Climate Adaptation and Development Bali Breakfast/Development Committee Series April 13, 2008 Washington, DC

2 Climate Risks and Development: The “Poor Countries’ Danger” Mitigation and Adaptation: What Policy Mix? Adaptation — Solutions for Development Implications for Finance and Development Ministers Post-2012 Considerations Key Messages and Areas for Further Work Today’s discussion

3 Climate Risks Are Higher for Poor Countries Climate Risks and Development: The “Poor Countries’ Danger” Source: World Bank staff.

4 Six Climate Threats Top 12 Countries Most at Risk from Each Climate Risks and Development: The “Poor Countries’ Danger” DroughtFloodStormCoastal 1mCoastal 5mAgriculture MalawiBangladeshPhilippines All low-lying Island States Sudan EthiopiaChinaBangladeshVietnamNetherlandsSenegal ZimbabweIndiaMadagascarEgyptJapanZimbabwe IndiaCambodiaVietnamTunisiaBangladeshMali Mozambique MoldovaIndonesiaPhilippinesZambia NigerLaosMongoliaMauritaniaEgyptMorocco MauritaniaPakistanHaitiChinaBrazilNiger EritreaSri LankaSamoaMexicoVenezuelaIndia SudanThailandTongaMyanmarSenegalMalawi ChadVietnamChinaBangladeshFijiAlgeria KenyaBeninHondurasSenegalVietnamEthiopia IranRwandaFijiLibyaDenmarkPakistan Middle Income Low IncomeHigh Income Source: World Bank staff.

5 It Will Get Worse Likely Impact of Sea Level Rise on Low Lying Lands: BANGLADESH If sea level rises 1.5 m: Total population affected: 17 million (15%) Total land area affected: 22,000 km 2 (16%) Climate Risks and Development: The “Poor Countries’ Danger” Source: UNEP/GRID Geneva; University of Decca; JRO Munich; The World Bank; World Resources Institute, Washington, D.C. Today Total population: 112 million Total land area: 134,000 km 2

6 It Will Get Worse Potential Impact on Agriculture — Projected Percentage Change in Agricultural Productivity in 2080 Note: Scenario: SRES A2. Source: Cline Climate Risks and Development: The “Poor Countries’ Danger”

7 Mitigation and Adaptation: What Policy Mix? Adaptation — Solutions for Development Implications for Finance and Development Ministers Post-2012 Considerations Key Messages and Areas for Further Work Today’s discussion

8 Likely Changes — Dependent on Mitigation Mitigation and Adaptation: What Policy Mix? Likely change already “baked in” Risk of catastrophic events increases with temperature Source: Adapted from IPCC Likely change with successful mitigation action Likely change without significant action on mitigation

9 Need a Complementary Mix of Policies With Appreciation of Different Focuses on Mitigation and Adaptation The more mitigation undertaken, the less adaptation is needed. However, without sufficient mitigation there is increased risk of catastrophic outcomes—a point at which the costs are unreasonably high or there is no way to adapt (e.g., the loss of West Antarctic ice sheet implies a 5–15 meter sea level rise). Given increased temperatures “baked into the earth,” adaptation will be necessary. Complements or Substitutes? Global Action, Local Impact Yet mitigation and adaptation differ: – Mitigation requires global analysis and global collective action – Adaptation must be analyzed locally and addressed through local action. Developing countries need adaptation measures most urgently. Mitigation and Adaptation: What Policy Mix?

10 Adaptation-Mitigation “Win-Win” Opportunities are High in Developing Countries At the global level, the largest contributor to GHG emissions is the energy sector—and will be for years to come Land use change, forestry and agriculture account for almost 50% of emissions in developing countries Forestation, avoided deforestation and agriculture reduce emissions and also have significant adaptation benefits Source: WRI / CAIT. Mitigation and Adaptation: What Policy Mix?

11 Synergies…But Trade-offs Planting mangroves sequesters carbon and buffers the effects of storm surges on infrastructure near the coast. Forestation and avoided deforestation can improve the micro-climate, prevent soil erosion, etc. Water storage can be beneficial for flood risk reduction, drought response and clean energy generation (hydro). … but trade-offs can occur There are adaptation- mitigation win-wins… Tree species that are best for carbon sequestration may not be best for livelihoods (e.g., eucalyptus plantation). Forestation in high watersheds in some cases reduces water availability downstream. Urban development — high density good for mitigation, but can increase climate related risks (coastal zones, heat waves). Mitigation and Adaptation: What Policy Mix?

12 Climate Risks and Development: The “Poor Countries’ Danger” Mitigation and Adaptation: What Policy Mix? Adaptation — Solutions for Development Implications for Finance and Development Ministers Post-2012 Considerations Key Messages and Areas for Further Work Today’s discussion

13 Key Questions about Adaptation Adaptation depends on country specific risks. Need better analyses at national-local level. Adaptation — Solutions for Development What? The Good News In a very real sense development is the best adaptation: strong institutions, education, health, infrastructure, and a diversified economy strengthen resilience. Why? Adaptation is necessary for development. Climate risks undermine growth and hurt the poor. When? Need to start now to adapt to current climate variability in a cost effective way and prepare for the future.

14 Adaptation — Solutions for Development Weather data collection and forecasts (for farmers, insurers, etc.) Technical assistance (i.e., extension services on new crop varieties, strengthening capacity of health systems to address new diseases) Knowledge development and dissemination on adaptation-mitigation options in land use change, forestry and agriculture Risk and vulnerability assessments Investment prioritization through improved understanding of options and costs Drought and saline resistant crops Efficient irrigation techniques Water-reuse technologies Tree species with high mitigation-adaptation potential Improved farming systems More competitive and versatile desalination Multi-purpose water storage (for water supply, irrigation, river regulation, and hydropower) Rainwater harvesting Improved drainage “Climate proofed” transport systems Infrastructure Technology Knowledge and Capacity Areas for Action 14

15 Adaptation — Solutions for Development Eliminate counterproductive incentives (e.g., subsidies for water- intensive crops) Create appropriate incentive framework for private sector action (including private insurance) Improve land security and social protection mechanisms Improve integrated river-basin and ecosystems-based planning Strengthen key institutions in various sectors (e.g. water, agriculture, infrastructure) Increase inter-sectoral coordination (i.e., for disaster risk management) Improve participatory processes and community involvement in decisions Strengthen disasters preparedness and safety net for disaster-hit households Provide key public services (e.g., hydro-meteorological services, early warning systems) Policies Areas for Action ( continued ) Institutions

16 Adaptation — Solutions for Development Public Sector Private Sector Donors PPP Insurance pools the burden of climate risks Insuring Against Risks Support increase in insurance penetration and competitive insurance markets Introduce mandatory insurance in hazard-prone areas, improve land use regulations, building codes Develop data to monitor loss trends, improve catastrophe modeling Develop public/private risk transfer programs, e.g., Mongolia Index-Based Livestock Insurance, Mexico Catastrophe Bond, Caribbean Catastrophe Risk Insurance Facility Create derivatives and transfer risk to international markets, e.g., through re-insurance World Food Program weather derivative based on precipitation level (e.g., Ethiopia) World Bank Catastrophe Insurance Pool in Turkey Global Index Reinsurance Facility 16

17 Climate Risks and Development: The “Poor Countries’ Danger” Mitigation and Adaptation: What Policy Mix? Adaptation — Solutions for Development Implications for Finance and Development Ministers Post-2012 Considerations Key Messages and Areas for Further Work Today’s discussion

18 How Much Does Adaptation Cost? There Are Some Estimates, but the Ranges Are Wide and Uncertain Developing Countries — Estimated Cost of Adaptation by 2030 Implications for Finance and Development Ministers The implied change in temperature is 1.5º C for 2030 Cost estimates based on expert opinion Wide range of possible infrastructure costs due to information gaps

19 Implications for Finance and Development Ministers Good Adaptation is Cost-Effective Investment in physical infrastructure Sea level rise likely to carry high costs Adaptation (dark green) buys a large reduction in climate change costs (light green) Source: European Environment Agency.

20 Investment in information and knowledge: each 100 Euros spent in meteorological systems yields at least 200 Euros in avoided damages Good Adaptation is Cost-Effective ( continued ) Source: World Bank. Implications for Finance and Development Ministers

21 1.Specialized funds Adaptation Fund (2% tax on CDM and voluntary contributions): forecasted US$80–300 million per year between 2008–2012 GEF adaptation programs: US$279 million Global Facility for Disaster Risk Reduction (multi-donor): US$15–20 million per year 2.Mainstreaming platforms IDA Regional Development Banks Bilateral financing (e.g., EU climate partnership) 3.Mitigation financing with adaptation benefits Pilot carbon funds (e.g., Forest Carbon Partnership Facility) Bilateral financing 4.Sustainable development financing with adaptation benefits GEF (e.g., Land Degradation Operational Program) Financing ecosystems and sustainable land management (IDA, MDBs) Sources of Finance Fiscal Revenues 1.Increase financial flows to governments—eliminate counterproductive subsidies (e.g., energy and water) 2.Reduce reliance on government budget Country risk insurance such as catastrophe bonds (e.g., Mexico) or risk insurance facilities (e.g., Caribbean) Development of private insurance markets International Financing 21 Implications for Finance and Development Ministers

22 Be Ahead of the Game Use improved climate data, climate risk analysis, adaptation needs assessments Encourage a shift towards climate-resilient growth across all sectors of the economy Provide budget allocation for: Climate resistant public infrastructure (e.g., roads, dams) Preparedness and emergency response to extreme events Information to help citizens in their everyday decisions (e.g., early warning systems, seasonal forecasts) R&D and extension services in agriculture Preparedness of the health sector for new diseases Provision for unforeseen events; create contingency funds, sign contingent loans, and/or buy insurance for emergency responses to climatic disasters The MINISTRIES OF FINANCE and DEVELOPMENT can: Understand risks and priorities Design policies Support line ministries Plan ahead with contingency funds Implications for Finance and Development Ministers 22

23 Climate Risks and Development: The “Poor Countries’ Danger” Mitigation and Adaptation: What Policy Mix? Adaptation — Solutions for Development Implications for Finance and Development Ministers Post-2012 Considerations Key Messages and Areas for Further Work Today’s discussion

24 Scaling Up — Post-2012 Considerations Post-2012 Considerations The Bali Action Plan includes adaptation in the scope for future agreement. The focus is shifting from reducing emissions to reducing damages through adaptation and mitigation. Effective adaptation will require significant financial support to affected countries. Important to explore how to encourage win- win adaptation-mitigation efforts. Nevertheless, large mitigation potential doesn’t overlap well with large adaptation needs. Can adaptation be an effective part of a post agreement? Adaptation Fund — financed at a 2 percent CDM tax — is an important first step. Additional sources of finance? What are the options for sustainable adaptation finance?

25 Climate Risks and Development: The “Poor Countries’ Danger” Mitigation and Adaptation: What Policy Mix? Adaptation — Solutions for Development Implications for Finance and Development Ministers Post-2012 Considerations Key Messages and Areas for Further Work Today’s discussion

26 Key Messages For developing countries, climate change is today’s crisis, not tomorrow’s risk: adaptation matters for development and has to start now. Adaptation and mitigation must go hand in hand, although one is based on local knowledge and action, and the other must be addressed globally. There are mitigation-adaptation synergies, especially in low income countries (e.g., land management, forestation, agriculture). Good adaptation is cost-effective. Actions to achieve adaptation include risk management, knowledge and capacity building, technology, infrastructure investment, and strengthening governance, policies, and institutions. Adaptation requires expanding the availability and access to financial resources. Existing international financing sources help bear the costs—but more is needed. Key Messages and Areas for Further Work 26

27 Areas for Further Work Improving estimates of adaptation costs and benefits by sector, type of risk, and at different levels Developing tools for: –Rapid assessment of vulnerabilities and priorities –Decision making under uncertainty (or ignorance) –Technical best practice toolkits for water management, housing and city planning, transport, etc. Identifying incentives and building local capacity for mainstreaming adaptation in development Supporting technological solutions for climate resilient investments Advancing instruments for financing adaptation: –Insurance for different risks and customers, notably the poor –Understanding and designing incentives for private sector investments –Adaptation-mitigation win-wins supported by mitigation finance –Mix of instruments to meet financing needs in a country-specific context Key Messages and Areas for Further Work