Impact and distribution of climatic damages: a methodological proposal with a dynamic CGE model applied to global climate negotiations

The UNFCCC Paris Agreement, entered into force on 4 November 2016, represents a step forward in involving all countries in mitigation actions, even though it is based on a voluntary approach and lacks the active participation of some major polluting countries. The underinvestment in mitigation actions depends on market and policy failures and the absence of price signals internalizing the economic losses due to climatic damage. This contributes to underestimating potential benefits from global action. In this paper we discuss how crucial is the assessment of the vulnerability of a country to climate change in defining the threat and action strategies. A dynamic climate-economy CGE model is developed that includes a monetary evaluation of regional damages associated with climate change. By considering alternative damage profiles, results show that internalizing climatic costs might change the bargaining position of countries in climate negotiations. Consequently, damage costs should be given greater importance when defining the implementation of a global climate agreement.