The Economics of Low Carbon, Climate Resilient Patterns of Growth in Developing Countries

This report reviews the economic feasibility of low-carbon and climate-resilient growth in developing countries. It finds that significant mitigation is possible with minimal GDP impact (1-2% reduction globally), often driven by low-cost energy efficiency. However, it highlights critical gaps in current research, specifically the failure to account for implementation costs, the over-reliance on static MACC models, and the lack of a clear framework for 'climate resilient growth' beyond simple adaptation. It emphasizes that while Middle Income Countries face higher pressure to reduce emissions, Low Income Countries can leverage co-benefits and carbon finance to align low-carbon paths with development goals.

• Global emissions must peak around 2020 to meet ambitious stabilisation targets of 2°C (400 to 450 ppm CO2e). Achieving these targets is considered impossible without action from developing countries, as energy demand growth in these regions is projected to drive a rapid increase in emissions over the next 10-15 years.
• Significant levels of greenhouse gas mitigation can be achieved in developing countries without significantly undermining economic growth. Global modelling suggests GDP impacts of a 1-2% reduction per annum for 2°C stabilisation targets. In specific countries like Mexico and South Africa, macroeconomic analyses indicate growth reductions of less than 1%, with some cases showing increased growth due to improved efficiency and new industries.
• Many developing countries have significant mitigation potential at relatively low costs, specifically below $20/tCO2. This is primarily driven by energy efficiency opportunities, which often have negative costs, meaning the measures result in overall cost savings. In Brazil and Indonesia, low costs are further driven by high potential in the forestry and agriculture sectors.
• China and India face a significantly greater challenge in mitigation compared to other developing countries due to the very rapid growth of emissions observed over the last 5 years and projected for the next 20 years. Consequently, the relative costs of comparable emission reductions in these two countries are likely to be significantly higher.
• Low carbon growth offers substantial co-benefits that align with development objectives, including reduced reliance on fossil fuels (improving air pollution, health, and energy security), protection of natural resources to ensure sustainable livelihoods, and improved urban quality of life. These benefits are rarely quantified in economic analyses, which can lead to the overestimation of economic costs.
• The implementation of low carbon policies is a primary challenge that is often omitted from economic assessments. Many analyses assume perfect competition and fail to capture transaction costs, policy administration costs, and market imperfections such as fuel subsidies. Sectors with the highest estimated negative or low-cost potential, such as agriculture and forestry, are often the most difficult to implement due to fragmentation and stakeholder complexity.
• Climate change is expected to impose major economic costs on developing countries, necessitating large investments in adaptation. However, 'climate resilient patterns of growth'—development paths that reduce vulnerability to long-term trends and extreme shocks—are not well defined. Achieving this resilience requires more than 'climate proofing' investments; it requires macroeconomic shifts, such as moving sectors away from climate-sensitive areas like agriculture.
• There are potential synergies and conflicts between low carbon (mitigation) and climate resilient (adaptation) objectives. At the project level, conflicts can be managed through coordination, such as screening hydropower projects against rainfall projections or using passive ventilation instead of energy-powered air conditioning. At the macroeconomic level, it is unclear if these two paths naturally align; for example, increasing urban density to reduce transport emissions may increase heat island effects and health vulnerability.
• Current mitigation studies are limited by a reliance on Marginal Abatement Cost Curves (MACCs), which provide static snapshots and often ignore inter-sectoral feedbacks, the wider economy, and implementation costs. There is a risk of over-reliance on the McKinsey global MAC curve, which may not be robust enough for plant-level sectoral targets.
• The timeframe for most low carbon growth studies is too short, typically ending in 2030. This risks 'lock-in' to technologies that are not optimal for 2050 targets and underestimates the long-term challenge and costs of deep decarbonization.

APA

Pye, S., Watkiss, P., Savage, M., & Blyth, W. (2010). The Economics of Low Carbon, Climate Resilient Patterns of Growth in Developing Countries. Stockholm Environment Institute. https://www.sei.org/mediamanager/documents/Publications/Climate/economics_low_carbon_growth_report.pdf

Chicago

Pye, Steve, Paul Watkiss, Matt Savage, and Will Blyth. The Economics of Low Carbon, Climate Resilient Patterns of Growth in Developing Countries. Stockholm Environment Institute, 2010. https://www.sei.org/mediamanager/documents/Publications/Climate/economics_low_carbon_growth_report.pdf.

Wikipedia

{{cite report |last1=Pye |first1=Steve |last2=Watkiss |first2=Paul |last3=Savage |first3=Matt |last4=Blyth |first4=Will |title=The Economics of Low Carbon, Climate Resilient Patterns of Growth in Developing Countries |publisher=Stockholm Environment Institute |date=16 April 2010 |url=https://www.sei.org/mediamanager/documents/Publications/Climate/economics_low_carbon_growth_report.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{pye2010economics, author = {Pye, Steve and Watkiss, Paul and Savage, Matt and Blyth, Will}, title = {{The Economics of Low Carbon, Climate Resilient Patterns of Growth in Developing Countries}}, institution = {Stockholm Environment Institute}, year = {2010}, month = apr, url = {https://www.sei.org/mediamanager/documents/Publications/Climate/economics_low_carbon_growth_report.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }