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Cost Analyses on Climate Risks and Effective Adaptation Policies

in Developing Countries

Akio TAKEMOTO

Graduate School of Science and Engineering,

Ibaraki University 　

ICSS-AsiaBangkok Thailand, November 23 2009

Photo: Mt. Tateyama, Japan

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Introduction

Regarding Post 2012 negotiation, the world seems to mainly pay attention to mitigation policy, i.e., mid-term target on GHGs emission in major emitters. However, IPCC concluded that even though we achieved such a strict target, adaptation would be necessary to address impacts which are already unavoidable due to past emissions.

Developing countries are particularly vulnerable to the impacts of climate change. ...Therefore, it is necessary to implement adaptation policies appropriately with international cooperation.

Keys to address?

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One of the Keys to address: Mainstreaming adaptation into development

Climate risks are comprised of direct and indirect impacts.

☆ Direct impacts: air and sea temperature rise, change in precipitation intensity and volume, extreme meteorological events, etc.

☆ Indirect impacts: economic and social impacts such as deterioration of eco-system and sanitation, decrease of agricultural production , increase of infectious disease, increase of poverty

Resilience against climate impacts in developing countries might be mostly determined by social and economic conditions.

Stand-alone adaptation measures are not effective in developing countries. It is essential to mainstream adaptation into development policies.

It is important to understand relation between development finances and climate risks in order to finance adaptation-related measures more appropriately.

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(1) Methods

Aid amounts for development sectors potentially affected by climate impacts (climate risk sectors) were analyzed

Methodology developed by Agrawara (2005) using OECD / Creditor Reporting System (CRS) database to specify climate risk sectors.

The CRS database classifies ODA and other concessional finances into 37 purpose codes, which are development sectors designated by OECD / DAC. It also records amounts of ODA and other concessional finances paid by donor countries in each purpose code.

Climate risk sectors (Narrowly defined climate-sensitive sectors) “infectious disease”, “water supply and sanitation”, “economic and

development policies”, “social infrastructure service”, “renewable energy”, “agriculture, forestry and fisheries”, “tourism”, “environmental conservation”, urban and rural development”

Climate risk sectors (Broadly defined climate-sensitive sectors) (Narrow climate risk sectors) + “transportation and storage”, “food aid”,

“emergency assistance and reconstruction”

Analysis on climate risk in world’s ODA

OECD/DAC ･ CRS purpose codes in the selection of climate change projects (Agrawara, 2005; Takemoto ad Mimura, 2009) Note: some codes shown in this table have been modified by the OECD, since publication of the paper by Agrawara(2005).

DAC purpose codes Description Sectors and DAC/CRS purpose codes classified into those that

are affected by climate risk

110 (111, 112, 113, 114) Education Not included

120 (121, 122) Health Infectious diseases (122/12250)

130 Population policies/programs and reproductive health Not included

140 Water supply and sanitation All activities

150 (151, 152) Government and civil society Economic and development policy/planning (151/15110)

160 Other social infrastructure and services Not included

210 Transport and storage All activities

220 Communications Not included

230 Energy generation and supply Power generation (renewable sources) (230/230230)

Hydroelectric power plants and other renewable energy

(230/23065–23070)

240 Banking and financial services Not included

250 Business and other services Not included

311 Agriculture All activities

312 Forestry All activities

313 Fishing All activities

321 Industry Not included

322 Mineral resources and mining Not included

323 Construction Not included

331 Trade policy and regulations Not included

332 Tourism All activities

400 (410, 420, 430) Multi-sector/cross-cutting General environmental protection (410)

Urban development and management (430/43030)

Rural development (430/43040)

500 (510, 520, 530) Commodity aid and general assistance Food aid/security programs (520)

600 Action relating to debt Not included

700 (710, 720, 730) Emergency assistance and reconstruction All Activities

910 Administration costs of donors Not included

920 Support to NGOs Not included

998 Unallocated/unspecified Not included

OECD/DAC ･ CRS purpose codes in the selection of climate change projects (Agrawara, 2005; Takemoto ad Mimura, 2009) Note: some codes shown in this table have been modified by the OECD, since publication of the paper by Agrawara(2005).

DAC purpose codes Description Sectors and DAC/CRS purpose codes classified into those that

are affected by climate risk

400 (410, 420, 430) Multi-sector/cross-cutting General environmental protection (410)

Urban development and management (430/43030)

Rural development (430/43040)

500 (510, 520, 530) Commodity aid and general assistance Food aid/security programs (520)

600 Action relating to debt Not included

700 (710, 720, 730) Emergency assistance and reconstruction All Activities

910 Administration costs of donors Not included

920 Support to NGOs Not included

998 Unallocated/unspecified Not included

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World’s annual ODA amount (US million dollars) potentially affected by climate risks and its share to the total ODA volume (averaged over 2001-2005). (Takemoto and Mimura, 2007)

分 　野 2001 2002 2003 2004 2005 Average

World’s annual ODA amount

55,364 64,779 90,568 98,348 121,726 86,157

　 Water supply and Sanitation

3,120 2,203 3,390 4,845 5,960 3,904

5.6% 3.4% 3.7% 4.9% 4.9% 4.5%

Agriculture, Forestry and Fishery

　

3,894 3,010 4,156 4,085 4,624 3,954

7.0% 4.6% 4.6% 4.2% 3.8% 4.6%

Transportation and Storage 　

4,932 4,057 4,442 6,559 7,300 5,458

8.9% 6.3% 4.9% 6.7% 6.0% 6.3%

Food Aid1,815 2,052 1,510 1,460 1,434 1,654

　 3.3% 3.2% 1.7% 1.5% 1.2% 1.9%

　 Emergency Assistance and Reconstruction

3,077 5,808 7,775 6,933 12,490 7,217

　 5.6% 9.0% 8.6% 7.0% 10.3% 8.4%

Sectors potentially affected by climate risks （ narrowly defined) ）

12,499 10,815 13,557 16,400 19,573 14,569

22.6% 16.7% 15.0% 16.7% 16.1% 16.9%

Sectors potentially affected by climate risks （ broadly defined) ）

22,323 22,732 27,284 31,352 40,797 28,898

40.3% 35.1% 30.1% 31.9% 33.5% 33.5%

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In this study, aid amounts of development sectors potentially affected by climate impacts (climate risk sectors) and regional characteristics of the shares in aid amounts for the climate risk sectors were analyzed (Takemoto and Mimura, 2009).

Japanese ODA funding data were collected from the “ODA data book 2006”.

The 49 developing countries were selected by using Agrawara (2005) method for this study.

Cost analysis on climate risks in Japanese ODA

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Table 2 Fundamental information on 49 developing countries selected in the study （ Takemto and Mimura, 2009 ； MOFAJ, 2006a ） .Countries receiving more than US$100 million of net amount ODA over 5years (2001-2005) (as for Oceania, US$ 50 million). Countries not disclosed their GNI in these 5 years were excluded.

Regions

GNI per capita (US dollars)

Number of aid recipient countries

Net disbursements on bilateral ODA (million US dollars)

Number of countries selected for case study1

Aid amount for countries selected for case study (million US dollars)

Proportion of selected countries in region

Proportion of regional ODA provided to selected countries

East Asia 1,411 11 12,920 8 13,578 82% 105%

Southwest Asia

611 7 4,180 5 4,055 71% 97%

Central Asia and Caucasus

1,095 8 1,338 4 1,146 50% 86%

Middle East 1,416 17 5,417 4 793 24% 15%

Africa 349 46 3,736 12 2,664 26% 71%

Central/Latin America

2,762 32 2,495 9 2,211 28% 89%

Oceania 2,935 14 375 3 196 21% 52%

Europe 3,086 16 891 4 650 25% 73%

Total 1,120 151 31,351 49 25,293 33% 81%

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Region

ODA

amount

(billion

Yen)

Sectors

affected by

climate risk

(broad)

Infectious

disease

Water

supply

and

sanitatio

n

Transpor

t and

storage

Agricultu

re,

forestry

and

fisheries

Environ

mental

conserv

ation

Food

aid

Emerge

ncy aid

East Asia 2,168 56.4 0.3 8.9 21.6 5.5 14.6 0.3 0.1

Southwest Asia 1,175 53.1 1.2 10.9 21.8 9.6 1.9 0.3 1.0

Central Asia and

Caucasus 122 34.5 0.0 18.0 14.2 2.2 0.0 0.1 0.0

Middle East 209 52.7 0.6 13.6 23.8 4.3 0.6 0.0 0.0

Africa 492 19.4 2.5 2.9 5.6 2.7 0.0 3.1 0.4

Central/Latin

America 327 28.5 0.4 9.5 9.0 2.7 0.0 0.0 0.1

Oceania 22 31.4 0.0 0.0 25.6 5.5 0.1 0.0 0.2

Europe 67 26.9 0.0 1.1 23.7 0.0 0.0 0.0 0.0

Regional Comparison on shares of Japanese ODA amounts in 49 selected countries over 2001-2005 in major sectors affected by climate risks (unit = %). Technical cooperation projects were excluded in accounting climate risk sectors (Takemoto and Mimura, 2009).

How much is Asian vulnerability compared to other developing regions?

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Figure -1 Regional distribution of the amount of Japan’s ODA (2001-2005) to selected countries (49 countries in total) and

share of aid amount in narrow and broad -sense sectors affected by climate risk .

East Asia

Southwest Asia Central Asia

& Caucasus

Middle East

Africa

Central & Latin America

Oceania

Europe

Asia

500 1,000 1,500 2,000 0 (Billion yen)

Climate sensitive sectors (Narrow)

Climate sensitive sectors (Broad)

Other sectors

Regional distribution of Japanese ODA funding over 2001-2005 to the 49 selected countries in the narrowly and broadly defined climate risk sectors (Takemoto and Mimura, 2009)

Regarding shares of funding affected by climate risks, the shares in Asian regions is the largest (> 50%); shares in yen loan projects in transport, agriculture, forestry and fishery, water supply and sanitation, etc.

>>> strong relation between ODA and climate risks >>> in other words, ODA contributed to enhancing resilience against climate risk.

The shares in Africa is the smallest (< 20%); basic human need sectors (shares in grant aid projects in infectious disease, aid for poor farmers, etc.),food aid and emergency assistance are relatively high

>>> weak relation between ODA and climate risks >>> in other words, ODA has not contributed to enhancing resilience against climate risks.

GNI/capita Both GNI/capita of Southwest Asia (US$611) and that of Africa

(US$349) are very low, however, quality of Japanese ODA for these two regions are different.

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Preliminary Estimate of the Costs of Additional Impacts of Climate Change and Adaptation (World Bank, 2006) Note: “B” denotes billion.

Item amount per year

Estimated portion climate sensitive

Estimated costs of adaptation

Total per year (USD 2000)

ODA & Concessional Finance

$100B 40% 10 to 20% $4B to $8B

Foreign Direct Investment $160B 10% 10 to 20% $2B to $3B

Gross Domestic Investment $1500B 2 to 10% 10 to 20% $3B to $30B

　 　 　 　 　

Total International finance 　 　 　 $6B to $11B

Total adaptation finance 　 　 　 $9B to $41B

Cost of additional impacts 　 　 　 $40B

　 　 　 　 ($10B to $100B)

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Estimate of additional costs for adaptation to climate risk (Unit: million US dollars) (Takemoto and Mimura, 2007)

Sectors Additional adaptation cost

Lower estimation (10%) Higher estimation (20%)

Water supply and sanitation

390 780

Agriculture, forestry and Fishery

400 800

Transport and storage 550 1100

Food aid 170 330

Climate risk sectors (broadly defined)

2,200 4,300

Estimation of future adaptation costs in developing countries

Takemoto and Mimura US$ 2.2–4.3 billion/yr Additional to conventional ODA

World Bank US$ 4–41 billion/yr Additional financial investments

UNDP US$ 86 billion By 2015

UNFCCC US$ 28–67billion By 2030

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Additional annual adaptation cost would be US$ 2.2-4.3 billion for ODA projects (Takemoto and Mimura, 2007). More than US$10 billion for all development projects (World Bank, 2006)

Multilateral funds available that are related to adaptation will be not more than several million US$. → not be able to cover adaptation costs.

By mainstreaming adaptation measures into bilateral development funds additional to multilateral adaptation funds. →prioritizing development projects from the view point of climate change adaptation. 　

Gap between multilateral fund and cost for adaptationScales of adaptation-related funds of UNFCCC and GEF (Fujimori, 2009; Takemoto and Mimura, 2007)

Adaptation-related funds Scales of Funds (million dollars)

Least Developed Countries Fund (LDCF)

172

Special Climate Change Fund (SCCF)

106

GEF Trust Fund (including fund for projects other than adaptation)

3,100

Adaptive fund (AF) 100–500

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Strategy for mainstreaming adaptation (Takemoto and Mimura, 2009)

(1) Implementation of climate risk assessmentpresent, sort-term time scale and local scale are particularly important

Capacity enhancement on assessment technology is essential

(2) Analyses on past development projects in the target countries and their relation to climate risk to learn from past experiencesKey sectors peculiar to the target countriesType of development funds implemented in the countries

(3) Prioritizing projects by taking into consideration both the extent of climate change risks and the needs of the target countries WIN-WIN policy should be implemented (beneficial to community first, capable to adapt to climate risk as well) Mal-adaptation should be avoided (Infrastructure projects in areas that would be vulnerable to climate risks)

Climate risks : what is Asian vulnerability?

More than 60% of the world’s population concentrates in Asia.

Coastal areas such as Mekong delta and Bangladesh are particularly vulnerable.

Shortage of food supply due to decrease in crop yields and increase in population.

Increase of population density, rise in sea level, increase in risk of flooding, and tidal wave due to rise in sea level, etc.

Shortage of water supply due to melting of glaciers in the Himalayan Mountains, etc.

Will vulnerability gradually decrease thanks to economic development?

Hotspots of key future climate impacts and vulnerabilities in Asia.(IPCC AR4, 2007)

Climate impacts appear / will appear in whole Asia

In Asia, 470 million people (13% of the whole population) settle in coastal area which is highly vulnerable to climate change. (IHDP, 2007)

Coastal settlements at more risk (IPCC, 2007)

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Prioritization in development cooperation projects according to development stages from the view point of adaptation

For least developed countries, sectors such as basic human needs and rural development should be supported through grant aid programs as a first priority

For countries with an emerging economy, but still require ODA, enhancing financial support to vulnerable sectors to climate change should be accomplished through loan projects

For countries which have become ODA donors thorough advances in their economic development, should deal with climate risks through FDIs and domestic investment projects.

However, even in countries where economy has been developed, vulnerable sectors and areas still exist, especially considering future climate change impacts. Therefore, cooperation with ODA will still play roles.

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Another key to address : Establishment of effective international framework on adaptation

International cooperation is needed for mainstreaming adaptation into development policies .

It is important to harmonize adaptation measures with mitigation measures because adaptation is effective in mitigating level of stabilization on atmospheric GHGs that would prevent dangerous anthropogenic interference with the climatic system (Article 2, UNFCCC)

How could we establish effective adaptation framework in the new Kyoto (post 2012) framework?

Thank you for your attention!