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Climate change: The challenges facing finance ministers
September 2007
Commonwealth Secretariat


Introduction

  1. The scientific evidence on the causes and consequences of climate change has never been more overwhelming. The Earth’s climate is changing, mainly as a result of increases in greenhouse gases caused by human activities. This consensus is led by the Intergovernmental Panel on Climate Change (IPCC): its fourth assessment report, published in January this year, expressed a high degree of confidence that human activity is warming the climate and that, despite remaining areas of uncertainty, there is a good basis of understanding for policy making.


  2. Climate change, in common with other pollution concerns, has a strong technical core, but it is also about the management of a key global common good – the atmosphere. Sir Nicolas Stern, whose review on the Economics of Climate Change was published in October 2006, called climate change ‘the greatest and widest-ranging market failure ever seen.’ The impacts of this externality are global in causes and consequences, with the most severe falling on the poor and most vulnerable and expected to be long-term and persistent across generations. The complexities are such that there are pervasive uncertainties and risks. All these characteristics point to the need for pluralistic political debate and a strong role for Ministers of Finance and Planning in formulating appropriate responses at the national level.


  3. The impact of climate change will vary from country to country, depending on physical exposure to risk and the capacity to respond to the challenges. Poor countries and people will face the greatest consequences. Climate change must also be considered in conjunction with underlying development trends such as population growth, changing energy demands, and rapid urbanisation, with which it has a close relationship.


  4. A number of Commonwealth countries are already vulnerable to extreme weather conditions – both rapid onset emergencies and slow onset disasters like drought. Large populous countries such as India face multiple challenges to their economic systems many of which rely on known and previously relatively stable weather patterns. In Asia and Africa, many countries will have reduced rainfall and lose already scarce water supplies, with consequences on agriculture and food security. The island states of the Commonwealth are vulnerable both to hurricanes, floods and sea level rise, and to substantial losses of economic activity including in the agriculture and tourism sectors. A number of states face the loss of a substantial proportion of their territory if sea levels rise significantly.


  5. The development of responses to the economic implications of climate change is still at a very early stage. Much work has yet to be done to examine the steps that need to be taken at national and international levels to ensure economies, especially those in the most vulnerable countries, are ready for the twin challenges of tackling the problem of climate change at its root, and dealing with the impacts that are already underway.


  6. This paper is presented in two parts:

    • Part One examines the evidence for climate change and current scientific understanding of its likely future impact on economic and social development. It then examines the challenges that face governments in mitigating climate change and adapting to its effects.


    • Part Two presents a concrete Framework for Action for the consideration of Finance Ministers, based on the foregoing analysis. This focuses on both planning and finance concerns and outlines actions that need to be considered at the national level to develop appropriate economic policies and an international strategy.

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