Bangladesh has been widely recognised to be one of the top climate-vulnerable countries for quite some time. According to the latest Global Climate Risk Index 2017, Bangladesh is one of the most exposed and vulnerable countries to climate-related risks. The country had the third position in terms of annual average number of extreme events, death toll and amount of loss of the gross domestic product (in purchasing power parity, GDP-PPP) due to climate change between the period 1996-2015 despite being one of the least carbon emitters.
Marrakech Action Proclamation 2016 revitalised the danger of global climate change as "warming at an alarming and unprecedented rate and we have an urgent duty to respond". This affirmation is indeed in line with the IPCC Climate Change Synthesis Report 2014, which demonstrates that globally averaged combined land and ocean surface temperature has been increasing steadily in the long run and sharply over the last two decades. Coupled with steep increase along the emission line of greenhouse gases (GHGs) as revealed by IPCC report of 2015, the adverse effects of climate change through increased incidence and severity of disasters along with slow onset of disasters are likely to be both inevitable and costly for Bangladesh. At the same time, the effects of climate change would be economy-wide and non-linear due to complex interlinkage among the sectors through feedbacks over a long period of time.
Stern Review (2007) is the most influential work among the recent literature on the economics of climate change, which spurred substantial debates and subsequent contributions to the literature on climate change economics. It provides a thorough and rigorous analysis of the costs and risks of climate change, and the costs and risks of reducing emissions using Ramsey growth model. It reveals that for an expenditure of around 1 per cent of world GDP, concentration levels could be kept ideally below 500ppm carbon dioxide emission. This would avoid the formidable risks implied by the higher stabilisation concentrations. The study considered the UK and the US to be relatively risk-free where indexed lending rates on government bonds centered around 1.5 per cent over very long periods. The paper also suggested an 80 per cent reduction of emission by rich countries by 2050, in the context of an overall 50 per cent reduction of carbon dioxide emission.
Subsequently, Stern (2013) argued that economic models tend to grossly underassess the climatic risks because the underlying assumptions of the economic modeling on growth, damages and risks generally assume that the impacts and costs will be modest. He claimed that discount rates prevail in the markets cannot be reliable guides when growth rates could be significantly different from those currently assumed for the medium term. Since the capital markets are deeply imperfect, taking social discount rates from the markets is likely to be misleading to analyse the macroeconomic impacts of climate change.
Bangladesh Climate Public Expenditure and Institutional Review 2012 reveals that the current level of expenditure on climate-sensitive activity of different ministries and government agencies is quite notable, nearly US$1 billion per year, which is around 1 per cent of GDP of 2011-12. It also notices that Bangladesh Climate Change Strategy and Action Plan (2009) recommended to undertake a study of the long-term macroeconomics of climate change. CPEIR again suggested to conduct it at the earliest to support the development of a climate fiscal framework (CFF), covering the effect of climate change on economic growth and stability, evaluation of economic impacts of inaction, the economic development effects of the current expenditure, the potential long-term funding streams for financing climate change activity, and the sustainability of the current and required long term spend on climate change and climate sensitive activity. However, the CFF has been prepared in 2014 without conducting the study on the macroeconomics of climate change and it is yet to be conducted.
Research on economic effects of climate change in Bangladesh is generally sparse and concentrated at micro level and individual sectors in a silo manner, which fail to provide robust evidence and policy imperatives from macro perspectives. Ahmed and Suphachalasai (2014) assessed the costs of climate change and adaptation in South Asia with a focus on Bangladesh to derive the total economic costs of climate change as a proportion of GDP, change in physical environment including temperature, assessment of the cost of adaptation, and impacts on critical and disaggregated sectors of the economy. However, the study does not extend the existing Social Accounting Matrix for greenhouse gas emission. It does not customise the PAGE for Bangladesh and does not discuss the Bangladesh CGE model. Therefore, its results cannot be used for the purpose of rigorous understanding of the macroeconomic impacts of climate change, and assessing the cost of adaptation and mitigation.
The government's budgeting for climate change adaptation and mitigation largely hinge on the broader medium-term macroeconomic framework, which cannot be properly designed due to lack of serious evidence on the effects of climate change on macroeconomic indicators and at sectoral level. Therefore, it is important to develop a sophisticated macroeconomic modeling to understand the economy-wide impact of climate change in Bangladesh, which would be instrumental to formulate the policy and plan of financing adaptation and mitigation in the long run.
Thus, the existing modeling approaches are not suitable to answer policy questions regarding adaptation and mitigation of Bangladesh, a severe victim of climate change triggered by top emitters. Therefore, developing a Bangladesh-specific model is required at the earliest, which would build on and be consistent with the existing planning and macro-budgeting model of the country. This approach would be suitable to estimate the effects of climate change on economic growth, sectoral outputs and the total cost of climate change including inaction, and would cover critical policy issues, such as resource requirement for adaptation and mitigation, and potential of resource mobilisation from domestic and external sources.