Sustainable Development, Economic Growth and Global Warming

A Theoretical Approach to the Sustainable Development Concept: The Cost of Climate Change

It was in the 1970s that the Club of Rome raised awareness of the need for economic systems to preserve environmental sustainability (Meadows et al. 1972) and reflect the existence of a trade-off between economic growth and environmental degradation. Recent approaches have argued that it is possible to reach a state of “sustainable development” in which economic growth is compatible with environmental quality improvement (WCED 1987; Grossman and Krueger 1991; Munasinghe 1999). For an environmental agency such as the United Nations Environmental Programme (UNEP), environment is an obvious entry point from which to pursue sustainable development of an economy. This requires beginning from environmental impacts and tracing their causes into the economy. Environmental measures and policies serve to demonstrate both the economic and social benefits of environmental policy rather than the comprehensive sustainability of the economy.

Table 1 Selected impacts of climate change (by the end of the XXI century)

Source IPCC (2013)

The 1992 Earth Summit in Rio de Janeiro promoted sustainable development for countries at all stages of development (UNEP 1992). Since 1995, the gatherings of the United Nations Framework Convention on Climate Change (UNFCCC) have used annual meetings to determine what measures can be taken to control global warming and greenhouse gas emissions (GHGs). The first remarkable outcome of the UNFCCC was the Kyoto protocol (1997), which introduced binding obligations for developed countries to decrease their GHGs. Nevertheless, the Kyoto protocol never became a real global agreement because its first and second amendments were binding for only the European Union and several industrialized countries; sadly, the world’s largest emitters—USA, Canada and India, among others—did not ratify the protocol.

The 2012 Rio + 20 conference presented the greening of the economy as a tool for sustainable development, and new global development goals are in making (UNEP 2012). One way of achieving a certain degree of integration—or at least coordination—of social objectives with the other dimensions of sustainable development is to set goals and targets for the different dimensions.

Some environmental studies and environmental organizations have warned about disasters if global warming continues at its current pace (UNEP 2012; IPCC 2013). The widely recognized report of the Intergovernmental Panel on Climate Change (IPCC) presents a scientific analysis of climate change (IPCC 2013) that, through the use of biophysical measures, points to potential disaster if no action is taken (Table 1).

It is estimated that global warming will increase by approximately 2-6 °C by the end of this century, resulting in serious problems with sea levels and a reduction in artic sea ice (IPCC 2013).^[1] Stern (2006) predicts that global warming will bring about major crop failures in developing countries, with a 25-60% increase in the number of people at risk of hunger; a sea-level rise that threatens London, Shanghai, New York, Tokyo and Hong Kong; the possible collapse of the Amazon rain forest; the extinction of many species; and increasingly intense natural disasters. Following Stern (2006), Lin and Jiang (2009) noted that the global temperature could rise by 2-3 °C, which could reduce global GDP by 5-10% and by more than 10% in poor countries. Data from the IEA (2016) show that the atmospheric CO₂ concentration has increased by 40% compared to the mid-18th century, and there has been a significant increase during the last century. These increasing concentrations have gradually influenced the stability of earth’s climate, ecosystems, and socioeconomic system. Even if the concentration of CO₂ emissions were to remain unchanged, climate system changes such as global warming and sea-level rise would continue irreversibly for centuries.

One advance in the evaluation of potential environmental damage has been to relate the impacts of climate change to economic activities and their values. Therefore, several environmental economists point to cost-benefit analysis as a method of pricing the social costs and benefits of scarce environmental services (Table 2).

Table 2 shows the application of various techniques of environmental damage evaluation, including market simulation, travel costs to nature reserves, and surveys of people’s willingness to pay for environmental benefits and to accept compensation for environmental damages. The IPCC (2007b) estimated the average cost of damages from 4 °C of global warming (presumably in the second half of the twenty-first century) at 1 -5% of GDP.

The IPCC (2014) does not provide any damage estimates. Therefore, Table 2 indicates only the difference in mitigation costs between the best and worst

Table 2 Global cost of climate change (% of world GDP)

Notes: This Table shows illustrative estimates of past and future global costs of inaction on climate change. The different costs are hardly comparable. The reasons are differences in coverage, uncertain projections of carbon emissions and world GDP, and different time frames and valuation methods

^aGlobal mean loss (macro-economic cost) for 4 °C global warming in the second half of the 21st century (IPCC 2007)

^bDifference in mitigation costs in terms of consumption losses between best and worst scenarios (430 ppm CO₂-eq vs. 580-650 ppm), converted to % of GDP (IPCC 2014) ^c“High-climate” scenario (mean: 4.3 °C global warming). (Stern 2006)

^d“Best guess” of economic damage in 2100 with no intervention regarding emission control (Nordhaus 2008)

^eSocial cost in 2006 in adjusted net savings accounts at marginal damage cost of $5.4/t of CO₂ World Bank (2010) scenarios of greenhouse gas concentrations as a proxy for the possible ‘maintenance cost of reducing the impact of climate change’.

The mitigation costs might be lower than the damage costs, at least with regard to their mid-range, which provides strong support for taking climate action now. Stern’s (2006) estimate for the year 2100 is within the cost range of the IPCC but is expected to increase dramatically by the year 2200. In contrast, Nordhaus (2008) rejects Stern’s low discounting, which ignores the real and more realistic interest rates for climate-related investments, dramatizes climate change events and justifies unnecessarily costly action now. Nordhaus’s (2008) model of economic growth and climate change would set a global eco-tax at the level of the optimal carbon prices. Considering both the rise in the concentration of CO2 emissions in the atmosphere and advances in emissions control and adaptive production and consumption patterns, the optimal tax rate should increase gradually from U$9.2 per ton CO₂-eq in 2010 to U$54 by the end of the century. Meanwhile, the World Bank (2010) applies a damage estimate in its “adjusted net savings” calculations and uses a particularly low marginal damage value of U$5.4 per ton of CO₂ emissions (albeit expected to increase to U$28 by 2030).

On the other hand, Weitzman (2009) presents his dismal “theorem” which disagrees with the statement that the gravity of potential disaster resulting from a global warming of 10-20 °C might “outweigh” the discounting of the low-probability impacts. This study ignores extreme effects in the economic valuation, which could be worse than “not presenting a cost-benefit estimate”. Uncertainty about future greenhouse gas emissions and their effects calls for greater caution, but economics appears to be unable to determine how much awareness is needed. Rather than looking at the uncertain future, an assessment of the past might provide better clues for policy making. Weitzman (2009) criticizes the economic models of climate change, and this study considers whether looking back into the past may provide a more objective measurement of the effects of climate change.

• [1] IPCC (2013) shows that during the period of 1750-2011, total CO2 emissions generated fromhuman activities amounted to 555 billion tons, among which 240 billion tons have been accumulated in the atmosphere. Many scientists have addressed this and related environmental issues inpast studies.