Eco-nomics

By Elizabeth Lepro

When Abeer Elshennawy (MA ’92), professor in the Department of Economics, was a PhD candidate at the University of Minnesota, her adviser recommended she concentrate on the environment — unusual advice for someone studying applied economics in 1992. 

“At that time, environmental studies in Egypt was considered a luxury,” Elshennawy said.  

Thirty years later, her adviser’s recommendation seems wise — even obvious — as the effects of climate change take hold. Studying the environment is no longer a luxury; it’s a necessity. 

An environmental economist, Elshennawy focuses her research on how developing countries can balance climate concerns against financial ones.

Forecast to 2050

Here’s what we know: Unmitigated capitalism, which encourages growth above all else, has depleted Earth’s natural resources at a rate we can no longer sustain.

Elshennawy and fellow researchers from the International Food Policy Research Institute and the Institute of Development Studies at the University of Sussex used existing research to provide an answer for what we didn’t know: If nothing is done, how much will Egypt’s economic performance — and, therefore, the economic conditions of its people — suffer? 

To answer this question, Elshennawy and co-authors Sherman Robinson and Dirk Willenbockel used a general equilibrium analysis model to explore the effects of climate change on GDP up to the year 2050. Through a computable general equilibrium analysis (CGE), the researchers were able to make long-term projections based on a range of interconnected markets and macroeconomic effects. 

CGE can also account for technological improvements and population growth and can include overlapping sectors of the economy, in Egypt’s case: agriculture, oil, industry, construction, electricity and services. Because it’s a model — like an equation — researchers can input various scenarios to address uncertainties about the future. 

Elshennawy and her fellow researchers found that if there were no climate change, Egypt’s economy would maintain a steady 3.2% growth rate for the next two decades. Since this is a highly improbable scenario, they predict instead that Egypt’s real GDP toward the middle of the century — assuming no policies are enacted to counteract climate change — will be 6.5% lower than that baseline. The country will face adverse economic effects, Elshennawy explained.

The researchers then input “adaptation measures,” including investments and policy decisions that the Egyptian government can make right now to mitigate future blows to the economy. Specifically, they suggest coastal protection investments, such as the seawalls in Alexandria, to preserve agricultural land along the low-lying Nile Delta. They also propose domestic investment in better irrigation systems and crop management practices to avoid food scarcity, higher food prices and less earnings for farmers.

Carbon Tax

Elshennawy and Willenbockel investigate one of the more popular suggestions for climate change adaptation in a 2021 study about the impact of carbon taxing on the Egyptian economy. 

Right now, Egypt uses a “command-and-control” approach to reducing carbon emissions. If a company or organization produces more carbon emissions than the law allows, it receives a fine. Most large companies can afford to pay the fine and continue over-emitting. 

Instead, the researchers suggest that the Egyptian government tax carbon emissions and “recycle” the proceeds to benefit lower-income households. This stimulates a sector of the economy and encourages companies to make the switch to renewable energy, they say.

There are challenges to implementing a carbon tax. “Renewable energy is still basically young in Egypt,” Elshennawy said. “But this is where the government would step in and help firms shift to renewables, remove obstacles, provide guidance and subsidize if needed.” 

No matter the obstacles, it’s clear that Egypt cannot afford to do nothing. As Elshennawy and co-authors write, “Even under optimistic assumptions about the level and success of future global mitigation efforts, it is essential for these countries to integrate adaptation plans into their national development strategies to cope with the likely consequences of [the] already unavoidable climate change.”