Inaction on Environment Has Significant Economic Costs
Countries today face numerous environmental challenges, such as climate change, air and water pollution, natural resource management, natural disasters and industrial accidents. The costs of not responding adequately to these challenges can be considerable, in some cases representing a significant drag on OECD economies, according to a new OECD study.
Based on a literature review in selected areas of environmental policy, the OECD report suggests that the economic costs of failing to introduce environmental policies that are “sufficiently ambitious”, can be considerable – i.e. a non-negligible share of GDP. For example:
The costs of not introducing the European Commission’s “Thematic Strategy on Air Pollution” have been estimated to represent about 0.35 1.0% of EU 25 GDP in 2020 (EC, 2005).
In non-OECD countries, 1.7 million deaths and 4.4% of the burden of disease (e.g. reduced years of healty life) have been attributed to unsafe water supply, sanitation and hygiene according to the WHO. Ninety per cent of the deaths involve children under 5 years old (Prüss-Üstün et al., 2004).
- Estimates of the economic costs of climate change vary widely, with recent assessments generating figures as high as 14.4% in terms of per capita “consumption equivalents” (Stern, 2007), when both market and non-market impacts are included.
- The costs of natural disasters (e.g. floods, windstorm, earthquakes, etc.) for the poorest countries can be as much as 13% of annual GDP (The World Bank, 2006).
- Inefficient management of the east Atlantic bluefin tuna fishery may be resulting in reduced fishery yields with a value of USD 1 3 billion (Bjørndal and Brasão) (2005).
Some of these costs are already being reflected in public budgets, firms’ balance sheets as well as household budgets (e.g. increased public and private health expenditures, unemployment benefits for out-of-work fishers, remediation costs for contaminated sites, dikes and other flood protection infrastructure).
Even when the costs of inaction are deemed important, identifying the areas where environmental policies need to be strengthened still requires careful comparison between the costs of inaction versus costs of action (the latter are not covered by this report). This report provides introductory perspectives on the methodological issues in evaluating costs of inaction, and discusses some of the future problems likely to be encountered in this very complex area.
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