Climate change poses serious risks to Cyprus’ sectoral structure and macroeconomic stability, according to a new study by the Economics Research Centre (ERC) of the University of Cyprus, released on Tuesday.
According to the ERC, the analysis shows that sectors such as air transport and electricity generation mainly cause direct pollution, while others, such as food manufacturing, generate significant indirect effects through their linkages with the rest of the economy.
Examining a Business-as-Usual (BAU) scenario, the study finds that cumulative discounted GDP losses from climate change could reach pound 29 billion by 2050. However, the study notes that ‘timely mitigation measures – if well designed – can significantly limit both total and sectoral damages.’
Analysing three climate change scenarios, the study shows that under the BAU scenario cumulative discounted GDP losses could reach pound 29 billion by 2050 and pound 162 billion by 2100. Under the Sustainability (SUS) scenario, losses are limited to pound 4 billion and pound 23 billion, respectively, although impacts remain particularly severe in sectors exposed to climate change.
Under the BAU scenario up to 2050, tourism is expected to lose around pound 3.8 billion, with losses falling to pound 2.4 billion under the Middle-of-the-Road (MOR) scenario and just pound 0.5 billion under the SUS scenario. Financial services face losses of around pound 2.3 billion under BAU, compared with pound 1.5 billion under MOR and pound 0.3 billion under SUS. In addition, agricultural output is projected to contract by pound 0.5 billion under BAU, with losses halved under MOR and reduced to just pound 60 million under SUS.
According to the ERC, the study also evaluates the effectiveness of fiscally neutral mitigation policies (around 1% of GDP until 2030), including a carbon tax, public investment in clean energy infrastructure and subsidies for the adoption of green energy.
Among its main findings, the ERC notes that the air transport sector recorded the highest greenhouse gas emissions multiplier in 2018, at 3,129 tonnes per pound 1 million of output. The multiplier increased significantly between 2010 and 2018, by 112%, indicating a growing environmental burden from the sector.
The electricity generation sector is identified as the largest producer – both directly and indirectly of sulphur oxides (SOx), at 10.8 tonnes per pound 1 million.
‘Given that Cyprus must reduce SOx emissions by 45% over the period 2020-2029, decarbonisation of this sector is a priority,’ the study stresses.
At the same time, the maritime transport sector recorded the largest reduction in emission multipliers for all pollutants over the period 2010-2018, suggesting an improvement in its environmental efficiency. Its multipliers remain significantly lower than those of the corresponding sector in the EU-28.
Cyprus-EU comparisons
According to the ERC study, shipping in the EU-28 has the highest emission multipliers for most air pollutants (SOx, NOx, PM2.5, PM10), while air transport in Cyprus shows significantly higher pollution multipliers than the EU-28 average. The study notes that most EU-28 sectors are less polluting than their Cypriot counterparts due to better technology and more efficient production processes.
The ERC says that the findings highlight the importance of economic structure in generating air pollution and point to the need for targeted interventions, prioritisation of air transport, and continued decarbonisation of electricity generation.
ERC notes that pollution reduction policies should be tailored to the specific characteristics of each economic sector, taking into account both direct and indirect effects. Regarding air transport, it notes that the upward trend in pollution multipliers in Cyprus requires immediate attention and the implementation of measures to modernise the sector and improve energy efficiency.
As for electricity generation, the ERC says that despite significant progress, further measures are needed to reduce SOx emissions, including the expansion of renewable energy sources and the introduction of natural gas.