Economic implications of climate change in Zambia

This study uses an integrated approach to analyse the impacts of climate change on Zambia’s electricity supply and general economy, considering two global climate policy scenarios: Unconstrained emissions (UCE), without effective policies to limit emissions of greenhouse gases; and Level 1 stabilisation (L1S) where aggressive emission reduction policies are implemented. These impacts are captured through three channels: agriculture, roads and energy. The analysis focuses on the projected outcomes for the period between 2045 and 2050. To effectively capture the economy-wide impacts, a dynamic computable general equilibrium model is used.

 

The study concludes that real output growth is adversely affected by climate change under both scenarios. While growth is negatively impacted by all the channels, the roads channel introduces the most uncertainty, because of the importance of roads (and generally infrastructure) in Zambia’s economy. The analysis suggests that climate change in the absence of mitigation policies would reduce Zambia’s GDP by about 6% by 2045-50, while under the L1S scenario the impact could at worst be 4% for the same period. These average results show that Zambia’s real annual GDP growth rate would decline between 0.02 and 0.04 percentage points because of climate change. More favourable outcomes of the L1S scenario notwithstanding, the trade balance under L1S scenario increases more than under the UCE scenario.

 

At the sectoral level, electricity and agriculture are the most affected. Unlike the roads channel, the impact of shocks that came through the energy channel were minimised and contained by increasing electricity imports. Without these, the impacts of the energy channel would even be worse than the roads channel. This brings to the fore two policy issues: the need to invest in climate-resilient electricity-generating technologies, and the importance of clear electricity trade policy.