The joint economic consequences of climate change and air pollution

The need for integrated analysis of climate change and air pollution policies is widely acknowledged, often referred to as co-benefits. Much less is known, however, about how damages from climate change and damages from air pollution affect regional economies in the coming decades. This paper focuses on the economic consequences of both climate change and outdoor air pollution until 2060, and their interactions. We build a dynamic CGE model with a common methodology for evaluating the joint economic consequences of climate change and air pollution. We use a production function approach that specifies sectoral and regional climate and air pollution impacts on specific inputs into the economy. The modelling results highlight that despite significant climate forcing from various air pollutants, the net interaction effects through emission feedbacks are limited. Furthermore, the effect of climate damages on air pollution emissions and thus air pollution impacts, and the effect of air pollution damages on GHG emissions and thus climate damages are relatively small in comparison to the uncertainties surrounding the damage estimates. Although the effects of climate change play out over longer time horizons than those of air pollution, the coming decades are projected to have significant economic repercussions from both. For both cases, the majority of damages are located in relatively fragile economies in Asia and Africa. The largest percentage losses are observed in agriculture, where both climate change and air pollution have significant adverse effects. Furthermore, in the most affected regions and sectors there is a small but positive interaction effect: the damages from both types of impacts together is smaller than the sum of individual damages. We finally quantify the non-market damages on premature deaths from heat stress and air pollution. These are not integrated in the modelling exercise, but their sheer size warrants that they are considered.