HWANG HE
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150 million
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INDUS ‡‡
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200 million ‡‡
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YANGTZE
‡‡‡‡‡ ‡‡‡‡‡‡‡‡‡ ‡‡ ‡ BRAHMAPUTRA
‡ ‡‡ ‡
‡‡ ‡‡ ‡‡‡‡‡‡‡‡ ‡ ‡ ‡‡‡‡‡‡‡‡‡‡‡‡‡‡‡‡ ‡‡‡‡ ‡‡‡‡‡‡‡‡‡‡‡‡ 450 million
GANGES ‡ 60 million
400 million

GANGES-
BRAHMAPUTRA
DELTA
120 million

IRRAWADDY SALWEEN MEKONG


35 million 20 million 60 million

Population density (persons/sq. km)


0–100 101–250 251–500 501–1000 Rivers
1001–2000 >2000 No data River basins ‡‡‡‡‡‡‡‡‡‡‡‡ ‡‡‡‡‡‡‡‡‡
‡‡‡‡‡‡ Glaciers

Sources: Center for International Earth Science Information Network, http://sedac.ciesin.columbia.edu/gpw/global.jsp (accessed
May 15, 2009); Armstrong and others 2005; ESRI 2002; WDR team.
Note: The glaciers of the Himalayas and Tibetan Plateau regulate the supply of water throughout the year in major river basins
supporting large agricultural and urban populations, with meltwater providing between 3 and 45 percent of river flow in the Gan-
ges and Indus, respectively. Reduced storage as ice and snowpack will result in larger flows and flooding during rainy months
and water shortages during warmer, drier months when water is most needed for agriculture. Glacier locations shown in the map
only include glaciers larger than 1.5 sq. km in area. Numbers indicate how many people live in each river basin.

compel bold actions. The strong inertia in cutting their own emissions by reshaping
the climate system, in the built environ- their built and economic environments.
ment, and in the behavior of individuals They also need to promote and finance the
and institutions requires that this action be transition to low-­carbon growth in develop-
urgent and immediate. ing countries. Better application of known
Over the past two centuries the direct practices and fundamental transforma-
benefits of carbon-­i ntensive development tions—in natural resource management,
have been concentrated largely in today’s energy provision, urbanization, social safety
high-­i ncome countries. The inequity in nets, international financial transfers, tech-
the global distribution of past and current nological innovation, and governance, both
emissions, and in current and future dam- international and national—are needed to
ages, is stark (figure 1.1; see also focus A fig- meet the challenge.
ure FA.6 and the overview). But if countries Increasing people’s opportunities and
are willing to act, the economic incentives material well-­being without undermining
for a global deal exist. the sustainability of development is still
The window of opportunity to choose the main challenge for large swaths of the
the right policies to deal with climate world, as a severe financial and economic
change and promote development is clos- crisis wreaks havoc across the globe. Stabi-
ing. The further countries go along current lizing the financial markets and protecting
emissions trajectories, the harder it will be the real economy, labor markets, and vul-
to reverse course and alter infrastructures, nerable groups are the immediate priority.
economies, and lifestyles. High-income But the world must exploit this moment of
countries must face head-­on the task of opportunity for international cooperation
Understanding the Links between Climate Change and Development 39

Figure 1.1 ​ ​Individuals’ emissions in high-­income countries overwhelm those in developing countries

CO2e/person (tons)
30 Australia

Canada
United States High-income country
Middle-income country
Brazil
25 Low-income country
Russian Federation Emissions from land-use change
Germany
Japan
United Kingdom
20
Ukraine
Italy Peru
Indonesia
South Africa Myanmar
15 Ghana
France Iraq; Colombia
Iran, Islamic Rep. of Vietnam
Mexico Congo, Dem. Rep. Pakistan
Turkey Algeria Ethiopia
10 Thailand Nigeria Tanzania
Egypt, Arab Rep. of Bangladesh
Philippines Sudan

China Uganda Chad;


5 Kenya;
Niger;
Rwanda
India

0
0.30 0.19 0.13 0.22 0.10 1.32 0.15 1.13 0.16 0.16
Population in 2005 (billions)
Sources: Emissions of greenhouse gases in 2005 from WRI 2008, augmented with land-­use change emissions from Houghton 2009; population from World Bank 2009c.
Note: The width of each column depicts population and the height depicts per capita emissions, so the area represents total emissions. Per capita emissions of Qatar (55.5 tons of carbon
dioxide equivalent per capita), UAE (38.8), and Bahrain (25.4)—greater than the height of the y-­axis—are not shown. Among the larger countries, Brazil, Indonesia, the Democratic Republic
of Congo, and Nigeria have low energy-­related emissions but significant emissions from land-­use change; therefore, the share from land-­use change is indicated by the hatching.

and domestic intervention to tackle the rest By definition, then, unmitigated climate
of development’s problems. Among them, change is incompatible with sustainable
and a top priority, is climate change. development.

Unmitigated climate change is Climate change threatens to reverse


incompatible with sustainable development gains
development An estimated 400 million people escaped
Development that is socially, economically, poverty between 1990 and 2005, the date of
and environmentally sustainable is a chal- the latest estimate8—although the unfolding
lenge, even without global warming. Eco- global financial crisis and the spike in food
nomic growth is needed, but growth alone prices between 2005 and 2008 have reversed
is not enough if it does not reduce poverty some of these gains.9 Since 1990 infant mor-
and increase the equality of opportunity. tality rates dropped from 106 per 1,000 live
And failing to safeguard the environment births to 83.10 Yet close to half the popula-
eventually threatens economic and social tion of developing countries (48 percent) are
achievements. These points are not new. still in poverty, living on less than $2 a day.11
They only echo what still is, after more than Nearly a quarter—1.6 billion—lack access
20 years, perhaps the most widely used defi- to electricity,12 and one in six lack access to
nition of sustainable development: “devel- clean water.13 Around 10 million children
opment that meets the needs of the present under five still die each year from prevent-
without compromising the ability of future able and treatable diseases such as respira-
generations to meet their own needs.” 7 tory infections, measles, and diarrhea.14
40 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

In the last half century the use of natu- epidemic in western Canadian forests,
ral resources (among them fossil fuels) has partly a consequence of milder winters,
supported improvements in well-­b eing, is ravaging the timber industry, threaten-
but when accompanied by resource degra- ing the livelihoods and health of remote
dation and climate change, such use is not communities, and requiring millions in
sustainable. Neglecting the natural envi- government spending for adjustment and
ronment in the pursuit of growth, people prevention.18 Attempts to adapt to similar
have made themselves more vulnerable to future threats, in developed and developing
natural disasters (see chapter 2). And the countries, will have real human and eco-
poorest often rely more directly on natu- nomic costs even as they cannot eliminate
ral resources for their livelihoods. Roughly all direct damage.
70 percent of the world’s extremely poor Warming can have a big impact on both
people live in rural areas. the level and growth of gross domestic
By 2050 the global population will reach product (GDP), at least in poor countries.
9 billion, barring substantial changes in An examination of year-­to-­year variations
demographic trends, with 2.5 billion more in temperature (relative to a country’s aver-
people in today’s developing countries. age) shows that anomalously warm years
Larger populations put more pressure on reduce both the current level and subse-
ecosystems and natural resources, inten- quent growth rate of GDP in developing
sify the competition for land and water, and countries.19 Consecutive warm years might
increase the demand for energy. Most of the be expected to lead to adaptation, lessen-
population increase will be in cities, which ing the economic impacts of warming, yet
could help limit resource degradation and the developing countries with more pro-
individual energy consumption. But both nounced warming trends have had lower
could increase, along with human vulner- growth rates.20 Evidence from Sub-­Saharan
ability, if urbanization is poorly managed. Africa indicates that rainfall variability,
Climate change imposes an added burden projected to increase substantially, also
on development.15 Its impacts are already reduces GDP and increases poverty.21
visible, and the most recent scientific evi- Agricultural productivity is one of many
dence shows the problem is worsening fast, factors driving the greater vulnerability of
with current trajectories of greenhouse gas developing countries (see chapter 3, map
(GHG) emissions and sea-­level rise outpac- 3.3). In northern Europe and North Amer-
ing previous projections.16 And the disrup- ica crop yields and forest growth might
tions to socioeconomic and natural systems increase under low levels of warming and
are happening even now—that is, even carbon dioxide (CO2) fertilization.22 But
sooner than previously thought (see focus in China and Japan yields of rice, a major
A on science).17 Changing temperature and global staple, will likely decline, while yields
precipitation averages and a more variable, of wheat, maize, and rice in Central and
unpredictable, or extreme climate can alter South Asia will be particularly hard hit.23
today’s yields, earnings, health, and physi- Prospects for crops and livestock in rainfed
cal safety and ultimately the paths and lev- semiarid lands in Sub-­Saharan Africa are
els of future development. also bleak, even before warming reaches
Climate change will affect numerous sec- 2–2.5°C above preindustrial levels.24
tors and productive environments, includ- India’s post-­1980 deceleration in the
ing agriculture, forestry, energy, and coastal increase of rice productivity (from the
zones, in developed and developing coun- Green Revolution in the 1960s) is attrib-
tries. Developing economies will be more utable not only to falling rice prices and
affected by climate change, in part because deteriorating irrigation infrastructure, as
of their greater exposure to climate shocks previously postulated, but also to adverse
and in part because of their low adaptive climate phenomena from local pollution
capacity. But no country is immune. The and global warming.25 Extrapolating from
2003 summer heat wave killed more than past year-­to-­year variations in climate and
70,000 people in a dozen European coun- agricultural outcomes, yields of major crops
tries (map 1.2). The mountain pine beetle in India are projected to decline by 4.5 to
Map 1.2

Understanding the Links between Climate Change and Development 41

Map 1.2 ​ ​Rich countries are also affected by anomalous climate: The 2003 heat wave killed more than 70,000
people in Europe

Number of deaths
Affected
Not affected

UNITED
KINGDOM
301 THE
NETHERLANDS

965
BELGIUM
1,175 GERMANY
9,355
LUXEMBOURG
166

SLOVENIA
SWITZERLAND 289 CROATIA
1,039 788
FRANCE
19,490

PORTUGAL ITALY
2,696 20,089

SPAIN
15,090

Source: Robine and others 2008.


Note: Deaths attributed to the heat wave are those estimated to be in excess of the deaths that would have occurred in the
absence of the heat wave, based on average baseline mortality trends.

9  percent within the next three decades, the number of people exposed to malaria and
even allowing for short-­term adaptations.26 dengue will increase, with the burden most
The implications of such climate change pronounced in developing countries.29 The
for poverty—and GDP—could be enor- incidence of drought, projected to increase
mous given projected population growth in the Sahel and elsewhere, is strongly cor-
and the evidence that one percentage point related with past meningitis epidemics in
of agricultural GDP growth in developing Sub-­Saharan Africa.30 Declining agricultural
countries increases the consumption of the yields in some regions will increase malnu-
poorest third of the population by four to trition, reducing people’s resistance to ill-
six percentage points.27 ness. The burden of diarrheal diseases from
The impacts of climate change on health climate change alone is projected to increase
add to the human and economic losses, up to 5 percent by 2020 in countries with
especially in developing countries. The per capita incomes below $6,000. Higher
World Health Organization estimates that temperatures are likely to increase cardio-
climate change caused a loss of 5.5  mil- vascular illness, especially in the tropics but
lion disability-­adjusted life years in 2000— also in higher-­latitude (and higher-­income)
84 percent of them in Sub-­Saharan Africa and countries—more than offsetting the relief
East and South Asia.28 As temperatures rise, from fewer cold-­related deaths.31
42 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

Map 1.3 ​ ​Climate change is likely to increase poverty in most of Brazil, especially its poorest regions

Median income ($PPP) Effects of climate change on poverty (percentage points)


< 4000 4001–5000 5001–6000 6001–7000 -4–0 0–1 1–2 2–3
7001–8000 8001–10000 >10000 No data 3–4 4–5 >5 No data

Sources: Center for International Earth Science Information Network, http://sedac.ciesin.columbia.edu/gpw/global.jsp (accessed May 15, 2009); Dell, Jones, and Olken 2009;
Assunçao and Chein 2008.
Note: Climate-­change poverty impact estimates for mid-­21st century based on a projected decline in agricultural yields of 18 percent. The change in poverty is expressed in per-
centage points; for example, the poverty rate in the northeast, estimated at 30 percent (based on $1 a day with year 2000 data), could rise by 4 percentage points to 34 percent.
The estimates allow for internal migration, with the poverty outcomes of migrants counted in the sending municipality.

Adverse climate trends, variability, and A cycle of descent into poverty could
shocks do not discriminate by income, but emerge from the confluence of climate
better-­off people and communities can change, environmental degradation, and
more successfully manage the setbacks market and institutional failures. The cycle
(map 1.3). When Hurricane Mitch swept could be precipitated by the gradual col-
through Honduras in 1998, more wealthy lapse of a coastal ecosystem, less predict-
households than poor ones were affected. able rainfall, or a more severe hurricane
But poor households lost proportionally season.35 While large-­scale natural disas-
more: among affected households, the poor ters cause the most visible shocks, small
lost 15 to 20 percent of their assets, while but repeated shocks or subtle shifts in the
the richest lost only 3 percent.32 The longer- distribution of rainfall throughout the
­term impacts were greater too: all affected year can also produce abrupt yet persistent
households suffered a slowdown in asset changes in welfare.
accumulation, but the slump was greater for Empirical evidence on poverty traps—
poorer households.33 And impacts varied by defined as consumption permanently below
gender (box 1.1): male-­headed households, a given threshold—is mixed.36 But there is
with greater access to new lodging and growing evidence of slower physical asset
work, spent shorter periods in postdisas- recovery and human capital growth among
ter shelters compared with female-­headed the poor after shocks. In Ethiopia a season
households, which struggled to get back with starkly reduced rainfall depressed
on their feet and remained in the shelters consumption even after four to five years.37
longer.34 Instances of drought in Brazil have been
Understanding the Links between Climate Change and Development 43

Box 1.1 ​  ​Empowered women improve adaptation and mitigation outcomes


Women and men experience climate postdisaster recovery indicate that put- Women represent at least half of the
change differently. Climate-­change ting women in charge of food distribution world’s agricultural workers, and women
impacts and policies are not gender systems results in less corruption and more and girls remain predominantly respon-
neutral because of differences in respon- equitable food distribution. sible for water and firewood collection.
sibility, vulnerability, and capacity for Adaptation and mitigation potential,
mitigation and adaptation. Gender-­based Women’s participation boosts especially in the agriculture and forestry
patterns of vulnerability are shaped by the biodiversity and improves water sectors, cannot be fully realized without
value of and entitlement to assets, access management employing women’s expertise in natural
to financial services, education level, social Between 2001 and 2006 the Zammour resource management, including tradi-
networks, and participation in local orga- locality in Tunis saw an increase in veg- tional knowledge and efficiency in using
nizations. In some circumstances, women etal area, biodiversity preservation, and resources.
are more vulnerable to climate shocks stabilization of eroding lands in the
to livelihoods and physical safety—but mountainous ecosystem—the result of an Women’s participation supports
there is evidence that in contexts where antidesertification program that invited public health
women and men have equal economic women to share their perspectives during In India indigenous peoples know medici-
and social rights, disasters do not discrimi- consultations, incorporated local women’s nal herbs and shrubs and apply these for
nate. Empowerment and participation of knowledge of water management, and therapeutic uses. Indigenous women, as
women in decision making can lead to was implemented by women. The proj- stewards of nature, are particularly knowl-
improved environmental and livelihood ect assessed and applied innovative and edgeable and can identify almost 300
outcomes that benefit all. effective rainwater collection and preser- useful forest species.
vation methods, such as planting in stone
Women’s participation in disaster pockets to reduce the evaporation of irri- Globally, whether in Central America,
management saves lives gation water, and planting of local species North Africa, South Asia, or Southern
Community welfare before, during, and of fruit trees to stabilize eroded lands. Africa, gender-­sensitive climate ­change
after extreme climatic events can be adaptation and mitigation programs
improved by including women in disaster Women’s participation enhances show measurable results: women’s full
preparedness and rehabilitation. Unlike food security and protects forests participation in decision making can
other communities that witnessed numer- In Guatemala, Nicaragua, El Salvador, and and will save lives, protect fragile natural
ous deaths, La Masica, Honduras, reported Honduras women have planted 400,000 resources, reduce greenhouse gases, and
no deaths during and after Hurricane Mitch maya nut trees since 2001. Beyond build resilience for current and future
in 1998. Gender-­sensitive community enhanced food security, women and their generations. Mechanisms or financing for
education on early warning systems and families can benefit from climate ­change disaster prevention, adaptation, and miti-
hazard management provided by a disas- finance, as the sponsoring Equilibrium gation will remain insufficient unless they
ter agency six months before the hurricane Fund pursues carbon-­trading opportuni- integrate women’s full participation—
contributed to this achievement. Although ties with the United States and Europe. voices and hands—in design, decision
both men and women participated in In Zimbabwe, women lead over half of making, and implementation.
hazard management activities, ultimately, the 800,000 farm households living in
women took over the task of continuously communal areas, where women’s groups
Sources: Contributed by Nilufar Ahmad,
monitoring the early warning system. Their manage forest resources and develop-
based on Parikh 2008; Lambrou and Laub
enhanced risk awareness and manage- ment projects through tree planting, 2004; Neumayer and Plumper 2007; Smyth
ment capacity enabled the municipality to nursery development, and woodlot own- 2005; Aguilar 2006; UNISDR 2007; UNDP
evacuate promptly. Additional lessons from ership and management. 2009; and Martin 1996.

followed by significantly reduced rural low sensitivity to rainfall variation but also
wages in the short term, with the wages with low average returns, locking in patterns
of affected workers catching up with their of inequality in the country.40
peers’ only after five years.38 Climate shocks can also permanently
In addition limited access to credit, insur- affect people’s health and education.
ance, or collateral hampers poor households’ Research in Côte d’Ivoire linking rain-
opportunities to make productive invest- fall patterns and investment in children’s
ments or leads them to choose investments education shows that in regions experi-
with low risk and low returns to guard against encing greater-­t han-­u sual weather vari-
future shocks.39 In villages throughout India ability, school enrollment rates declined
poorer farmers have mitigated climatic risk by 20 percent for both boys and girls.41
by investing in assets and technologies with And when coupled with other problems,
44 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

environmental shocks can have long-­term change when incomes grow.45 The average
effects. People exposed to drought and civil carbon footprint of citizens in rich coun-
strife in Zimbabwe during early childhood tries, including oil producers and small
(between 12 and 24 months of age) suffered island states, varies by a factor of twelve,
from a height loss of 3.4 centimeters, close as does the energy intensity of GDP,46
to 1 fewer years of schooling, and a nearly suggesting that carbon footprints do not
six-­month delay in starting school. The always increase with income. And today’s
estimated effect on lifetime earnings was 14 developing economies use much less energy
percent, a big difference to someone near per capita than developed countries such as
the poverty line.42 the United States did at similar incomes,
showing the potential for lower-­c arbon
Balancing growth and assessing policies growth.47
in a changing climate Adaptation and mitigation need to be
Growth: Changing carbon footprints and integrated into a climate-­smart develop-
vulnerabilities. ​  ​By 2050 a large share of ment strategy that increases resilience,
the population in today’s developing coun- reduces the threat of further warming, and
tries will have a middle-­class lifestyle. But improves development outcomes. Adapta-
the planet cannot sustain 9 billion people tion and mitigation measures can advance
with the carbon footprint of today’s aver- development, and prosperity can raise
age middle-­c lass citizen. Annual emis- incomes and foster better institutions. A
sions would nearly triple. Moreover, not all healthier population living in better-­built
development increases resilience: growth houses and with access to bank loans and
may not happen fast enough and can create social security is better equipped to deal
new vulnerabilities even as it reduces oth- with a changing climate and its conse-
ers. And poorly designed climate change quences. Advancing robust, resilient devel-
policies could themselves become a threat opment policies that promote adaptation
to sustainable development. is needed today because changes in the cli-
But it is ethically and politically unac- mate, already begun, will increase even in
ceptable to deny the world’s poor the oppor- the short term.
tunity to ascend the income ladder simply The spread of economic prosperity has
because the rich reached the top first. Devel- always been intertwined with adaptation
oping countries now contribute about half to changing ecological conditions. But as
of annual greenhouse gas emissions but have growth has altered the environment and as
nearly 85 percent of the world’s population; environmental change has accelerated, sus-
the energy-­related carbon footprint of the taining growth and adaptability demands
average citizen of a low-­ or middle-­income greater capacity to understand our environ-
country is 1.3 or 4.5 metric tons of carbon ment, generate new adaptive technologies
dioxide equivalent (CO2e), respectively, com- and practices, and diffuse them widely. As
pared with 15.3 in high-­income countries.43 economic historians have explained, much
Moreover, the bulk of past emissions— of humankind’s creative potential has
and thus the bulk of the existing stock of been directed at adapting to the changing
greenhouse gases in the atmosphere—is world.48 But adaptation cannot cope with
the responsibility of developed countries.44 all the impacts related to climate change,
Resolving the threat of climate change to especially as larger changes unfold in the
human well-­being thus not only depends long term (see chapter 2).49
on climate-­smart development—increasing Countries cannot grow out of harm’s
incomes and resilience while reducing emis- way fast enough to match the changing cli-
sions relative to projected increases. It also mate. And some growth strategies, whether
requires climate-­smart prosperity in the driven by the government or the market,
developed countries—with greater resilience can also add to vulnerability—particularly
and absolute reductions in emissions. if they overexploit natural resources. Under
Evidence shows that policy can make the Soviet development plan, irrigated cot-
a big difference in how carbon footprints ton cultivation expanded in water-­stressed
Understanding the Links between Climate Change and Development 45

Central Asia and led to the near disappear- But mitigation policies can also go wrong
ance of the Aral Sea, threatening the liveli- and reduce welfare if ancillary effects are not
hoods of fishermen, herders, and farmers.50 considered in design and execution. Relative
And clearing mangroves—natural coastal to cleaner cellulosic ethanol production and
buffers against storm surges—to make way even gasoline, corn-­based biofuel produc- IBRD 371
Septemb
for intensive shrimp farming or housing tion in the United States imposes higher Map 1.4
development increases the physical vulner- health costs from local pollution and offers
ability of coastal settlements, whether in only dubious CO2 emission reductions (fig-
Guinea or in Louisiana. ure 1.2).53 Moreover, biofuel policies in the
Climate shocks can strain normally ade- United States and Europe have diverted
quate infrastructure or reveal previously inputs from food to fuel production and
untested institutional weaknesses, even in
fast-­g rowing and high-­i ncome countries. Map 1.4 ​ ​The January 2008 storm in China severely disrupted mobility, a pillar of its economic
For example, despite impressive economic growth
growth for more than two decades, and in
part because of accompanying labor-­market
transitions, millions of migrant workers in Beijing
D.P.R.
Tianjin OF
China were stranded during the unexpect- Shijiazhuang KOREA
edly intense snow storms in January 2008
(map 1.4). The train system collapsed as Jinan
Lanzhou
workers returned home for the Chinese Jinghu Line
Qingdao
Zhengzhou
New Year, stranding millions, while the Xi’an
Longhai Line Luoyang
southern and central provinces suffered
food shortages and power failures. Hur- Nanjing
ricane Katrina exposed the United States Jingguang Line Hefei
as unprepared and ill equipped, showing Chengdu Suzhou Shanghai
Wuhan Hangzhou
that even decades of steady prosperity do Chongqing
not always produce good planning (and by Nanchang
extension, good adaptation). Nor do high Changsha

average incomes guarantee protection for Jingjiu Line


Fuzhou
the poorest communities.

Mitigation policies—for better or worse. ​ ​


Mitigation policies can be exploited to pro- Guangzhou
vide economic co-­benefits in addition to Shenzhen
emission reductions and can create local VIETNAM
and regional opportunities. Biofuels could LAO
make Brazil the world’s next big energy P.D.R.
supplier—its ethanol production has more
than doubled since the turn of the century.51
A large share of unexploited hydropower Provinces affected
high T
Travel flow from coastal
potential is in developing countries, par- Minimally/not affected medium regions to rural regions
low
ticularly in Sub-­Saharan Africa (map 1.5). Moderately affected
Railway network
North Africa and the Middle East, with Severely affected
year-­round exposure to sunlight, could Major passenger rail line
benefit from increased European demand
for solar energy (see chapter 4, box 4.15).52
Sources: ACASIAN 2004; Chan 2008; Huang and Magnoli 2009; United States Department of Agriculture Foreign
Yet comparative advantage in renewable Agricultural Service, Commodity Intelligence Report, February 1 2008, http://www.pecad.fas.usda.gov/high-
energy production in many countries still lights/2008/02/MassiveSnowStorm.htm (accessed July 14, 2009); Ministry of Communications, Government of
the People’s Republic of China, “The Guarantee Measures and Countermeasures for Extreme Snow and Rainfall
is not optimally exploited, evidenced by Weather,” February 1 2008, http://www.china.org.cn/e-­news/news080201-­2.htm (accessed July 14, 2009).
the proliferation of solar power produc- Note: Width of arrows reflects estimates of size of travel flows during the Chinese New Year holiday, based on
reversal of estimated labor migration flows. Total internal migration is estimated between 130 million and 180
tion in Northern Europe rather than North million people. Assessment of severity of the storm’s impact is based on cumulative precipitation in the month
Africa. of January and Chinese news and government communications at the time of the storm.
IBRD 37201
46 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0 September 2009
Map 1.5

Map 1.5 ​ ​Africa has enormous untapped hydropower potential, compared to lower potential but more
exploitation of hydro resources in the United States

N
ile
er
Nig

Blu
e
Nil
e
e
nu
Be

W
hit
e Ni
le
Ubangi

ngo
Co

4.50
25% of world electricity Lukaga
production in 2005
4.00

ba
Gigawatt hours / year in 2005 (millions)

Luala
3.50 Total electricity
production
3.00 Economically feasible
hydropower Chire

2.50 Current hydropower


production Zambezi

2.00

1.50

Orange
1.00

0.50

0.00
United States Sub-Saharan
Africa

Economically feasible hydropower in Sub–Saharan Africa (GWh per year)


< 2,000 2,001–5,000 5,001–10,000 10,001–50,000 Undetermined or
not applicable

Sources: International Journal on Hydropower and Dams, World Atlas, 2006 (http://hydropower-dams.com, accessed July 9, 2009);
IEA Energy Balances of OECD Countries 2008; and IEA Energy Balances of Non-­OECD Countries 2007 (http://www.oecd.org/
document/10/0,3343,en_21571361_33915056_39154634_1_1_1_1,00.html, accessed July 9, 2009).
Note: The United States has exploited over 50 percent of its hydropower potential, compared to only 7–8 percent in the countries
of Sub-­Saharan Africa. Total electricity production in the United States is shown for scale.

contributed to increases in global food Ukraine, have responded with export bans
prices.54 Such food price hikes often increase and other protectionist measures, limiting
poverty rates.55 The overall impact on pov- the gains for domestic producers, reducing
erty depends on the structure of the econ- grain supplies, and narrowing the scope for
omy, because net producers will benefit from future market solutions.56
higher prices, and net buyers will be worse The interrelationship of trade and mit-
off. But many governments in food-­surplus igation policies is not straightforward. It
countries, including Argentina, India, and has been suggested that the carbon content
Understanding the Links between Climate Change and Development 47

of exports be counted in the carbon tally that spending on energy constitutes a larger
of the destination country, so that the share of total expenditures for poor house-
exporting countries are not punished for holds than for rich ones. But the regressive
specializing in the heavy industrial goods effect could be offset either through scaled
consumed by others. But if importers tariff design or a targeted program based
place a border tax on the carbon content of on existing social policy mechanisms.58
goods to equalize the carbon price, export- And green taxes in developing countries
ing countries would still bear some of the could even be progressive, as suggested by
burden through a loss in competitiveness a recent study for China. Most poor house-
(see focus C on trade). holds in China reside in rural areas and con-
sume products much less carbon intensive
Green taxes. ​  ​A s outlined in chapter 6, than those consumed by generally better-
carbon taxes can be an efficient instrument ­off urban households. If revenues from a
for controlling carbon emissions—but carbon tax were recycled into the economy
changes in the tax system to incorporate on an equal per capita basis, the progressive
environmental costs (green taxes) could effect would be larger still.59
be regressive, depending on the country’s Gaining political support for green
economic structure, the quality of target- taxes and ensuring they do not harm the
ing, and the distribution of burden shar- poor will not be easy. Revenue recycling
ing. In the United Kingdom a carbon tax would be critical for Latin America and
imposed equally on all households would Eastern Europe, where a significant share
be very regressive, consistent with findings of the poor live in urban areas and would
from other OECD countries.57 The reason is be directly hurt by green taxes. But such
revenue recycling, as well as the targeting
suggested by the Great Britain study, would
Figure 1.2 ​ ​Corn-­based biofuels in the United States require a strong commitment to such a
increase CO2 emissions and health costs relative to
gasoline policy shift, difficult in the many develop-
ing countries where regressive subsidies for
Nonmarket costs ($/liter)
energy and other infrastructure services
Heat source for ethanol production
Corn Natural Coal
are politically entrenched. Without revenue
0.40 wastes gas recycling, the impact of carbon pricing or
green taxes—even if progressive—is likely
to harm the poor because poor households
0.30
spend as much as 25 percent of their income
on electricity, water, and transport. It is also
0.20 likely to be politically difficult because even
the average household spends about 10 per-
cent of its income on these services.60
0.10
The real income of the poorest will also
be reduced in the near term as the higher
0.00 up-­f ront costs of greener infrastructure
Gasoline Corn ethanol construction, operation, and services hit
the supply side of the economy.61 A green
Cost of GHG emissions Health cost from
from production and use particulates tax could have a direct effect on households
Cost of GHG emissions due to land-use change (caused by the increase in energy prices)
and an indirect effect (on total household
Source: Hill and others 2009. expenditure as a result of higher costs of
Note: Costs are in terms of dollar per liter of gasoline or
gasoline equivalent. Health costs (green) are estimated costs
production and thus prices of consumer
because of particulate matter emissions, from the produc- goods). A study in Madagascar found that
tion and end-­use combustion of an additional liter of ethanol.
Greenhouse-­gas emission costs (blue) assume a carbon price
the indirect effects could represent 40 per-
of $120 a ton, based on the estimated price of carbon capture cent of the welfare losses through higher
and storage. A portion (diagonal hatching in figure) of the
greenhouse gas emissions associated with corn ethanol pro-
prices of food, textiles, and transport.62
duction comes from clearing, conversion, or cultivation of land. Despite the greater direct consumption of
48 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

infrastructure services by the middle class, and scarce resources. But monetizing costs
the poorest quintile was projected to suffer and benefits can too easily omit nonmar-
the biggest loss in real income. ket environmental goods and services and
There is ample scope around the world becomes impossible if future risks (and atti-
for better energy tariff and subsidy design tudes toward risk) are highly uncertain.
that both increases cost recovery and bet- Additional decision tools, comple-
ter targets benefits to the poor.63 Climate menting cost-­benefit analysis, are needed
change (and green tax proceeds) may to establish overall goals and acceptable
make it worthwhile and feasible to expand risks. Multicriteria approaches can pro-
income support programs to countries that vide insights about tradeoffs that are not all
now rely on energy and water pricing as expressed in monetary terms. In the face of
part of their social policy. Greater energy risk aversion and uncertainty about future
efficiency reduces costs for everyone, while climate risks, the “tolerable windows”
greener technologies can be less expensive approach can identify emissions paths that
than traditional carbon-­intensive ones. For stay within chosen boundaries of accept-
example, upgrading to improved wood- able risk and then evaluate the cost of doing
­fi red cook stoves in rural Mexico could so.66 “Robust decision making” can high-
reduce emissions by 160 million tons of light policies that provide an effective hedge
CO2 over the next 20 years, with net eco- against undesirable future outcomes.67
nomic gains (from lower direct energy costs
and better health) of $8 to $24 for each ton The cost-­benefit debate: Why it’s not
of avoided CO2 emissions.64 just about the discount rate
The economic debate about the cost-­benefit
Evaluating the tradeoffs analysis of climate change policy has been
While few still debate the need for action particularly active since the publication
to mitigate climate change, controversy of the Stern Review of the Economics of
remains over how much and how soon to Climate Change in 2007. That report esti-
mitigate. Holding the changes in global mated the potential cost of unmitigated cli-
average temperatures below “dangerous” mate change to be very high—a permanent
levels (see focus A on science) would require annualized loss of 5–20 percent of GDP—
immediate and global actions—actions that and argued for strong and immediate
are costly—to reduce emissions from pro- action. The report’s recommendations con-
jected levels by 50 to 80 percent by 2050. tradicted many other models that make an
A growing literature shows that the case economic case for more gradual mitigation
for immediate and significant mitigation in the form of a “climate policy ramp.”68
is stronger when taking into account the The academic debate on the appropri-
inertia in the climate system, meaning that ate discount rate—which drives much
warming and its impacts cumulate slowly of the difference between Stern’s result
but are to a considerable extent irreversible; and the others—will most likely never be
the inertia of the built environment, which resolved (box 1.2).69 Stern used a very low
implies a higher cost of reducing emissions discount rate. In this approach, commonly
in the future if higher-­emission fixed capi- justified on ethical grounds, the fact that
tal is put into place today; and the benefit future generations will likely be richer is
of reducing the greater uncertainty and risk the only factor that makes the valuation of
of catastrophic outcomes associated with future welfare lower than that of today; in
higher temperatures.65 all other ways, the welfare of future genera-
Any response to climate change involves tions is just as valuable as the welfare of the
some weighing of pros and cons, strengths current generation.70 Good arguments can
and weaknesses, benefits and costs. The be presented in favor of both high and low
question is how this evaluation is to be discount rates. Unfortunately, intergenera-
undertaken. Cost-­b enefit analysis is a tional welfare economics cannot help solve
crucial tool for policy evaluation in the the debate—because it raises more ques-
unavoidable context of competing priorities tions than it can answer.71
Understanding the Links between Climate Change and Development 49

Box 1.2 ​  ​The basics of discounting the costs and benefits of climate change mitigation
The evaluation of resource allocation Three factors determine the discount judgments and empirical information
across time is a staple of applied eco- rate. The first is how much weight to that attempt to assess preferences from
nomics and project management. Such give to the welfare enjoyed in the future, past behavior are used, sometimes in
evaluations have been used extensively strictly because it comes later rather combination. Because the costs of miti-
to analyze the problem of costs and ben- than sooner. This pure rate of time pref- gation policies are borne immediately,
efits of climate c­ hange mitigation. But big erence can be thought of as a measure and the possibly large benefits of such
disagreements remain about the correct of impatience. The second factor is the policies (avoided damages) are enjoyed
values of the parameters. growth rate in per capita consumption: far in the future, the choice of parameters
The social discount rate expresses the if growth is rapid, future generations will for the social discount rate strongly influ-
monetary costs and benefits incurred in be much wealthier, reducing the value ences climate-­policy prescriptions.
the future in terms of their present value, assigned today to losses from future Sources: Stern 2007; Stern 2008; Dasgupta
or their value to decision makers today. climate damages compared with costs 2008; Roemer 2009; Sterner and Persson
By definition, then, the primary tool of of mitigation borne today. The third fac- 2008.
intergenerational welfare analysis—total tor is how steeply the marginal utility of a. The marginal utility of consumption
expected net present value—collapses consumption (a measure of how much an declines as income rises because an addi-
the distribution of welfare over time. additional dollar is enjoyed) declines as tional dollar of consumption provides more
Determining the appropriate value for the income rises.a utility to a poor person than to a person
already consuming a lot. The steepness of
elements of the discount rate in the con- There is no universal agreement on
the change—known as the elasticity of the
text of a long-­term problem like climate how to choose the numerical values for marginal utility of consumption with respect
change involves deep economic and ethi- each of the three factors that determine to changes in income level—also measures
cal considerations (see box 1.4). the social discount rate. Both ethical tolerance of risk and inequality.

Yet the call for rapid and significant unmitigated climate change.74 In fact, fac-
action to mitigate greenhouse gas emis- toring the loss of biodiversity into a stan-
sions is not solely dependent on a low dis- dard model results in a strong call for more
count rate. While its role in determining rapid mitigation, even with a higher dis-
the relative weight of costs and benefits is count rate.
important, other factors raise the benefits
of mitigation (avoided damages) in ways More accurately modeled dynamics:
that also strengthen the case for rapid and Threshold effects and inertia. ​  ​The dam-
significant mitigation, even with a higher age function, which links changes in tem-
discount rate.72 peratures to associated monetized damages,
is usually modeled in cost-­benefit analysis
Broader impacts. ​  ​Most economic mod- as rising smoothly. But mounting scien-
els of climate change impacts do not ade- tific evidence suggests that natural systems
quately factor in the loss of biodiversity and could exhibit nonlinear responses to cli-
associated ecosystem services—a paradoxi- mate change as a consequence of positive
cal omission that amounts to analyzing the feedbacks, tipping points, and thresholds
tradeoffs between consumption goods and (box 1.3). Positive feedbacks could occur,
environmental goods without including for example, if warming causes the perma-
environmental goods in individuals’ utility frost to thaw, releasing the vast amounts of
function.73 Although the estimated market methane (a potent greenhouse gas) it con-
value of lost environmental services may be tains and further accelerating warming.
difficult to calculate and may vary across Thresholds or tipping points are relatively
cultures and value systems, such losses do rapid and large-­scale changes in natural (or
have a cost. The losses increase the rela- socioeconomic) systems that lead to serious
tive price of environmental services as they and irreversible losses. Positive feedbacks,
become relatively and absolutely scarcer. tipping points, and thresholds mean that
Introducing environmental losses into there might be great value to keeping both
a standard integrated assessment model the pace and magnitude of climate change
significantly increases the overall cost of as low as possible.75
50 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

​ ositive feedbacks, tipping points, thresholds, and nonlinearities in natural and


P
Box 1.3 ​ 
socioeconomic systems
Positive feedbacks in the weather events remain within the enve- direct damages. This effect is evident in
climate system lope of past variations—but that impacts some natural disasters. Recent evidence
Positive feedbacks amplify the effects could increase sharply if climate condi- in Louisiana shows that the economy has
of greenhouse gases. One such positive tions consistently exceed these boundar- the capacity to absorb up to $50 billion of
feedback is the change in reflectiveness, ies in the future. direct losses with minimal indirect losses.
or albedo, of the earth’s surface: highly But indirect losses increase rapidly with
Nonlinearities and indirect
reflective surfaces like ice and snow more destructive disasters (figure). Direct
economic effects
bounce the sun’s warming rays back out losses from Hurricane Katrina reached
The economic response to these impacts
to the atmosphere, but as higher tempera- $107 billion, with indirect losses adding
is itself nonlinear, in part because climate-
tures cause ice and snow to melt, more another $42 billion; a simulated disaster
­change impacts will simultaneously
energy is absorbed on the earth’s surface, with direct losses of $200 billion would
increase the need for adaptation and
leading to further warming and more cause an additional $200 billion in indi-
potentially decrease adaptive capacity.
melting, as the process repeats itself. rect losses.
Direct impacts can also beget indirect
Tipping points in natural systems effects (macroeconomic feedbacks, busi- Sources: Schmidt 2006; Kriegler and others
Even smooth, moderate changes in the ness interruptions, and supply-­chain 2009; Adams and others 2009; Hallegatte
climate can lead a natural system to a disruptions) that increase more than 2008; personal communication from
point beyond which relatively abrupt, dollar for dollar in response to greater Stéphane Hallegatte, May 2009.
possibly accelerating, irreversible, and
ultimately very damaging changes occur.
For example, regional forest die-­off could Indirect losses increase even more steeply as direct damages rise: Estimates from Louisiana
result from the combination of drought,
Indirect losses ($ billions)
pests, and higher temperatures that
400
combine to exceed physiological limits. A
possible tipping point of global concern 350
is the melting of the ice sheet that covers
much of Greenland. Past a certain level of 300
warming, summer melt will not refreeze
250
in winter, dramatically increasing the rate
of melting and leading to a sea-­level rise 200
of 6 meters.
150
Thresholds in socioeconomic systems
The economic cost of direct impacts could 100
also present strong threshold effects—a
result of the fact that current infrastruc- 50
tures and production practices are engi-
0
neered to be robust only to previously
experienced variation in weather condi- –50
tions. This suggests that any increases 0 50 100 150 200 250 300
in impacts will be driven primarily by
Direct losses ($ billions)
rising concentrations of population and
assets rather than by climate—so long as Source: Data provided by Stéphane Hallegatte, based on Hallegatte 2008.

Substantial inertia in the climate sys- example, a delay of more than 10 years
tem adds to the concern about positive would likely preclude stabilization of the
feedbacks, threshold effects, and irre- atmosphere at any less than 3°C of warm-
versibility of climate ­c hange impacts. ing.77 In addition, the climate system will
Scientists have found that the warming keep changing for several centuries even
caused by increases in greenhouse gas after concentrations of greenhouse gases
concentration may be largely irrevers- stabilize (see overview). So only imme-
ible for a thousand years after emissions diate mitigation preserves the option
stop.76 Postponing mitigation forgoes the value—that is, avoids the loss of options
option of a lower warming trajectory: for in stabilization outcomes.
Understanding the Links between Climate Change and Development 51

Inertia is also substantial in the built envi- becomes commercially available. This is
ronment—transport, energy, housing, and not the case in India, South Africa, or many
the urban form (the way cities are designed). other countries, where retrofits will prove
In response to this inertia, some argue for unaffordable unless new plants are sited
postponing mitigation investments to avoid close to the few existing storage sites (see
getting locked into higher cost, lower-­carbon chapters 4 and 7).
investments unnecessarily, instead waiting Developing countries, with less existing
until better, less expensive technology allows infrastructure than developed countries,
quick ramping up of mitigation and more is have a f lexibility advantage and could
known about the risks societies will need to potentially leapfrog to cleaner technolo-
protect against. gies. Developed countries must provide
But it is not possible in practice to post- leadership in bringing new technologies to
pone major investments in infrastructure market and sharing knowledge from their
and energy provision without compromis- experiences of deployment. The ability to
ing economic development. Energy demand change emissions trajectories depends on
is likely to triple in developing countries the availability of appropriate and afford-
between 2002 and 2030. In addition, many able technology, which will not be in place
power plants in high-­income countries were at some future date without research and
built in the 1950s and 1960s so are coming development (R&D) investment, dissemi-
to the end of their useful life, implying that nation, and learning-­by-­doing starting
many new plants will need to be built over today.
the next 10–20 years even with constant Opportunities to shift from higher-­ to
demand. Currently, coal plants remain lower-­c arbon long-­l ived capital stock are
among the cheapest option for many coun- not equally available over time.80 The choice
tries—in addition to offering energy secu- to switch to a more energy and economi-
rity for those with ample coal reserves. If all cally efficient system realistically cannot be
coal-­burning power plants scheduled to be made in the future if the required technolo-
built in the next 25 years come into opera- gies are not yet on the shelf and at sufficient
tion, their lifetime CO2 emissions would be scale to be affordable and if people do not
equal to those of all coal-­burning activities yet have the know-­how to use them (see
since the beginning of industrialization.78 chapter 7).81 Effective, affordable backstop
Consequently, the absence of stronger mitigation technologies for transforming
emission reduction commitments by the energy systems will not be available in the
power sector today will lock in relatively future without active research and dem-
high emission trajectories. onstration initiatives that move potential
Nor is it always possible to cost- technologies along the cost and learning
­effectively retrofit such investments on a curves. To that end, developed countries
large scale. Retrofits are not always pos- need to provide leadership in developing
sible, and they can be prohibitively costly. and bringing new technologies to market
Staying with the coal example, carbon and in sharing knowledge from their expe-
capture and storage—a technology that is riences of deployment.
being developed to capture the CO2 pro-
duced by a fossil-­f uel power plant and store Accounting for uncertainties. ​  ​Economic
it underground—requires that the plant be assessments of climate change policies
located within 50 to 100 miles of an appro- must factor in the uncertainties about the
priate CO2 storage site or else the cost of size and timing of adverse impacts and
transporting the carbon becomes prohibi- about the feasibility, cost, and time pro-
tively high.79 For countries endowed with files of mitigation efforts. A key uncer-
an abundance of potential storage sites, this tainty missed by most economic models is
is not an issue: about 70 percent of China’s the possibility of large catastrophic events
power plants happen to be close enough to related to climate change (see focus A on
storage sites and therefore could reasonably science), a topic that is at the center of an
be retrofitted if and when the technology ongoing debate. 82 The underlying prob-
52 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

ability distribution of such catastrophic The economics of decision making


risks is unknown and will likely remain so. under uncertainty makes a case that uncer-
More aggressive mitigation almost surely tainty about the effects of climate change
will reduce their likelihood, though it is calls for more rather than less mitigation.85
very difficult to assess by how much. The Uncertainty makes a strong argument for
possibility of a global catastrophe, even one adopting an iterative approach to selecting
with very low probability, should increase targets—starting with an aggressive stance.
society’s willingness to pay for faster and This is not lessened by the prospect of
more aggressive mitigation to the extent learning (acquiring new information that
that it helps to avoid calamity.83 changes our assessment of uncertainty).
Even without considering these cata-
strophic risks, substantial uncertainties Normative choices on aggregation and values. ​ ​
remain around climate change’s ecologi- Climate ­change policies require tradeoffs
cal and economic impacts. The likely pace between short-­term actions and long-­term
and ultimate magnitude of warming are benefits, between individual choices and
unknown. How changes in climate vari- global consequences. So climate ­change
ability and extremes—not just changes in policy decisions are driven fundamentally
mean temperature—will affect natural sys- by ethical choices. Indeed, such decisions are
tems and human well-­being is uncertain. about concern for the welfare of others.
Knowledge is limited about people’s ability Directly including the benefits from
to adapt, the costs of adaptation, and the nonmarket environmental goods—and
magnitude of unavoided residual damages. their existence for future generations—
Uncertainty about the speed of discovering, in economic models of well-­being is one
disseminating, and adopting new technolo- approach for capturing these tradeoffs.87
gies is also substantial. In practice the ability to quantify such
These uncertainties only increase with tradeoffs has been limited, but this frame-
the pace and amount of warming—a major work does provide a point of departure for
argument for immediate and aggressive further assessment of the increased value
action.84 Greater uncertainty requires adap- that societies assign to the environment
tation strategies that can cope with many as income increases, of possible tradeoffs
different climates and outcomes. Such between current consumption and costly
strategies exist (and are discussed below), efforts to safeguard the welfare—and exis-
but they are less efficient than strategies tence—of future generations.88
that could be designed with perfect knowl- Moreover, the way a model aggregates
edge. So uncertainty is costly. And more impacts across individuals or countries of
uncertainty increases costs. different income levels significantly affects
Without inertia and irreversibility, the value of estimated losses.89 To capture a
uncertainty would not matter so much, dimension of equity additional to the inter-
because decisions could be reversed and generational concerns expressed in the dis-
adjustments would be smooth and cost- count rate, equity weights can be applied to
less. But tremendous inertia—in the cli- reflect that the loss of a dollar means more
mate system, in the built environment, to a poor person than to a rich one. Such
and in the behavior of individuals and an approach better captures human welfare
institutions—makes it costly, if not impos- (rather than just income). And because poor
sible, to adjust in the direction of more people and poor countries are more exposed
stringent mitigation if new information is to climate change, this approach substan-
revealed or new technologies are slow to tially increases estimated aggregate losses
be discovered. So inertia greatly increases from climate change. By contrast, summing
the potential negative implications of cli- up global damages in dollars and expressing
mate policy decisions under uncertainty. them as a share of global GDP—implicitly
And uncertainty combined with inertia weighting damages by contribution to total
and irreversibility argue for greater pre- output—amounts to giving a much lower
cautionary mitigation. weight to the losses of poor people.
Understanding the Links between Climate Change and Development 53

Value systems also play a role in environ- catastrophe through massive deforestation.
mental policy decisions. Recently climate But as early as 1700 it had an elaborate sys-
change has emerged as a human rights issue tem of woodland management in place.90
(box 1.4). And most societies have ethical One reason the Tokugawa shogunate, the
or religious systems that value nature and rulers at the time, decided to act was con-
identify human responsibilities for the stew- cern for future family generations—a con-
ardship of the earth and its natural riches— cern that resulted from Confucian cultural
though the results often fall short of the traditions91—and a desire to maintain the
espoused ideals. In the first half of the 1600s, hereditary political system. Today, Japan’s
Japan was hurtling toward an environmental territory is almost 80 percent forested.92

Box 1.4 ​  ​Ethics and climate change


The complexity of climate change high- direct and indirect effects on exercising allocated according to each country’s or
lights several ethical questions. Issues and realizing civil and political rights. But group’s contribution to climate change.
of fairness and justice are particularly establishing causation and attribution is a A particular version of this view is that
important given the long temporal and serious problem and may limit the scope cumulative historical emissions need to
geographical disconnect between green- for applying human rights law to interna- be taken into account when establish-
house gas emissions and their impacts. tional or domestic disputes. ing responsibilities. A counterargument
At least three major ethical dimensions Because the causes of climate change holds that “excusable ignorance” grants
arise in the climate ­change problem: are diffuse, the direct link between the immunity to past emitters, because they
evaluating impacts, considering intergen- emissions of a country and the impacts were not aware of the consequences of
erational equity, and distributing respon- suffered in another are difficult to estab- their actions, but this argument has been
sibilities and costs. lish in a litigation context. A further obsta- criticized on the grounds that the poten-
cle to defining responsibility and harm in tial negative effects of greenhouse gases
Evaluating impacts
legal terms is the diffusion of emissions on the climate have been understood for
Several disciplines, economics included,
and impacts over time: in some cases, some time.
argue that welfare should be the over-
the source of the harm has occurred over A further dimension of responsibility
arching criterion in policy evaluation. But
multiple generations, and the damages concerns how people have benefited
even within a “discounted utilitarianism”
felt today may also by felt by many future from the past emissions of greenhouse
framework, there are large disagree-
generations. gases (see overview figure 3). While these
ments, most notably about which dis-
benefits clearly have been enjoyed by
count rate to use and how to aggregate Considering intergenerational equity the developed countries, which have
welfare across individuals in the present Intergenerational equity is an integral contributed the bulk of atmospheric CO2
and future. One common argument is part of the evaluation of impacts. How so far, developing countries also gained
that there is no sound ethical reason to intergenerational equity is incorporated some benefits from the resulting prosper-
discount economic and human impacts in an underlying economic model has sig- ity. One response is to ignore the past
just because they are anticipated to hap- nificant implications. As noted in box 1.2, and allot equal per capita entitlements
pen 40—or even 400—years hence. A standard present-­value criteria discount to all future emissions. Yet another view
counterargument is that it is not equita- future costs and benefits, collapsing the recognizes that what is ultimately impor-
ble for the current generation to allocate distribution of welfare over time to the tant is not the distribution of emissions
resources to mitigating future climate present moment. Alternative formula- but rather the distribution of economic
change if other investments are seen to tions include maximizing the current gen- welfare, including climate change dam-
have a higher return, thus coming back to eration’s utility, incorporating its altruistic ages and mitigation costs. This suggests
the problem of weighing costs and ben- concerns for future generations, and that in a world of unequal wealth, greater
efits of alternative uncertain options. taking into account the uncertainty of the responsibility for bearing costs falls to
Recent discussion has focused on existence of future generations. the better off—although this conclusion
human rights as the relevant criterion
does not preclude mitigation actions
for evaluating impacts. Some human Distributing responsibilities
being undertaken in poorer countries
rights—particularly economic and social and costs
with external finance provided by high-
rights—will be jeopardized by climate- Probably the most contentious issue
­income countries (see chapter 6).
­change impacts and possibly some policy is who should bear the burden of solv-
responses. These include the right to ing the climate ­change problem. One
food, the right to water, and the right to ethical response is the “polluter pays” Sources: Singer 2006; Roemer 2009; Caney
shelter. Climate impacts may also have principle: responsibilities should be 2009; World Bank 2009b.
54 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

Alternative frameworks for decision The guardrails approach does not


making require a monetary estimate of the damages,
Uncertainty, inertia, and ethics point to the because the constraints are determined by
need for caution and thus to the need for what is judged to be tolerable in each system
more immediate and aggressive mitigation, (for instance, it might be difficult to trans-
but the analytical debate over how much late into GDP figures the number of people
more continues among economists and displaced after a severe drought). Drivers
policy makers. The conclusions of differ- of the value of emission guardrails include
ent cost-­benefit analyses are very sensitive scientific analysis of the potential for
to initial assumptions such as the base- threshold effects, as well as nonmonetized
line scenario, the abatement and damage judgments about residual risks and vulner-
functions, and the discount rate, includ- abilities that would remain under differ-
ing implicit assumptions embedded in ent mitigation and adaptation strategies.
model formulations93 —which can lead to The costs of remaining within proposed
decision-­making gridlock. sets of guardrails need to be considered in
Alternative decision-­m aking frame- relation to the judgments surrounding the
works that incorporate broader-­b ased levels of climate safety provided by the dif-
assessments of costs and benefits, allow- ferent guardrails. On this sort of multicri-
ance for risk aversion, and the impli- teria basis, decision makers can make an
cations of ethical judgments can more informed and more comprehensive assess-
effectively support decision making in ment of where it is best to set the guardrails
the face of numerous knowledge gaps and (and this assessment can be periodically
obstacles. Including some of the valuation revisited over time).
issues noted above (option values, ecosys- This approach can be complemented by
tem services, risks of discontinuities) into decision support techniques, such as robust
a broader cost-­benefit analysis is desirable decision making, to address difficult-­to-
(albeit difficult). More, however, is needed ­evaluate uncertainties.96 In the context of
to make the normative consequences of unknown probabilities and a highly uncer-
policy choices as transparent as possible to tain future, a robust strategy answers the
inform decision makers aiming to estab- question, “What actions should we take, given
lish concrete environmental and develop- that we cannot predict the future, to reduce
ment targets and policies. That can help the possibility of an undesirable outcome to
them win the support of the myriad stake- an acceptable level?”97 In the context of cli-
holders who will experience the real-­world mate change, policy becomes a contingency
costs and benefits. problem—what is the best strategy given a
One alternative is a tolerable windows, variety of possible outcomes?—rather than a
or “guardrail,” approach. A window of traditional optimization problem. The intel-
mitigation goals, or a range bounded by lectual underpinnings of this approach are
guardrails, is chosen to limit tempera- not new; they can be traced back to the work
ture change and the rate of change to by Savage in the early 1950s on “minimizing
what are considered—heuristically or on the maximum regret.”98
the basis of expert judgment—to be tol- Looking for robust rather than just opti-
erable levels.94 The window is defined by mal strategies is done through what essen-
constraints derived from several climate- tially amounts to scenario-­based planning.
­sensitive systems. One constraint could be Different scenarios are created, and alter-
determined by society’s aversion to a given native policy options are compared based
GDP loss, associated with a given amount on their robustness—the ability to avoid a
and rate of temperature change. A second given outcome—across the different sce-
could be defined by society’s aversion to narios. Such analysis includes “shaping
social strife and inequitable impacts. A actions” that influence the future, “hedg-
third could be concern about warming ing actions” that reduce future vulnerabil-
­t hresholds, beyond which certain ecosys- ity, and “signposts” that indicate the need
tems collapse.95 for a reassessment or change of strategies.
Understanding the Links between Climate Change and Development 55

Robust decision analysis can also be done changes in fossil-­f uel use in middle-­income
with more formal quantitative tools, in countries suggest that their CO2 emissions
an exploratory modeling approach, using will continue to increase and will exceed
mathematical methods for characterizing the cumulative emissions of developed
decisions and outcomes under conditions countries in the coming decades.103
of deep uncertainty. The implication, as stated in the UNFCCC
Under robust decision making, costs, and the Bali Action Plan,104 is that all nations
benefits, and the tradeoffs inherent in cli- have a role in an agreement that reduces
mate policies are assessed under all sce- global emissions and that this role has to be
narios. The policy prescription is not to commensurate with their development sta-
pursue an “optimal” policy—in the tradi- tus. In this approach, developed countries
tional sense of maximizing utility—that take the lead in meeting significant reduction
performs, on average, better than the oth- targets, and they assist developing countries
ers. Instead, sound policies are those that in laying the foundations for lower-­carbon
withstand unpredictable futures in a robust growth pathways and meeting their citizens’
way. In this framing near-­term policies can adaptation needs. The UNFCC also calls for
be understood as a hedge against the cost developed countries to compensate develop-
of policy adjustments—lending support to ing countries for the additional mitigation
efforts to invest in R&D and infrastructure and adaptation costs developing countries
today to keep open the option of a low- will incur.
­carbon future tomorrow.99 A critical component of global action
is a global mechanism allowing those who
The costs of delaying the global mitigate to differ from those who pay (the
mitigation effort subject of chapter 6). Negotiated interna-
Today’s global warming was caused over- tional financial transfers can enable the
whelmingly by emissions from rich coun- direct financing—by high-income coun-
tries.100 Developing countries are rightly tries—of mitigation measures undertaken
concerned about the consequences of in developing countries. (In developing
imposing limitations on their growth. This countries, mitigation will often entail
supports the argument, embodied in the reorienting future emission trajectories
principle of “common but differentiated to more sustainable levels, not reducing
responsibilities” in the United Nations absolute emission levels.) Unlocking large-
Framework Convention on Climate Change ­scale finance from the high-­i ncome coun-
(UNFCCC), which holds that high-income tries seems a great challenge. However, if
countries should lead in reducing emis- high-­i ncome countries are committed to
sions, given both their historical respon- achieving lower total global emissions, it
sibility and their significantly higher per is in their interest to provide the financing
capita emissions today. Developed coun- to ensure that significant mitigation takes
tries’ much greater financial and technolog- place in developing countries. Estimates
ical resources further argue for their taking of global mitigation costs usually assume
on the bulk of mitigation costs, regardless that mitigation will happen wherever or
of where the mitigation occurs. whenever it is cheapest. Many low-­c ost
But emission reductions by rich countries measures to reduce emissions relative to
alone will not be enough to limit warming projected trajectories are in developing
to tolerable levels. While cumulative per countries. So global least-­cost mitigation
capita past emissions are small especially paths always imply that a large share of
in low-­income but also in middle-­i ncome mitigation is in developing countries—
countries,101 total annual energy-­related regardless of who pays.105
CO2 emissions in middle-­income countries Delayed action by any country to signif-
have caught up with those of rich countries, icantly lower emission trajectories implies
and the largest share of current emissions a higher global cost for any chosen mitiga-
from land-use change comes from tropi- tion target. For example, delaying mitiga-
cal countries.102 More important, projected tion actions in developing countries until
56 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

2050 could more than double the total cost is much cheaper for the world as a whole
of meeting a particular target, according to to reach a given mitigation goal with a full
one estimate.106 Another estimate suggests portfolio of measures occurring in all coun-
that an international agreement that cov- tries. It is so much cheaper that, provided
ers only the five countries with the high- enough countries are committed to a global
est total emissions (covering two-­t hirds of mitigation objective, all will be better off if
emissions) would triple the cost of achiev- the developed countries bear the cost of
ing a given target, compared with full par- financing scaled-­up measures in develop-
ticipation.107 The reason is that shrinking ing countries today.
the pool of mitigation opportunities avail- Developed countries have the means
able for reaching a set target requires pur- and incentives to transfer enough finance
suing not only the negative-­ and low-­cost to non-­A nnex I countries109 to make them
measures but also high-­cost measures. at least as well off by receiving transfers and
Although developed and developing scaling up their mitigation efforts imme-
countries have similar potential for nega- diately, compared with delaying commit-
tive cost (net benefit) measures and high- ment a decade or more before phasing in
­cost measures, the middle range of low-­cost their own national targets and policies. For
mitigation options is predominantly in a given mitigation target, each dollar trans-
developing countries (with many in agri- ferred to that end could yield an average of
culture and forestry). Exploiting all avail- three dollars in welfare gains by eliminat-
able measures will be crucial for achieving ing deadweight losses—gains that can be
substantial mitigation. This point is illus- shared according to negotiated terms. In
trated by the McKinsey analysis (figure other words, the participation of develop-
1.3a), but the results are not exclusive to ing countries in reaching a global target
it. If developing countries do not reduce is worth a lot. Sharing the large recovered
their emission trajectories, the total cost of deadweight losses can form a strong incen-
any chosen amount of mitigation will be tive for universal participation in a fair deal.
much higher (the marginal cost of abate- It is not a zero-­sum game.110
ment in developed countries alone—the That said, it is crucial not to underesti-
red line in figure 1.3b—is always higher mate the difficulties of reaching agreement
than if the global portfolio of options—the on global emissions targets. The reason is
orange line in figure 1.3b—is considered). that such agreement suffers from a kind of
The decline in total mitigation potential international “tragedy of the commons”: all
and the increase in global mitigation costs countries can benefit from global partici-
stemming from an approach involving mit- pation, but unilateral incentives to partici-
igation mostly in high-income countries pate are weak for most countries. This is the
do not depend on any particular model.108 case not only because all countries would
Nor do they depend on any differences in like to free ride, enjoying the benefits with-
opportunities and costs between developed out bearing the costs.111 Most countries are
and developing countries: if the developed small enough that if one decided to defect
countries declined to reduce their emis- from a global agreement, the agreement
sions, similarly global costs would rise and would not unravel. When applied to all
some amount of potential abatement would countries, however, this reasoning under-
be forgone (figure 1.3c). mines the possibility of reaching a deal in
These increases in global abatement the first place.112
costs represent pure deadweight losses— In fact, simulations exploring a variety
wasted additional costs that yield zero wel- of coalition structures and international
fare gains. Avoiding such losses (the shaded resource transfers to persuade reluctant
wedges between the marginal cost curves participants to stay in the coalition reveal
in figures 1.3b and 1.3c) creates plenty of the difficulty in reaching a stable agreement
incentives and space to negotiate the loca- (one that is consistent with self-­interest) to
tion and financing of mitigation actions undertake deep and costly cuts in global
while making all participants better off. It emissions. Stable and effective coalitions
Figure 1.3 ​ ​Assessing deadweight losses from partial participation in a climate deal
a. Global greenhouse gas mitigation marginal cost curve beyond 2030 business-as-usual
Marginal mitigation cost ($/tCO2e)
120
Efficiency in buildings: Land-use and land-use change, mostly in developing Advanced technologies:
100
residential and commercial; countries: reduced deforestation, grassland carbon capture and storage
80 building envelope, heat & water management, soil restoration, afforestation,
60 changed agronomy practices, livestock practices,
40 reduced intensive agricultural conversion
20
0
–20
–40 Small hydro and nuclear power
in developing countries Renewable energy: on- and off-shore wind,
–60 More efficient motors; solar photovoltaic energy, concentrated solar power
–80 energy co-generation;
–100 electricity from landfill waste;
Marginal cost, all countries
–120 gasoline plug-in hybrid engine
Mitigation measure in a developing country
–140 Negative costs: Long-term savings Mitigation measure in a high-income country
–160 outweigh initial costs
0 10 20 30 40
Mitigation potential (GtCO2e/year)

b. Deadweight loss from only mitigating in developed countries: a limited participation marginal cost curve
Marginal mitigation cost ($/tCO2e)
120
100 Gt of forgone mitigation at $120/tCO2e
80
60
40 Additional cost of
achieving 10 Gt of
20 mitigation
0
–20
–40
–60
–80
Marginal cost, all countries
–100 Marginal cost, only
–120 high-income countries
–140 Deadweight loss
–160
0 10 20 30 40
Mitigation potential (GtCO2e/year)

c. Deadweight loss from only mitigating in developing countries: a limited participation marginal cost curve
Marginal mitigation cost ($/tCO2e)
120
100 Gt of forgone mitigation at $120/tCO2e
80
60 Additional cost of achieving
40 25 Gt of mitigation
20
0
–20
–40
–60
–80
Marginal cost, all countries
–100 Marginal cost, only
–120 developing countries
–140 Deadweight loss
–160
0 10 20 30 40
Mitigation potential (GtCO2e/year)
Source: McKinsey & Company 2009 with further data breakdown provided for WDR 2010 team.
Note: The bars in (a) represent various mitigation measures, with the width indicating the amount of emission reduction each measure would achieve and the height indicating the
cost, per ton of avoided emissions, of the measure. Tracing the height of the bars creates a marginal mitigation cost curve. Panels (b) and (c) show the marginal mitigation cost curve
if mitigation only takes place in high-income countries (b) or only in developing countries (c), as well as the resulting deadweight losses associated with these scenarios. Such dead-
weight losses could be avoided or minimized through financial mechanisms that allow a separation between who pays and who mitigates, and ensure the most cost-effective mitiga-
tion measures are adopted.
58 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

are possible for milder and less costly global The financial crisis presents an added
emissions cuts, but such cuts do not suffi- burden to development efforts and a likely
ciently address the threats to sustainability distraction from the urgency of climate
of greater climate change.113 change. Individual, community, and coun-
try vulnerability to the climate threat will
Seizing the moment: Immediate increase as economic growth slows down,
stimulus and long-­term revenues disappear, and assistance shrinks.
transformations While the economic slowdown will be
In 2008 the global economy suffered a dra- matched by a temporary deceleration in
matic shock, triggered by disruptions in emissions, people remain vulnerable to the
the housing and financial markets in the warming already in the pipeline; and with-
United States and eventually encompass- out concerted efforts to decouple emissions
ing many countries. The world had not from growth, emissions will again acceler-
experienced such a financial and economic ate as economic recovery takes hold.
upheaval since the Great Depression. Credit Governments in many developed and
markets froze, investors f led to safety, developing countries are responding to
scores of currencies realigned, and stock the crisis by expanding public spending.
markets dropped sharply. At the height of Spending proposed in several national and
the financial volatility the stock market in regional stimulus plans totals $2.4 trillion
the United States lost $1.3 trillion in value to $2.8 trillion.120 Governments expect that
in one session.114 this spending increase will protect or create
The ongoing consequences for the real jobs by increasing effective demand—one
economy and development indicators of the main priorities for halting the down-
around the world are huge—and continue turn. The World Bank has proposed that 0.7
to unfold. The global economy is projected percent of high-­income countries’ stimulus
to contract in 2009. Unemployment is on packages be channeled into a “vulnerability
the rise around the world. The United States fund” to minimize the social costs of the
alone had lost almost 5 million jobs between economic crisis in developing countries.122
December 2007, when the recession began
and March 2009.115 Some estimates suggest The case for a green stimulus
32 million job losses in developing coun- Despite the economic chaos the case for
tries.116 Between 53 million and 90 million urgent action against climate change
people will fail to escape poverty because remains. And it becomes more pressing
of the fallout during 2009.117 Official devel- given the increase in poverty and vulnera-
opment assistance—already well below the bility around the world. Thus recent public
committed targets for several donor coun- debates have focused on the possibility of
tries—is likely to decline as public finances using fiscal packages to push for a greener
in developed countries worsen and atten- economy, combating climate change while
tion shifts toward domestic priorities. restoring growth.
Some regions are becoming more vulner- How can both the economic slump and
able to future challenges as a consequence climate change be tackled with the fiscal
of the economic downturn: Sub-­Saharan stimulus? Solving the climate ­change prob-
economies grew rapidly in the first years of lem requires government intervention, not
the 21st century, but the collapse of com- least because climate change is created by
modity prices and global economic activity a large-­scale negative externality. And the
will test this trend. Countries and commu- once-­i n-­a lifetime crisis in the financial
nities around the world that rely on remit- markets and the real economy calls for pub-
tances from nationals working in developed lic spending.
countries are severely affected as these Investment in climate policy can be an
financial transfers fall.118 In Mexico remit- efficient way to deal with the economic cri-
tances fell by $920 million in the six months sis in the short term. Low-­carbon technolo-
leading up to March 2009—a decline of 14 gies could generate a net increase in jobs,
percent.119 because they can be more labor intensive
Understanding the Links between Climate Change and Development 59

than high-­c arbon sectors.122 Some esti- long-­term savings for the public sector.128
mates suggest that $1 billion in government Similar virtues can be found in helping to
spending on green projects in the United finance other energy-­efficiency measures
States can create 30,000 jobs in a year, that reduce the social cost of energy in
7,000 more than generated by traditional private buildings, as well as in water and
infrastructure.123 Other estimates suggest sanitation facilities and in improved traf-
that spending $100 billion would generate fic flows.
almost 2 million jobs—about half of them In each country the portfolio of projects
directly.124 But as with any short-­term stim- and investments varies widely, according to
ulus, the job gains might not be sustained the specific conditions of the economy and
in the long run.125 the needs for job creation. Most stimulus
packages in Latin America, for instance,
Green spending around the world will be spent on public works—including
Several governments have included a share highways—with limited mitigation poten-
of “green” investments in their stimulus tial.129 In the Republic of Korea, where
proposals—including low-­c arbon tech- 960,000 jobs are expected to be created
nologies, energy efficiency, research and in the next four years, a large part of the
development, and water and waste man- investment—$13.3 billion of $36 billion—
agement (figure 1.4). The Republic of Korea will be allocated to three projects: river
will devote 80.5 percent of its fiscal plan to restoration, expansion of mass transit and
green projects. Some $100 billion to $130 railroads, and energy conservation in vil-
billion of the U.S. stimulus package has lages and schools, programs projected to
been allocated to climate-­change-­related create 500,000 jobs.130 China will devote
investments. Overall, some $436 billion $85 billion to rail transport as a low-
will be disbursed in green investments as ­carbon alternative to road and air transport
part of fiscal stimuli around the world, with that can also help alleviate transportation
half expected to be used during 2009.126 bottlenecks. Another $70 billion will be
The efficiency of these investments will allocated for a new electricity grid that
depend on how quickly they can be imple- improves the efficiency and availability of
mented; how well targeted they can be electricity.131 In the United States two fairly
in creating jobs and utilizing underused inexpensive projects—$6.7 billion for ren-
resources; and how much they shift econo- ovating federal buildings, and another $6.2
mies toward long-­lived, low-­carbon infra- billion for weatherizing homes—will create
structure, reduced emissions, and increased an estimated 325,000 jobs a year.132
resilience.127 Investments in energy effi- In most developing countries the projects
ciency in public buildings, for instance, are in stimulus packages do not have a strong
appealing because they are usually “shovel emission-­reduction component, but they
ready,” are very labor intensive, and generate could improve resilience to climate change

Figure 1.4 ​ ​Global green stimulus spending is rising

Size of green share of total stimulus package ($, billions) 94.1


Size of total stimulus package ($, billions) 221.3 787.0
12.4
586.1
485.9

1.3 13.8
2.5 2.1 2.6 7.1 30.7 103.5 104.8
26.7 30.4 31.8 33.7 38.1

Australia United Canada France Korea, Italy Germany Japan China United States
Kingdom Rep. of

Source: Robins, Clover, and Singh 2009.


60 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

and create jobs. Improving water and sani- But behavioral change needs to be matched
tation networks in Colombia, for example, with institutional reform, additional
is estimated to create 100,000 direct jobs per finance, and technological innovation to
$1 billion invested while reducing the risk avoid irreversible, catastrophic increases
of water-­borne illnesses.133 Both developing in temperature. In any case and under any
and developed countries should consider scenario, strong public policy can help
adaptation measures such as streambed and economies absorb the shocks of unavoid-
wetland restoration, which can be particu- able climate impacts, minimize net social
larly labor intensive and thus reduce both losses, and protect the welfare of those who
the physical and financial vulnerability of most stand to lose.
some groups. The challenge would be to The response to climate change could
ensure that the adaptation measures are generate momentum to improve the devel-
sustained after the expenditure program opment process and promote welfare-
ends. ­enhancing reforms that need to happen
These preliminary figures will likely anyway. For example, the joint efforts to
change as the crisis unfolds. There is no increase energy efficiency and promote
guarantee that the green elements of the fis- development could find a policy—and
cal stimulus will succeed in either generat- physical—expression in greener, more
ing jobs or changing the carbon mix of the resilient cities. Improving urban design to
economy. And even in the best-­case scenario, promote energy efficiency—through, say,
the fiscal interventions will not be enough more public transportation and a conges-
to eliminate the risk of high-­carbon lock-­in tion charge—can increase physical secu-
and climate vulnerability. But the opportu- rity and the quality of life. Much depends
nity to jump-­start green investments and lay on the degree to which existing inadequate
the foundation for low-­carbon economies is institutional mechanisms and policies
real and needs to be seized. can be strengthened or replaced thanks to
greater political space for change brought
Fundamental transformations in the about by the threat of global warming and
medium and long term to increased international technical and
Incorporating sound low-­carbon and high- financial assistance.
­resilience investment components in fiscal Individual citizens will have a large role
expansions to combat the financial crisis in the public debate and implementation of
will not be enough to thwart the long-­term solutions. Opinion surveys show that peo-
problems posed by climate change. Funda- ple around the world are concerned about
mental transformations are needed in social climate change, even in the recent finan-
protection, in carbon finance, in research cial turmoil134 (though evidence on recent
and development, in energy markets, and in trends in the United States is mixed).135
the management of land and water. Most governments also recognize, at least
Over the medium and long terms the in discourse, the enormity of the danger.
challenge is to find new paths to reach And the international community has
the twin goals of sustaining development acknowledged the problem, as exemplified
and limiting climate change. Reaching an by the 2007 Nobel Peace prize awarded for
equitable and fair global deal would be an the scientific assessment and communica-
important step toward avoiding worst-­case tion to the public of climate change.
scenarios. But it requires transforming the The challenge for decision makers is
carbon-­i ntensive lifestyles of rich coun- to ensure that this awareness creates the
tries (and rich people everywhere) and the momentum for reform of institutions and
carbon-­intensive growth paths of develop- behavior and serves the needs of those
ing countries. This in turn requires com- most vulnerable.136 The financial crises of
plementary socioeconomic changes. the 1990s catalyzed the revamping of social
Modifications in social norms that safety nets in Latin America, giving birth
reward a low-­carbon lifestyle could prove a to Progresa–Oportunidades in Mexico
powerful element of success (see chapter 8). and Bolsa Escola–Bolsa Familia in Brazil,
Understanding the Links between Climate Change and Development 61

among the best innovations in social policy 22. IPCC 2007b.


in decades.138 23. Cruz and others 2007.
The current crisis has eroded faith in 24. Easterling and others 2007.
unregulated markets. As a consequence, 25. Auffhammer, Ramanathan, and Vincent
2006.
better regulation, more intervention, and
26. Guiteras 2007.
greater government accountability are
27. Ligon and Sadoulet 2007.
expected. For dealing with climate change, 28. Campbell-­Lendrum, Corvalan, and Pruss-
additional climate-­smart regulation is ­Ustun 2003.
needed to induce innovative approaches to 29. Among the many diverse regions and coun-
mitigation and adaptation. Such policies tries affected are Colombia (Vergara 2009), the
create an opening for the scale and scope of Caucasus (Rabie and others 2008), Ethiopia (Con-
government interventions needed to correct falonieri and others 2007), and the islands of the
climate change—the biggest market failure South Pacific (Potter 2008).
in human history. 30. Molesworth and others 2003.
31. Confalonieri and others 2007.
32. Confalonieri and others 2007; Morris and
Notes others 2002.
1. Weiss and Bradley 2001. 33. Carter and others 2007.
2. Ristvet and Weiss 2000. 34. World Bank 2001.
3. Weiss 2000. 35. Azariadis and Stachurski 2005.
4. Harrington and Walton 2008; IWM and 36. Lokshin and Ravallion 2000; Jalan and
CEGIS 2007. Ravallion 2004; Dercon 2004.
5. Schmidhuber and Tubiello 2007. 37. Dercon 2004.
6. Bates and others 2008. 38. Mueller and Osgood 2007.
7. WCED 1987. 39. Azariadis and Stachurski 2005.
8. Chen and Ravaillon 2008. 40. Rosenzweig and Binswanger 1993.
9. World Bank 2009a. 41. Jensen 2000.
10. United Nations 2008. 42. Alderman, Hoddinott, and Kinsey 2006.
11. Chen and Ravaillon 2008. 43. Figures include all greenhouse gases but
12. IEA 2007. do not include emissions from land-use change.
13. United Nations 2008. If estimates of land-­use change emissions are
14. United Nations 2008. added, the share of developing countries in
15. UNDP 2008. global emissions is closer to 60 percent.
16. IARU 2009. 44. WRI 2008.
17. Smith and others 2009. 45. Chomitz and Meisner 2008.
18. Patriquin and others 2005; Patriquin, 46. Authors’ calculations, based on data from
Wellstead, and White 2007; Pacific Institute for CAIT (WRI 2008). Greenhouse gas emissions
Climate Solutions 2008. (excluding land-­use change) per capita range
19. Note that this relationship holds even when from 4.5 to 55.5 metric tons CO2e (7 to 27, if
controlling for the fact that poorer countries tend to small-­island states and oil producers are excluded)
be warmer on average. Dell, Jones, and Olken 2008. among high-­income countries. Emissions per
20. Dell, Jones, and Olken 2008. $1,000 of output at market exchange rates range
21. Brown and others 2009. from 0.15 to 1.72  metric tons in high-­income

“Take care of your earth,


Look after its creatures.
Don’t leave your children,
A planet that’s dead.”
—Lakshmi Shree, India, age 12
62 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 0

countries; measuring output at purchasing power 76. Solomon and others 2009.
parity, the range is 0.20 to 1.04 metric tons. 77. Mignone and others 2008.
47. Marcotullio and Schulz 2007. 78. Folger 2006; Auld and others 2007.
48. Rosenberg 1971. 79. Carbon capture and storage technology is
49. IPCC 2007a. described in chapter 4, box 4.6.
50. Lipovsky 1995. 80. Shalizi and Lecocq 2009.
51. “Annual Brazilian Ethanol Exports” and 81. For a general discussion, see Arthur 1994;
“Brazilian Ethanol Production,” http://english for a more specific application of increasing
.unica.com.br/dadosCotacao/estatistica/ (accessed returns and the need to invest in innovation in the
December 2008). area of energy efficiency, see Mulder 2005.
52. Ummel and Wheeler 2008. 82. Weitzman 2007; Weitzman 2009a; Weitz-
53. Hill and others 2009. man 2009b; Nordhaus 2009.
54. Mitchell 2008. 83. Gjerde, Grepperud, and Kverndokk 1999;
55. Ivanic and Martin 2008. Kousky and others 2009.
56. Ng and Aksoy 2008; World Bank 2008. 84. Hallegatte, Dumas, and Hourcade 2009.
57. Cramton and Kerr 1999. 85. See Pindyck (2007) and Quiggin (2008)
58. Ekins and Dresner 2004. for recent reviews.
59. Brenner, Riddle, and Boyce 2007. 86. O’Neill and others 2006.
60. Benitez and others 2008. 87. In their model, Sterner and Persson
61. Estache 2009. (2008) include environmental goods in the util-
62. Andriamihaja and Vecchi 2007. ity function.
63. Komives and others 2005. 88. Portney and Weyant 1999.
64. Johnson and others 2008. 89. Fisher and others 2007; Hourcade and
65. Pindyck 2007; Weitzman 2009a; Hallegatte, Ambrosi 2007; Tol 2005.
Dumas, and Hourcade 2009. 90. Diamond 2005.
66. Yohe 1999; Toth and Mwandosya 2001. 91. Komives and others 2007; Diamond 2005.
67. Lempert and Schlesinger 2000. 92. Diamond 2005.
68. Nordhaus 2008a. For a discussion of mod- 93. Hof, den Elzen, and van Vuuren 2008.
els and their results, see, for example, Heal 2008; 94. Bruckner and others 1999.
Fisher and others 2007; Tol 2005; and Hourcade 95. Yohe 1999.
and Ambrosi 2007. 96. Toth and Mwandosya 2001.
69. The 5 percent estimate is largely driven 97. Lempert and Schlesinger 2000.
by the discount rate, but the margin between 5 98. Savage 1951; Savage 1954.
percent and 20 percent is based on the inclu- 99. Klaus, Yohe, and Schlesinger 2008.
sion of nonmarket impacts (health and envi- 100. IPCC 2007a.
ronment), possibly higher sensitivity of the 101. See overview figure 3 for cumulative
climate to greenhouse gases, and the use of emissions relative to population share.
equity weighting. Stern 2007; Dasgupta 2007; 102. According to the IEA (2008), non-­OECD
Dasgupta 2008. (Organisation for Economic Co-­operation and
70. For a discussion, see Dasgupta 2007; Das- Development) countries reached the same level of
gupta 2008; and box 1.4. annual energy-­related emissions as OECD coun-
71. Dasgupta 2008. tries in 2004 (approximately 13 gigatons of CO2 a
72. Heal 2008; Sterner and Persson 2008. year). The World Resource Institute’s CAIT emis-
73. Guesnerie 2004; Heal 2005; Hourcade and sion indicator database suggests the same conclu-
Ambrosi 2007. sion using the World Bank’s definition of devel-
74. Sterner and Persson 2008. oped and developing countries; WRI 2008.
75. Hourcade and others (2001) explore the 103. Wheeler and Ummel 2007.
sensitivity of seven different integrated assessment 104. Chapter 5, box 5.1, describes the Bali
models to the shape of the damage function and Action Plan in detail.
find that optimal concentration trajectories can 105. For 2030, this has been estimated at
imply significant departure from current emission 65–70 percent of the emission reduction, or
trends if significant damages occur with warming 45–70 percent of the investment cost. Over the
of 3°C or 500 parts per milion (ppm) CO2 concen- course of the century (using net present value
tration. More generally, they note that early action to 2100) the estimated share of investments
can be justified if a nonzero probability is assigned that should take place in developing countries is
to damages increasing very rapidly with warming, 65–70 percent. See overview note 47 for sources.
so that damages grow more rapidly than the rate at 106. Edmonds and others 2008.
which discounting shaves down their weight. 107. Nordhaus 2008b.
Understanding the Links between Climate Change and Development 63

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