Climate Change and Development Policy discusses UNU-WIDER's work program focusing on climate change adaptation and mitigation. Their initiatives include the Development Under Climate Change project analyzing impacts in regions like the Zambezi and efforts to build climate research capacity. Modeling frameworks are used to assess climate impacts on South Africa's economy, agriculture, and water supplies to 2050. Additional modeling examines a regional energy strategy in Africa anchored by hydropower from Grand Inga to supply South Africa.

1. Climate Change and
Development Policy
By Finn Tarp and Channing Arndt

2. Introduction
• 2009 was a year of turmoil in the global economy
• UNU-WIDER developed its 3-crisis work
programme (2010-13) in response to three large
scale global phenomena:
– Finance
– Food
– Climate change
• Alongside our traditional (foundational) focus on:
poverty and inequality

3. Policy Challenges for Climate Change
• Adaptation: steps to reduce vulnerability to
climate shocks and sustain economic
development
• Mitigation: steps to reduce emissions of GHGs
and hence climate warming and uncertainty

4. UNU-WIDER’s Response
• The ReCom aid, environment and climate change initiative
• Development Under Climate Change (DUCC)
– Looking at the Zambezi and MENA regions + Vietnam and others
• Collaboration with AERC
– Building research capacity for climate research
• A series of contributions to the IPCC process
• Consultations and conferences
– At different levels (national governments, RIO+20 and much
more)
– September 2012 WIDER development conference: bringing
researchers, policy makers together to share knowledge and
debate issues -> formulating effective policy

5. Conference Background: Where Did the
World Find Itself in 2012?
• Financial crisis lingering on AND future of
development finance unclear
• The global food system (architecture) clearly
still under pressure
• Climate scientists even more pessimistic about
future global warming (4 degrees rather than 2)

6. Conference Messages: Back to “Big”
Development Economics
• As a profession we must not shy away from thinking deeply about:
– Large scale (global) phenomena
– Uncertainty/extreme (low probability) events are critical
challenges
– Conflict and global governance
• True across finance, food, and climate change
• Developing optimal policy designs will require:
– Continuing to move out of the “silos”
– Integrating data/knowledge from natural and social science
– Recognising global solutions require deep understanding of
national interests

7. Documentation of WIDER Work
• General overview: www.wider.unu.edu/climateresearch
• Recom position paper: www.wider.unu.edu/climateresearch/article/aid-
environment-climate-change
• DUCC website: see www.wider.unu.edu/ducc
• UN Global Pulse: see http://www1.wider.unu.edu/ducc/article/un-selects-
ducc-project-watch-part-big-data-climate-challenge
• AERC on-line course:
http://www.wider.unu.edu/publications/newsletter/articles-
2011/en_GB/06-2011/
• A reference to the IPCC AR5: http://www.ipcc.ch/
• September 2012 WIDER Development Conference web-site: see
www.wider.unu.edu/Climate2012
• Academic output: see
http://www.wider.unu.edu/publications/en_GB/index-revised-2010/

8. Five Specific Lessons: Climatic Change
Special Issue
• Zambeze River Valley (DUCC)
– Arndt, Channing and Finn Tarp. "Climate Change
Impacts and Adaptations: Lessons Learned from the
Greater Zambeze River Valley and Beyond." Climatic
Change. 130(1) (2015): 1-8.
– Converting uncertainty into risk
– Importance of extreme events
– Timing of impact
– Inseparability of development and climate agendas
– Assimilating climate information

9. 2014-18 UNU-WIDER Work Programme
• 15 Major Research Projects
– ongoing within three themes: http://www.wider.unu.edu/research/en_GB/index/
• Transformation
– remains at the core of economic development
– requires that economic growth reallocate resources towards more productive sectors
• Inclusion
– inequality is a key challenge for economic growth and redistribution, but also translates into power
asymmetries that can endanger democratization and human rights
• Sustainability
– a multifaceted concern with environmental, social and economic dimensions
– fundamental policy and investment decisions in energy, water resources, infrastructure, and
agriculture interact strongly with environmental issues at the global, regional, and national levels

10. Two Major Current Projects
• Southern Africa Regional
– Climate impacts for South Africa
– Bioenergy
– Regional growth strategies
• African Energy Futures
– Regional and continental collaboration
– Hydropower exploitation/potential
– System linkages

11. Questions for Today
• What are the implications of climate change for
growth and development prospects to about
2050?
– Focus on South Africa
• Is a regional energy strategy anchored in
hydropower viable for Africa?
– Focus on Southern Africa with explicit
modeling for South Africa, the major demand
source.

12. Related Academic Publications
• South Africa Impacts (Southern Africa Regional)
– Cullis, James, Theresa Alton, Channing Arndt, Anton Cartwright,
Alice Chang, Sherwin Gabriel, Yohannes Gebretsadik, Faaiqa
Hartley, Gerald de Jager, Konstantin Makrelov, Gordon
Robertson, C. Adam Schlosser, Kenneth Strzepek, and James
Thurlow. “An uncertainty approach to modelling climate change
risk in South Africa.” UNU-WIDER working paper 2015/045. April
2015.
• Regional Energy - Grand Inga (African Energy Futures)
– Arndt, Channing, Rob Davies, Sherwin Gabriel, Konstantin
Makrelov, Bruno Merven, Faaiqa Hartley, and James Thurlow. "A
sequential approach to integrated energy modelling in South
Africa." Applied Energy. Forthcoming.

13. Questions for Today
• What are the implications of climate change for
growth and development prospects to about
2050?
– Focus on South Africa
• Is a regional energy strategy anchored in
hydropower viable for Africa?
– Focus on regional hydropower with explicit
modeling for South Africa, the major demand
source.

14. Multi-sector Modeling Framework
Agriculture
(food, exports)
Economy
(growth, jobs,
welfare, inequality)
Global change
(temperature, rainfall,
world product prices)
Rivers
(runoff, streamflow)
Flooding
(frequency, severity)
Sea level rise
(land loss, salination)
Energy
(hydropower)
Infrastructure
(roads, ports, houses)
Cyclones
(storm surges)

15. Integrated
Modeling
Framework
CLIRRUN/PITMAN
WRYM
IRRDEM/Smith IPSS
ADJUSTED FOR
RSA MODELS
GCM HFDs
LTAS Scenarios
Water supply to
urban and industry
Development/
Demand
Scenario(s)
Water supply (Local
hydropower)
Baseline
Climate
Scenario(s)

16. Sectors

17. Water Management Areas
Cape Town
Durban
Johannesburg

18. Spatial variation on potential climate change
impacts on the average annual catchment
runoff by 2050. Median impacts from resulting from
the HFDs analysis for the UCE scenario.
All models show
drying in the west,
and most models
show wetting in
the east, but with
some models
showing some
drying. Generally
increases over
Lesotho.

19. Climate Change Impact Channels
• World commodity prices
– Consistent with unconstrained emissions scenario
• Road infrastructure
– Costs to maintain the same road network
• Water supplies
– Affects agriculture, industry and households
• Dryland agriculture
– Crop yield deviations
• Simulations are cumulative

20. Change in GPD Relative to Baseline

21. Change in Agricultural Value Added

24. South Africa Impacts Summary
• Based on the impact channels considered, we expect:
– Mild negative implications for overall GDP growth
– Increased costs to maintain the same transport
infrastructure resulting in consistent losses
– Potentially strong economic impacts for
• Dry land agriculture (broad confidence intervals)
• Water availability in certain WMAs
• Infrastructure on a localized basis
• Particular zones vulnerable to sea level rise

25. Questions for Today
• What are the implications of climate change for
growth and development prospects to about
2050?
– Focus on South Africa
• Is a regional energy strategy anchored in
hydropower viable for Africa?
– Focus on Southern Africa with explicit
modeling for South Africa, the major demand
source.

26. Hydro-power potential in Africa

27. Congo River: Inga I and II

28. Congo River: Inga Falls

29. Modeling Focus
• Grand Inga in the DRC as the major potential
new source of supply.
• South Africa as the major source of demand.
• Building in regional/continental demands is in
process.

30. Economic Model (SAGE)
• Standard Recursive Dynamic Model
– Past investment and profitability determines capital accumulation
rates
– Upward sloping labor supply curves
• Additional features:
– Electricity investments amortized via electricity tariffs (+O&M costs)
– Energy coefficients are a function of energy prices and investment
funds
• 2007 SAM merged with 2007 Energy Balance Table
– 62 sectors; 49 products; 9 factors; 14 representative households
– Detailed energy subsectors (fuel and power)
– See Arndt et al. (2012) SAJE; Davies and Thurlow (2014) IFPRI SAM

31. Energy Model (SATIM)
• Version of TIMES
– Inter-temporal bottom-up
partial equilibrium model
– Only use power component
• Solves for least-cost power
plant mix
– Subject to constraints (i.e.,
electricity demand; reserve
margins; and resource limits)
– Given system parameters
(i.e., load curves; fuel prices;
existing plants; new plant
options)
Coal-fired
Nuclear
Hydropower
Solar (PV)
Solar (thermal)
Wind
Gas-fired
Diesel
Imports
Coal-to-liquid
Gas-to-liquid
Refined oil
Gas
Coal
Crude oil
Electricity
Petroleum

32. Convergence
480
490
500
510
520
530
540
550
560
2006 2010 2014 2018 2022 2026
Electricitydemandin2030(GWh)
Year of coupled run
Coupled runs every year
Coupled runs two years
Coupled runs every four years
Baseline
Carbon Tax

33. Policy Scenarios
• Baseline
– Tracks “business-as-usual” scenario (Alton et al. 2014
Applied Energy)
1. Carbon tax
– US$30 per ton of CO2 from domestic burning fossil fuels
– Gradually introduced over 2015-2024
– Recycle revenues by uniformly lowering indirect tax
rates
2. Lift import restrictions
3. Combined “tax with imports” scenario

34. Electricity Demand and Prices
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
2010 2015 2020 2025 2030 2035
Changefrombaseline(%)
Carbon Tax
Import policy
Tax with imports
-10
0
10
20
30
40
50
2010 2015 2020 2025 2030 2035
Total demand (GWh) Average price (R/GWh)

35. Electricity Supply Mix
0
100
200
300
400
500
600
Baseline Baseline Carbon
Tax
Import
policy
Tax with
imports
Baseline Carbon
Tax
Import
policy
Tax with
imports
2010 2025 2035
Electricitysupply(GWh)
Coal Nuclear Renewables Imported Diesal, gas and waste

36. Emissions Reductions
-25
-20
-15
-10
-5
0
5
2010 2015 2020 2025 2030 2035
Changefrombaseline(%)
Carbon Tax
Import policy
Tax with imports
13.3
11.4
13.0
10.2
Final per capita tCO2

37. Economic Outcomes
Baseline Deviation from baseline, 2035
Carbon
Tax
Import
Policy
Tax with
Imports
Cumulative investment cost (US$ bil.) 94.90 19.10 -12.70 -53.80
GDP growth (%) 3.49 -0.98 0.20 0.49
Employment (%) 1.80 -1.56 0.05 -1.07
Wages (%) 1.15 -1.46 0.14 -0.82
Household welfare (%) 1.91 -0.96 0.24 0.61
Low-income (p0-50) 1.93 -1.17 0.24 0.33
Middle-income (p50-90) 1.85 -1.00 0.24 0.53
High-income (p90-100) 1.96 -0.84 0.25 0.79

38. Conclusions: Regional Energy Strategy
• Carbon tax on its own:
– Small negative economic impact, incl. reduced household welfare
• Lifting import restrictions without a tax:
– Lowers investment costs and emissions, but gains are small
• Combining a carbon tax with import liberalization:
– Halves investment costs and meets emissions targets without reducing
growth or welfare (but employment falls)
• Regional energy strategy offers a less expensive approach to
“decarbonizing” the South African economy
– Also addresses political economy concerns over adjustment costs

39. www.wider.unu.edu
Helsinki, Finland