POLICY BRIEF

The Economics of Climate Change in Southeast Asia

Typhoon Haiyan (Yolanda) Damage and Rehabilitation - Many houses were wiped out by several container vans that was pushed by the typhoon from a nearby port. Photo credit: Ariel Javellana/ADB.
Typhoon Haiyan (Yolanda) Damage and Rehabilitation - Many houses were wiped out by several container vans that was pushed by the typhoon from a nearby port. Photo credit: Ariel Javellana/ADB.

To avoid large economic losses from climate change, Southeast Asia can lead the way in global climate action by shifting towards a low-carbon economy.

Introduction

Rapid economic growth in Southeast Asia in recent years has successfully lifted hundreds of millions out of poverty. However, the development pattern followed in the region has not been environmentally sustainable. Its CO2 emissions have risen by close to 5% annually over the last two decades, making Southeast Asia a fast-growing emitter of GHG driving climate change.

If current trends persist, the region faces an intensification of climate change impacts, including increased river flooding, coastal inundation and sea-level rise, water stress, and more frequent and intense cyclones and storms, according to an Asian Development Bank study. Changes to temperature and rainfall could cause a decline in farm output, labor productivity, and human health; increased energy and other resource demand; and a deterioration of coastal ecosystems and biodiversity.

Main

Recent analysis by the ADB shows that Southeast Asia is likely to sustain bigger economic losses from climate change than previously estimated.

A report published in 2015, Southeast Asia and the Economics of Global Climate Stabilization, assessed the potential impact of climate change on agriculture, tourism, energy demand, labor productivity, health, and ecosystems.

The study models an array of global climate stabilization scenarios for regulating global GHG emissions through 2050:

  • Business as Usual (BAU). A scenario in which climate action is not prioritized by any government
  • Fragmentation. A scenario in which countries continue to pursue national climate actions at their current level of ambition
  • 650 ppm Stabilization. A scenario in which the climate is stabilized at 650 ppm by 2100.
  • 500 ppm Stabilization. A scenario in which the climate is stabilized 500 ppm by 2100.

Under the BAU scenario—i.e., with continued economic growth and without explicit policies to stem future emissions—the study predicts that 11% of regional GDP could be lost by 2100.

To avoid these risks, the report urges Southeast Asian countries to lead the way in global climate action. This would entail shifting to a low-carbon economy, or an economy based on carbon sources that have minimal GHG emissions.


A Penang local decorates a hybrid bus with her handprint during an environmentally friendly campaign in Georgetown. Penang's Rapid Penang bus service fleet is partly comprised of low carbon-emission vehicles. Photo credit: Lester Ledesma/ADB.

Policy Options

The study contrasts a global cooperative, ambitious approach to tackling climate change with fragmented and less ambitious alternatives.  Changes in costs from a 10-year delay in the onset of ambitious mitigation are also studied. It also assesses the effect of carbon trade and avoided deforestation of mitigation costs.

Current policies are found to lead to about a third of the required 2050 mitigation for the region to avoid more than 2 degrees of warming under the 500ppm scenario. Such policies have minimal costs, as well.

The 650 ppm scenario leads to about 50% of the mitigation needed for the 500ppm scenario, and it costs about 1% of GDP over 2010 to 2050 in net present value terms, if avoided deforestation is a mitigation strategy.  Welfare increases under this scenario when trade is in place due to potential revenues from emissions exports—without accounting any benefits from less climate change or co-benefits.

The 500 ppm scenario means more than a 60% reduction in emissions from BAU by 2050. The net present value of policy costs is 2.5% to 3.5% of GDP in present value terms, with avoided deforestation as an abatement option and carbon trade in place. Co-benefits from reduced air pollution, transport congestion and transport accidents can offset a majority of this cost, while avoided climate change means that in sum net benefits are five times net costs.

A cooperative approach to mitigation that includes carbon trade is found to reduce policy costs for the region by about 25% in GDP terms, and more in terms of welfare. This is both because trade allows mitigation to occur where it is cheapest and because the region can potentially export carbon allowances.

A 10-year delay in mitigation increases mitigation costs to the region by 60% in 2050 so that early action is in the region’s interest.

Inclusion of avoided deforestation as an abatement option reduces the costs of mitigation for Indonesia by 50% through 2050 and reduces costs to other countries in the region by 20%.

Recommendations

For Southeast Asia to obtain the potential benefits from mitigation, key measures can include the following:

Reducing deforestation

This is a major near-term, low-cost opportunity for Indonesia and Malaysia, where deforestation accounts for a large share of emissions, and could also benefit the rest of the region by lowering carbon prices.


Acacia seedlings await planting in a nursery in Macooih, Viet Nam. These trees provide erosion control when planted in denuded areas of forest. Photo credit: Lester Ledesma/ADB.

Improving energy efficiency

Adopting more efficient technologies and changes in behavior could have the biggest, single, long-term impact on emission reduction.

Using low-carbon energy technologies

This shaves the long-term GDP cost of implementing climate change actions by about 50%. Carbon capture and storage emerges as an important technology for reducing emissions.

Redirecting investment

Low-carbon growth can be driven by investment in green infrastructure, including new zero or low-carbon power generation facilities, smarter power grids that can match both centralized and distributed supply and demand sources, energy-efficient buildings, public transport facilities that enhance mobility and safety while reducing congestion, and charging and refueling networks for electric and alternative fuel vehicles.

Tapping international assistance

To help countries in the region attain their climate change stabilization goals, appropriate preparatory actions need to be undertaken, including strengthening institutions, research cooperation on clean technologies, and enabling green infrastructure. Targeted assistance to facilitate transitions to low-carbon economies for the region is important.

Conclusion

Southeast Asian countries can lead the way in global climate action by shifting towards a low-carbon economy, or an economy based on carbon sources that have minimal GHG emissions.

By the Numbers

90%

share of five Southeast Asian countries (Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam) in the total GHG emissions in the Southeast Asian region

11% estimated decline in GDP in Southeast Asia by 2100 due to climate change, 60% higher than ADB’s earlier assessment
5% annual increase in GHG emissions from 1990 to 2010 due to the region’s rapid growth
At least 60% projected increase in GHG emissions by 2050 if there will be no explicit policies to cut future emissions
2.5 to 3.5% cost to regional GDP over the 2010-2050 period of policies to mitigate GHG emissions
Nearly 3% share of 2050 GDP as co-benefits as policy changes on energy and land use lead to benefits such as improved health, reduced transport congestion, and reduced vehicular accidents
5 to 11 times net benefits from climate change initiatives far outweighing the net cost of mitigation from 2010-2100

Resources

ADB. 2015. Southeast Asia and the Economics of Global Climate Stabilization. Mandaluyong City, Philippines: Asian Development Bank.

DNPI. 2010. Indonesia's Greenhouse Gas Abatement Cost Curve. Jakarta: National Council on Climate Change.

Y. Hijioka, E. Lin, J. Pereira, R. Corlett, X. Cui, G. Insarov, R. Lasco, E. Lindgren and A. Surjan 2014. Asia. In V.R. Barros et al., eds. Climate Change 2014: Impacts, Adaptation and Vulnerability. Part B: Regional Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Pp. 1327-70. Cambridge and New York: Cambridge University Press.

 

   Climate change; Economics
   Last updated: October 2016

 

Meet the expert

  • David Raitzer
    Economist, Economic Research and Regional Cooperation Department, ADB

    David Raitzer is an economist in the ADB Economic Research and Regional Cooperation Department. His 14 years of experience analyzing environmental, natural resources, and agricultural issues includes work with the International Rice Research Institute, the Center for International Forestry Research, the Food and Agriculture Organization of the UN and bilateral donors.

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Disclaimer

The views expressed in these articles are those of the authors and do not necessarily reflect the views of the Asian Development Bank, its management, its Board of Directors, or its members.




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