Climate Change Risks could cost Developing countries up to 19% of GDP by 2030
Report says action on climate adaptation may significantly reduce losses and increase economic
sustainability.
Monday, September 14, 2009 - A report from the Economics of Climate Adaptation Working Group
released today indicates that climate risks could cost nations up to 19% of their GDP by 2030, with
developing countries most vulnerable. The report concludes, however, that cost effective adaptation
measures already exist that can prevent between 40 and 68 percent of the expected economic loss with
even higher levels of prevention possible in highly target geographies.
The report, titled “Shaping Climate-Resilient Development”, offers a comprehensive and replicable
methodology to determine the risks that climate change imposes on economies. It provides a set of
tools for decision makers to adopt a tailored approach for estimating these costs based on local climate
conditions, and for building more resilient economies. These tools do not include estimates or measures
for emissions reduction, which would need to be examined separately.
By determining a location’s total climate risk – calculated by combining existing climate risks, climate
change and the value of future economic development – and using a cost-benefit analysis to create a list
of location specific measures to adapt to the identified risk, the Working Group was able to evaluate
current and potential costs of climate change and how to prevent them. The methodology was tested in
localities within eight different countries (China, United States, Guyana, Mali, United Kingdom, Samoa,
India, and Tanzania), which together represent a wide range of climate hazards, economic impacts, and
development stages.
The working group estimated expected economic loss for the eight different case study regions
leveraging natural catastrophe risk modeling techniques assuming current GDP growth estimates, under
three different climate change scenarios – today’s climate (assuming that there is no additional impact
from climate change); moderate climate change (based on the average forecast of climate change for
the particular hazard in the location studied); and high climate change (based on the outer range of the
climate change considered possible by 2030). The methodology is applicable in any setting where
society must consider risk. For example, in Florida the report estimates an annual expected loss of $33
billion from hurricanes – more than 10 percent of GDP - under a high climate change scenario.
Overall findings from the eight case studies showed that easily identifiable and cost effective measures –
such as improved drainage, sea barriers, and improved building regulations, among many others - could
reduce potential economic losses from climate change for all regions. In fact, most could deliver
economic benefits that far outweigh their costs – with adaptation measures that on average cost less
than 50 percent of the economic loss avoided.
In Maharashtra in India, researchers evaluated the loss associated with drought, which amounts to 30
percent of the state’s food and grain production – even without climate change. This loss would
severely impact the 15 million small and marginal farmers. By 2030, a significant drought could lead to a
countrywide agricultural loss of more than $7 billion, and impact the income of ten percent of the
population. With droughts historically occurring every 25 years, extreme climate change could change
that to once every eight years. The case study determined a number of measures that could protect
crop production and farmers’ incomes in Maharashtra including expanded drip and sprinkler irrigation,
drainage construction, improved soil techniques, and crop engineering. In fact, Maharashtra can
eliminate much of its expected drought loss by 2030 through low-cost measures with benefits that often
exceed their cost.
About the Economics of Climate Adaptation (ECA) Working Group
The ECA Working Group was formed in September 2008 under the initiating sponsorship of the Global
Environment Facility in coordination with UNEP to develop a framework to assist in the design of
climate-resilient economic development strategies. Swiss Re, a leading global reinsurer, was a lead
contributor to the research. McKinsey & Company, a global management consulting firm, drove the
analytical execution and contributed to the fact base of the report. Sponsorship and key guidance was
provided by ClimateWorks, an international network of foundations focused on achieving low-carbon
development; the European Commission; the Rockefeller Foundation, which brought its deep
experience of building climate resilience in developing countries; and Standard Chartered Bank, a global
bank with a strong emerging market footprint.
The full report can be downloaded at:
Media Contacts:
Denielle Sachs, McKinsey & Company, +1 202 662-0041, denielle_sachs@mckinsey.com
Brigitte Meier, Swiss Re, +41 43 285 7171, Media_Relations@SwissRe.com