Managing the Impact of Climate Change on Poverty
Stephane Hallegatte and others
227 pages; free download from https://openknowledge.worldbank.org
In some circles in India, the World Bank has a bad reputation for acting in the name of the poor but in the service of the global business elite. Anyone who believes that this is always the case should read Shock Waves, by Stephane Hallegatte and co-authors, published by the World Bank. Shock Waves establishes an urgent thesis: preventing destructive climate change is a policy priority for the world's poor. The world's progress against poverty would be seriously set back by climate change - which is likely to hurt the poor most. Reducing the chances of a climate disaster is both feasible and pro-poor, and can be done without sacrificing human development.
In a world where opposition to preventing climate change is tied to business interests, some readers may be surprised to read a prominent book by international economists arguing that "the key finding of the report is that climate change represents a significant obstacle to the sustained eradication of poverty, but future impacts on poverty are determined by policy choices". But the economics is clear. Shock Waves is valuable for its careful compilation of this evidence, especially on two points.
First, "[e]nding poverty will not be possible if climate change and its effects on poor people are not accounted for and managed in development and poverty-reduction policies". Climate change will hurt the health and economic productivity of the poor much more than it will hurt a computer worker in an air-conditioned office.
Second, there is no essential trade-off between preventing climate change and alleviating poverty: "Many recent studies support the idea that providing those who are currently extremely poor with access to basic services would not jeopardise climate mitigation". Part of this is because achieving human development outcomes are not first and foremost about spending money - as is demonstrated in the terrible gap between India's economic growth and its infant health.
Some people worry that India cannot afford to contribute to avoiding climate change, and it is certainly right to be concerned about achieving human development in India. India lags its regional neighbours and other poorer countries on many important measures of human development: neonatal mortality, open defecation, maternal nutrition, child stunting. But GDP growth through building more coal plants is not the way to solve these problems, as demonstrated by the simple fact that so many poorer countries do so much better than India on these measures. To be sure, long-run economic growth in India requires energy, and preventing climate change will raise the money price of that energy. However, economists have taken this into consideration when they conclude that carbon-intensive fuels are more expensive when all costs are counted for all Indians, especially future Indians and today's poor.
Fuelling growth through burning coal or other carbon-intensive strategies does not make economic sense. Of course, coal costs less money than other energy options to the people who buy it, but this ignores costs imposed on other people. The first lesson on the first day of the introductory economics class that I teach policy students is that public "costs" mean everything that society sacrifices.
If India is going to avoid climate change that is going to hurt all future Indians - especially the poor - then its policy makers must consider the full social costs of burning coal - not just the money costs paid by businesses and some people. As Shock Waves shows, doing so is feasible, is pro-poor, and makes economic sense.
Switching from coal would eventually cost Indians less suffering overall, but it would cost more money in the short run. Shock Waves is clear on this point, too: it is appropriate that such money costs should be borne by richer people rather than poorer people within developing countries, and mainly by people in richer countries. But there is no international government that can force such cost-sharing, and unfortunately the average person in India will be hurt much more than the average person in North America if such an international deal does not occur.
So, successfully negotiating such a deal takes us out of the clarity of the economics of climate change and into politics. If India were to be a leader in a serious international coalition involving the rest of the world, perhaps politicians and business interests in the US could be compelled to cooperate. For example, it is possible that an international trade regime, with India among its leaders, that uses tariffs to punish polluting countries outside of the coalition could be successful. But assembling this coalition may require demonstrating a willingness to make reasonable and appropriate domestic emissions cuts.
Shock Waves does not consider the politics of such an agreement. It sticks to the unambiguous conclusions of public economics: climate change would be a disaster for India's poor.
Perhaps as much as any in other large country, it is in the people of India's interest that climate change be averted. This can be done without derailing human development priorities, and should and could be relatively easily funded by the world's rich, some of whom are also India's rich. This would require a smart and ethical global deal, if politicians can reach it. India's leaders have the power to hurt the whole world by obstructing such a deal - but doing so may well hurt future poor people in India most of all.
The reviewer is a visiting economist at the Indian Statistical Institute, Delhi, and at Princeton University