Costs and other socioeconomic issues

Costs or benefits of climate change-related impacts on industry, settlements and society are difficult to estimate. Reasons include the facts that effects to date that are clearly attributable to climate change are limited, most of the relatively small number of estimates of macroeconomic costs of climate change refer to total economies rather than to the more specific subject matter of this chapter, and generalising from scattered cases that are not necessarily representative of the global portfolio of situations is risky. Historical experience is of limited value when the potentially impacted systems are themselves changing (e.g., with global economic restructuring and development, and technological change), and many types of costs - especially to society - are poorly captured by monetary metrics. In many cases, the only current guides to projecting possible costs of climate change are costs associated with recent extreme weather events of types projected to increase in intensity and/or frequency, although this is only one kind of possible impact and cannot be assumed to be representative of aggregate costs and benefits of all aspects of climate change, including more gradual change.

Estimates of aggregate macroeconomic costs of climate change at a global scale (e.g., Smith et al., 2001) are not directly useful for this chapter, other than generally illustrating that because many locations, industrial sectors and settlements are not highly vulnerable, total monetary impacts at that scale might not be large in proportion to the global economy. As Section 7.4 indicates, however, vulnerabilities of or opportunities for particular localities and/or sectors and/or societies could be considerable. A possible example is climate-related contributions to changes already being experienced by societies and settlements in the Arctic, which include destabilised buildings, roads, airports and industrial facilities and other effects of permafrost conditions, requiring substantial rebuilding, maintenance and investments (ACIA, 2004). An impact assessment in the UK projected that annual weather-related damages to land uses and properties could increase by 3 to 9 times by the 2080s (Harman et al., 2005). More generally, as one specific aspect of vulnerabilities to climate change, possible economic costs of sea-level rise have been estimated, since exposures of coastal areas to a specified scenario can be analysed for costs of the change v. costs of protecting against the change; and effects of direct costs in coastal areas can be projected for other parts of a regional or national economy (Nicholls and Tol, 2006; Tol et al., 2006). Generally, these studies conclude that the costs of full protection are greater than the costs of losing land to sea-level rise, although they do not estimate non-monetary costs of social and cultural effects.

Recent climate-related extreme weather events have been associated with cost estimates for countries and economic sectors; and trends in these costs have been examined, especially by the reinsurance industry (e.g., Swiss Re, 2004; Munich Re, 2005; also Chapter 1, Section 1.3.8). According to these estimates, an increase in the intensity and/or frequency of weather-based natural disasters, such as hurricanes, floods or droughts, could be associated with very large costs to targeted regions in terms of economic losses and losses of life and disruptions of livelihoods, depending on such variables as the level of social and economic development, the economic value of property and infrastructure affected, capacities of local institutions to cope with the resulting stresses, and the effective use of risk reduction strategies. Estimates of impacts on a relatively small country's GDP in the year of the event range from 4 to 6% (Mozambique flooding: Cairncross and Alvarinho, 2006) to 3% (El NiƱo in Central America: and follow the link to 'desastres') to 7% (Hurricane Mitch in Honduras: Figure 7.3). Even though these macroeconomic impacts appear relatively minor, countries facing an emergency found it necessary to incur increased public spending and obtain significant support from the international donor community in order to meet the needs of affected populations. This increased fiscal imbalances and current account external deficits in many countries.

For specific regions and locales, of course, the impact on a local economy can be considerably greater (see Box 7.4). Estimates suggest that impacts can exceed GDP and gross capital formation in percentages that vary from less than 10% in larger, more developed and diversified impacted regions to more than 50% in less developed, less diversified, more natural resource-dependent regions (Zapata-Marti, 2004).

It seems likely that if extreme weather events become more intense and/or more frequent with climate change, GDP growth over time could be adversely affected unless investments are made in adaptation and resilience.

Impact of disasters on GDP growth in Honduras

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