The Economic Cost of Climate Change

This blog has presented the major climate related threats to coral reef ecosystems. While the focus has primarily been on the ecological consequences, there are also important economic costs that should be taken into consideration. The economic costs associated with the impacts of climate change on coral reefs comprise both direct costs, such as lower incomes for fishers due to decreased fish populations, and indirect costs, such as the cost of decreased biodiversity and coastal protection. In many cases attaching an economic cost to an environmental issue has proved to be the catalyst for action, as it enables mechanisms to be established that incorporate the environmental cost into activities which have detrimental environmental impacts. Most of the literature regarding this issue examines the economic cost of direct human impacts, such as overfishing and tourism, rather than the potential cost of climate change. However, it is possible to get an understanding of the economic value which has been placed on coral reefs by examining studies that focus on human exploitation. From this it is possible to infer the potential economic cost of a changing climate.




A brief introduction on the subject of valuing nature is provided by Pavan Sukhdev, Special Advisor and Head of UNEP’s ‘Green Economy Initiative’:







A study by White et al (2000) investigates the economic losses caused by reef destruction in the Philippines. Here coral reef fisheries are worth around US$1billion per year, providing a living to around one million small-scale fishers. Coral reef damage in the Philippines is extensive, with less than 5% in ‘excellent’ condition. In Bacuit Bay, Palawan it has been estimated that fisheries and tourism would produce US$41 million more than forestry operations in the watershed (which is causing sedimentation in the bay) over a ten year period (Hodgson and Dixon, 1988). The rise in ecotourism in Bacuit Bay indicates the potential for the sustainable use of this resource, enabling both economic benefits as well as achieving conservation goals. The biodiversity and aesthetic value of Mabini, a marine sanctuary in the Philippines, is estimated at US$300,000 per year based on an average visitor’s willingness-to-pay for entrance. This paper highlights the potential economic cost of a changing climate, if it leads to ecosystem degradation, providing economic justification for coral reef management in this region.




The ‘environmental economics of coral reef destruction in Sri Lanka’ are considered by Berg et al (1998). The total quantifiable economic value of these reefs (which includes the fish-habitat function, the tourist-attraction function and the physical-structure function) is estimated at between US$13,000 – US$4,404,000km² annually. From this, the net economic cost of coal mining in highly developed areas over a 20 year period is estimated to amount to around US$6,615,000. Although climate related impacts may not be as severe as this activity, it provides evidence to support the view that investment should be made in order to mitigate the effects of a changing climate.




While many studies attempt to value coral reefs based on the potential income provided, Pendleton (1995) examines the economic benefits of a marine park based on what it would cost to provide the ecosystem services that the coral reef ecosystem currently supplies. It is estimated that the cost of operating Bonaire Marine Park in the Caribbean Islands to protect the reef would be around 0.7% of the net benefits. Evidently the potential cost of coral reef degradation far outweighs the cost of taking action, assuming that conservation is effective in preserving the reef.




As mentioned above, although these papers are useful in exploring the economic value of coral reef ecosystems, they are mainly concerned with estimating the cost of human exploitation. Brander et al (2009) explore the economic impact of ocean acidification on coral reefs. Their study examines reefs which are considered both economically and ecologically important, and models the cost attached to acidifying oceans based on the four IPCC emission scenarios. Figure 1 presents the estimated annual economic cost of coral reef loss in response to ocean acidification, indicating the escalating costs associated with this environmental issue. It is interesting to note that the B1 scenario is predicted to produce economic benefits by 2085. This is because the B1 scenario relates to an integrated and ecologically friendly world, which utilises clean, efficient technologies and relies on global solutions to provide environmental stability (IPCC, 2007).




Figure 1: Annual economic cost of ocean acidification induced coral reef loss, under four different emission scenarios (Brander et al, 2009).

These studies have emphasised the high economic value that is placed on coral reef ecosystems, and therefore highlight the potential economic cost that climate change (in conjunction with human resource exploitation) is likely to have. The economic justification for investment in conservation and mitigation projects is evident, and should provide motivation for global action.