Parallel Session IVa: The Economic Impact of Climate Change in Ethiopia: A CGE Analysis

1. Addis Ababa University, Department of Economics
The Economic Impact of Climate
Change in Ethiopia: A CGE Analysis
Tewodros Negash Kahsay

2. #2023 AGRODEP CONFERENCE
Outline
• Introduction
• Modeling framework and Data
• Scenarios
• Major findings
• Conclusion and policy implication

3. #2023 AGRODEP CONFERENCE
Introduction
- The Ethiopian economy is anchored on the agricultural sector
o Agriculture is the major contributor to GDP (33%), export trade (77%)
and employment (73%)
- Ethiopian agriculture is predominantly rainfed subsistence activity
characterized by low productivity
o Poverty is severe and food and nutrition security remains a serious
challenge for the country
- Uncertainties related to future climate change pose additional challenge
for Ethiopian agriculture
o Climate change induced changes in temperature and rainfall are
expected to affect the potential for agricultural production
- The study presented here aims at evaluating the economic effects of
climate change in 2050 on Ethiopian agriculture and overall economy

4. #2023 AGRODEP CONFERENCE
Modeling framework and data
The study employes the GTAP-W model (Calzadilla et al., 2010)

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Modeling framework and data (continued)
- Data: The GTAP-Power 9 Data Base
- An electricity-detailed extension of the GTAP 9 Data Base (Peters,
2016)
- It includes 140 regions and 68 commodities and features three
reference years (2004, 2007 and 2011).
o The latest reference year (2011) is used for the study
Regional aggregation
Egypt
Ethiopia
Sudan (pre-2011)
Equatorial Lakes Region
Rest of East Africa
Rest of North Africaf
Rest of Sub-Sahara Africa

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Sectoral aggregation
20 sectors - 8 agricultural sectors and 12 non-agricultural sectors
I. Agricultural Sectors II. Non-agricultural sectors
Paddy Coal
Wheat Crude oil
Other cereals Gas
Other crops Petroleum
Vegetables and fruits Processed food
Oilseeds Extraction
Sugar crops Manufacturing
Water
Services
Electricity-Hydro
Electricity-Fossil
Electricity-Other

7. #2023 AGRODEP CONFERENCE
Model scenarios
Baseline scenario
 The base year of the GTAP-Power 9 Data Base used for the study is
2011
 Macro projection is implemented to obtain the future (2050) benchmark
equilibrium dataset for the GTAP-W model.
 The future baseline equilibrium describes the world economy in 2050
with a constant, unchanged climate change.
 The effect of climate change on Ethiopian agriculture and economy is
evaluated relative to this updated baseline equilibrium.
- Climate change scenario
 The impact of climate change on the Ethiopian economy is assessed
for two global emissions scenarios (A1 and B1)
 Climate change induced effects on vital agricultural endowments (%)
are considered for implementation

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Climate change scenario
Rainfed
yield
Irrigated
yield
Crop water
Requirement
Multifactor1
productivity
Crops A1 B1 A1 B1 A1 B1 A1 B1
Rice -0.5 -0.3 -0.4 -0.2 0.0 0.0 -3.55 -2.23
Wheat -23.5 -18.1 -20.9 -16.1 2.8 2.9 -17.08 -4.45
Other cereals -5.1 -3.8 -4.5 -3.3 5.5 7.3 -8.65 -6.88
Other crops -6.1 -4.6 -5.4 -4.1 5.9 8.3 -9.76 -4.52
Vegetables & fruits -12.3 -9.4 -10.9 -8.3 12.3 10.2 -9.76 -4.52
Oilseeds -6.1 -4.6 -5.4 -4.1 16.0 10.5 -9.76 -4.52
Sugar crops 0.8 0.9 0.8 0.9 9.7 6.5 -9.76 -4.52
A1 Scenario B1 Scenario
Rainfed land -3.6% -1.4
Irrigated land -31.1% -30.5

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Major Results
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Rainfed land Irrigated land Irrigation water
-50
-40
-30
-20
-10
0
10
20
30
Rainfed land Irrigated land Irrigation water
B1 Scenario
A1 Scenario
Climate change impact on land and water use

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Climate change impact on production and market prices
-70.0
-60.0
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
A1 Scenario B1 Scenario
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
Percent
A1 Scenario B1 Scenario
Market prices of agricultural produce
Agricultural production

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Climate change impacts on crop exports and imports
-150
-100
-50
0
50
100
150
200
250
300
Percent
A1 Scenario Export
A1 Scenario Import
B1 Scenario Export
B1 Scenario Import
• Climate change depresses exports and stimulates imports, thereby putting
further pressure on foreign exchange scarcity

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Climate change impact on real GDP, welfare & return to factors
Econo
mic
Growth
(%)
Real
GDP
(Billion
USD)
Welfare
(Billion
USD)
A1 -8.9 -18.7 -18
B1 -6.2 -12.9 -12.1
-35.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
Unskilled
labour
Skilled
labour
Capital Natural
resources
Percent
A1 Scenario B1 Scenario
Real return to primary factors
Change in real GDP and welfare

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Conclusion and policy implication
- Climate change degrades the productive capacity of the
Ethiopian economy
 Decreases the availability and productivity of the
country’s vital agricultural resources
- Climate change depresses agricultural production
resulting in a surge in market prices of crops
- climate change costs the country a substantial proportion
of its growth potential and results in significant welfare
loss
- Therefore, designing and implementing effective climate
change adaptation measures is imperative

14. THANK YOU