1 2 3 4 2 refereed journal articles, focusing primarily on risk analysis and environmental economics, among over 1000 academic and popular publications. My current ARC Federation Fellowship deals with the impact of Climate Change on the Murray-Darling Basin. My curriculum vitae is provided as Attachment 1. 2. Materials used in the preparation of this report include reports of the Intergovernmental Panel on Climate Change (IPCC), the Stern Report (UK) and Garnaut Review, along with my own earlier research on the costs of climate change and the analysis of climate mitigation policy. For findings on the negative net value of coal-fired power, I have drawn on the work of Muller, N. Mendelsohn, R. and Nordhaus, W. (2011) Environmental Accounting for Pollution in the United States Economy, American Economic Review, 101(5): 1649–75 (Attachment 3). Part I: Impacts of Climate Change 3. Emissions of carbon dioxide (CO2) and other greenhouse gases have changed the global climate and will continue to do so in the future. 4. Research on the likely global impacts of climate change is summarised in the report of the Intergovernmental Panel on Climate Change (IPCC) Working Group II, on Impacts and Adaptation. The primary areas of concern are: • Natural ecosystems • Effects on agriculture, forestry and fisheries • Effects of sea level rise • Health effects • Water supply • Risk of sudden and catastrophic change 5. The magnitude of these effects depends critically on the rate at which climate change takes place and the magnitude of the increase at the point when climate ultimately stabilises at a new equilibrium. Damages are non-linear and convex (Attachment 4). That is, the costs associated with 4oC of warming will be more than twice as great as the costs associated with 2oC of warming (Attachment 4). The costs of 6oC or 8oC of warming over the next century are hard to project, but would certainly be catastrophic. 5 3 6. Drawing on IPCC and other evidence, I will summarise the nature of the projected impacts, focusing on economic effects, and the way in which these effects depend on the rate of climate change. Natural ecosystems 7. The most severe effects of climate change will be those on natural ecosystems. If efforts to limit temperature change to 2oC are unsuccessful, and particularly if the increase in temperature exceeds 4oC, large-scale species extinction is likely. The IPCC (2007b, p242) states: As global temperature exceeds 4oC above pre-industrial levels, model projections suggest significant extinctions (40-70% species assessed) around the globe. 8. Economic valuation of the effects of climate change on natural ecosystems is difficult and has not been undertaken in a systematic fashion. For this reason, this topic will not be addressed at the global level. Effects on agriculture, forestry and fisheries 9. Quiggin (2008) summarises a range of agricultural effects of climate change, and discusses possible adaptation. Climate change may be expected to have a range of effects on crop yields, and on the productivity of forest and pasture species (IPCC 1995, 1999, 2001, 2007b). Some effects, such as increased evapotranspiration will generally be negative, while others, such as CO2 fertilisation will generally be positive. In general, it appears that for modest increases in temperature (up to 1oC) beneficial effects will predominate. For warming of between 1oC and 2oC a mixture of harmful and beneficial effects will be observed. For warming of more than 2oC, the marginal effects of additional warming are unambiguously negative (Quiggin 2008). 10. Projections at the regional level remain problematic. However, the analysis in the Garnaut report suggested that impacts on south-eastern Australia, including NSW will be negative, and potentially severe. Effects of sea level rise 11. Understanding of the likely sea level rise associated with climate change is still developing. The IPCC Fourth Assessment Report confined attention to projections of sea level rise due to thermal expansion. However, more recent research suggests that the melting of ice sheets in Greenland and Antarctica is proceeding more rapidly than was 6 4 previously expected, and is likely to contribute to substantial sea level rise over the 21st century. Recent projections suggest that sea levels could rise by 1.4 metres by 2100, with irreversible further increases in sea levels thereafter (Scientific Committee on Antarctic Research, 2009). 12. The economic costs of sea level rise involve a complex interaction between patterns of coastal development, climate change, and a variety of adaptive responses. Some policy approaches, such as restrictions on development in vulnerable areas would reduce the costs of natural disasters such as floods and storm surges, but would imply substantial economic costs in terms of foregone opportunities. Health effects 13. The most important direct health effects of climate change relate to a likely increase in deaths from heat stroke and the prevalence of tropical diseases. These must be offset against reductions in deaths and morbidity from cold. However, most studies suggest a net negative impact, particularly if climate change is rapid (IPCC 2007, Working Group II, p47). 14. Valuation of the adverse health effects of uncontrolled climate change remains difficult and controversial, but these effects are clearly likely to be substantial. 15. Adverse health effects will also arise indirectly, through the effects of sea level rise, tropical storms, reduced access to water and higher food costs. Water supply 16. Water, derived from natural precipitation, from irrigation or from groundwater, is a crucial input to agricultural production. IPCC (2007b, p175) concludes, with high confidence, that the negative effects of climate change on freshwater systems outweigh its benefits. This negative finding arises from a number of features of projected climate change. 17. First, climate change is likely to exacerbate the spatial variation of precipitation, with average precipitation increasing in high rainfall areas such as the wet tropics, and decreasing in most arid and semi-arid areas (Milly, Dunne and Vecchia 2005). 18. Second, climate change is likely to increase the variability and uncertainty of precipitation (Trenberth et al. 2003). The frequency and geographical extent of severe droughts are likely to increase by multiples ranging from two to ten, depending on the 7 5 measure (Burke, Brown, and Nikolaos 2006) and high intensity rainfall events are likely to become more prevalent (IPCC 2007a). 19. Third, higher temperatures will lead to higher rates of evaporation and evapotranspiration, and therefore to increased demand for water for given levels of crop production (Döll 2002). Water stress (the ratio of irrigation withdrawals to renewable water resources) is likely to increase in many parts of the world. Water stress may be reduced in some areas, but the benefits of increased precipitation will be offset by the fact that the increases in runoff generally occur during high flow (wet) seasons, and may not alleviate dry season problems if this extra water is not stored (Arnell 2004). 20. Although attribution of specific events to climate change remains problematic, Australian experience over the last decade, in which a severe drought has been followed by extreme flooding events, is consistent with the general projections described above. Catastrophic risks 21. Research has identified a range of catastrophic risks, in which climate change produces positive feedback effects leading to rapid and severe changes in climate patterns which may result in the collapse of agricultural systems, large-scale loss of life, and substantial and permanent reductions in human welfare. These catastrophic possibilities include the release of methane currently trapped in tundras or oceanic hydrates, and the shutdown of thermohaline circulation in the North Atlantic (IPCC 2007b, pp 793-4). At this stage, the probability of these events remains low. Nevertheless, since the likely damage is catastrophic, the risk associated with these events represents a substantial portion of estimates of the mean expected damage associated with uncontrolled climate change (Weitzman 2007). Aggregate evaluations 22. The most recent systematic evaluation of the economic costs of climate change is that undertaken by Stern (2007). Stern’s estimates are presented in terms of a flow present value, that is, the permanent proportional reduction in income that would be equivalent, in terms of economic welfare, to the expected damage from uncontrolled climate change. This method of presentation is useful since it allows for direct comparison with the costs of mitigation measures. 23. Stern offers a range of estimates of the cost of warming equivalent to a reduction of between 5 and 20 per cent in annual global income. That is equivalent to annual cost for 8 6 Australia of between $60 billion and $240 billion, rising in line with national income at a real rate of around 4 per cent per year. 24. Stern’s estimates of economic damage to agricultural systems, and his evaluation of catastrophic risks appear sound, given available knowledge. However, in adopting components of earlier work by Nordhaus and others, Stern used unduly conservative estimates of the likely cost of biodiversity loss and ecosystem damage. Although business as usual emissions are likely to lead to the extinction of up to one third of all animal and plant species, Nordhaus assumed the cost of this extinction could be valued at less