By Andreas Charalambous and Omiros Pissarides
The Cypriot economy depicted a satisfactory performance in the first half of 2023, including the tourism sector, despite the summer outbreak of weather phenomena and high temperatures.
This rather favourable picture should not lead to complacency. The ambitious global climate targets to limit the temperature rise to 1.5ºC are not being met. With today’s policies, we are likely heading for a temperature increase of more than 3ºC, with disastrous results for the generations to come. Even under a scenario whereby the increase is limited to 2ºC, which currently appears to be a remote possibility, most scientists warn of adverse effects, in particular for regions such as the Eastern Mediterranean and Cyprus specifically.
In concrete terms, the sectors expected to be significantly affected in our country include: (a) tourism, especially during the summer months, (b) construction, given the need to improve energy efficiency, (c) agriculture, in relation to food quality and price, (d) water resources, in terms of securing adequate supply at affordable pricing, (e) energy, in relation to supply security and price, (f) the insurance sector, as well as (g) the labour market and productivity. Furthermore, health and quality of life, especially of vulnerable groups, will be severely affected.
The free market mechanism is not expected, on its own, to lead to desirable, or even acceptable, societal outcomes. This is mainly attributed to the fact that adjustment costs to climate change are not negligible and occur in the short term. On the contrary, while the benefits of policies leading to mitigation and adaptation to climate change are substantial and clearly outweigh costs, especially in terms of business opportunities, energy sufficiency and quality of life, they only arise on a long-term horizon.
In such a context, empirical evidence reveals that the response and actions of the private sector would be insufficient. Therefore, coordinated activities through cooperation of the public and private sectors are needed to achieve the required adaptation and avoid suboptimal outcomes with potentially disastrous consequences.
Instead of the hitherto ad hoc reactions from the authorities, when extreme weather phenomena occur, it is necessary to draw up a strategic plan with a long-term view, which should enable pre-emptive actions along the above-mentioned sectors.
Key elements of such a plan should be: (a) safeguarding of sufficient inexpensive energy supply, through the promotion of a steep rise in market penetration of renewable energy, (b) development of new forms of quality tourism, which should be compatible with the extension of the tourist season beyond the summer months, as well as assurance for affordable access to Cyprus, considering that air connectivity is set to become costly, (c) establishment of high energy efficiency standards for the construction sector, (d) adaptation of the agricultural sector to the emerging weather conditions and saving of water resources, (e) adjustment of working hours to the temperature rise, (f) upgrading of the health system, with a focus on diseases which are expected to intensify due to climate change, (g) proactive plans to deal with the rising number of fires, and (h) promotion of an ambitious reforestation plan for Cyprus.
The central role that the state is called upon to execute towards dealing with the effects of climate change and temperature rise requires sufficient financial resources and, by extension, greater flexibility in managing public finances. This crucial issue is already the subject of consultations for a radical reform of the fiscal framework within the EU.
Andreas Charalambous and Omiros Pissarides are economists