Economic Impacts of Climate Change
Emily Massawa
Tom Downing
Paul Watkiss
Economics of Climate Change
Objectives
1. Assess potential impacts and economic costs of climate
change: what is at-risk?
2. Scope the cost and benefits of adapting to these effects
over time
3. For East Africa, look at the potential and benefits of low
carbon growth
Framing the costs of adaptation

Evidence base is weak: climate change impacts are only beginning to
be significant beyond current vulnerability and adaptation projects are
still at a pilot stage.

Several lines of evidence are required to build a robust picture.

Case studies of existing projects provide an initial basis.

Sectoral investment plans need incremental adjustment for climate
resilience.

Global assessment including integrated models can be interpreted for
Africa and specific countries.

However, a large range of estimates is plausible and there is low
confidence in estimates at this stage.
Existing climate variability and economics

Climate variability already has significant economic costs
throughout Africa.

In East Africa, periodic floods and droughts cause major macroeconomic costs and reduce economic growth.

In Kenya, periodic drought and flood years have economic costs
equivalent to more than 5 % of GDP, and long-term impacts on
growth (World Bank, 2006).

Climate change will lead to future economic costs on top of these
existing effects.
The Economic Costs of Climate Change in Africa will be significant
Energy demand.
Rising temperatures and demand for
cooling rise of 30% by 2030.
Heath burden
Rising incidence of health
burdens (malaria, other
vector borne), heat
extremes
Coastlines and sea level rise.
up to 20 million people / year in 2100 flooded
Costs of several $billion/year by 2030
Up to $50 billion/year by 2100
(AdaptCost)
Increasing extremes
Costs of flood and
drought years already 5
– 8% of GDP. Extreme
events could intensify
Agriculture
yield reductions up to
50% by 2020 and net
crop revenues up to
90% by 2100
Water resources
People with high water stress,
75-250 million by the 2020s and
350-600 million by the 2050s
Loss of ecosystem services
Effects on forests, corals, wildlife
parks, and on tourism and
services
Source: Watkiss et al SEI WeAdapt Google Earth Platform/ DFID Economics of Climate Change in East Africa / UNEP AdaptCost / EC ClimateCost
Costs of impacts in Africa

Assessments of economic
costs of climate change
highly uncertain

Aggregated models give
‘indications’ of effects

High potential costs for
most of Africa, higher than
for other world regions
Annual Impact from climate change as
equivalent % of GDP in Africa in 2030 .
Source: AdaptCost / East Africa study based on FUND national model.
Economic Costs for Africa
Findings are

Climate change will lead to potentially large economic costs in
Africa

Models indicate could be equivalent to annual loss in GDP of 1.5 3% by 2030

These costs are much higher in Africa than other world regions,
because of vulnerability and low adaptive capacity

Annual economic cost in Africa likely to rise in future years

Economic impacts will be unevenly distributed across countries,
between sectors and between individuals, communities and regions
Adaptation

Adaptation can reduce the economic costs of climate change,
but cannot not remove them completely.

Number of studies have estimated the costs of adaptation and
investment needed for Africa.

African Development Bank (2006) estimated $2 to 7 billion / year
needed in the short-term in Africa

More recent studies indicate higher estimates.
Adaptation to do what?
• Current climate impacts
• Additional climate change impacts
• Immediate priorities, institutional capacity
• Climate resilience in sectoral investment
• Additional investment to accelerate development to ensure
adequate climate resilience
• Natural resource management, poverty alleviation,
disaster risk reduction, major infrastructure
9
Adaptation financing needs for Africa
$ Billion per year (2012-2030)
2 to 3 times higher
e.g. $20 Bill.
$20 Bill.
Adaptation Costs for Africa
$16.3 - 19.6 Bill.
(2020-2029)
$12-17 Bill.
Not estimated
$15 Bill.
Upper
bound
based on
IIED review
of UNFCCC
$3-12 Bill.
$14 - $15.6 Bill.
(2010-2019)
$10 Bill.
Protecting
livelihoods and
health
$7 to
10 Bill.
Climate proofing
any new funding
to address the
deficit (IIED)
$5 Bill.
$3 Bill.
Based on
World Bank
Based on
UNFCCC
$1-2 Bill.
Based on SEI
2012
Based on
Grantham
Based on IIED
2030
1. Immediate priorities
Including capacity
2012
+
2030
2012
2. Adaptation to future climate
Enhancing climate
resilience for future
investment
(climate proofing)
2030
+
2012
2030
3. Adaptation deficit
Adaptation cost
and residual damage
Draft estimates from the AdaptCost project
Filling the deficit
IIED $62-246 Bill.
2012
+
?
2030
4. Social protection
Estimates of adaptation in Africa

Directly related to additional climate change:


Immediate (current) adaptation needs are several billion/year.
Costs rise for adaptation to future climate change including additional
protection of sectoral investment to $10 to $30 billion by 2030.

Additional investment is related to development:




Current capacity for adaptation, especially in disaster risk reduction, poverty
alleviation and natural resource management
Social protection and compensation for residual impacts
These additional investments to enhance future resilience are difficult to
cost but could be a further $10 to 30 billion (possibly more) per year by
2030
AdaptCost range of estimates is therefore


Lower benchmark of $25 billion per year for immediate needs (by 2012)
Upper benchmark of $60 billion per year by 2030 including accelerated
development finance
11
Low Carbon Growth

There are existing international financing mechanisms for low
carbon projects, but CDM has been difficult to access for Africa

Discussion about reforming mechanisms in negotiations

New mechanisms likely to emerge include programmatic CDM,
and possibly National Appropriate Mitigation Actions (NAMAs)

Potential for forestry and REDD

Need to ensure they will benefit Africa

Link low carbon growth and development
Low Carbon Growth

Economic and rapid population growth will lead to large increase
in energy, transportation and food requirements and GHGs.
 In Rwanda and Kenya electricity is not the major source of future
national emissions – transport & agriculture are most important.

Low carbon development pathway could provide significant
economic opportunities, strongly in Africa’s self-interest.

Failure to do so will ‘lock-in’ future economic growth to high
emissions. Reduce opportunities for future low carbon finance.

Low carbon growth has co-benefits
 reducing energy imports, enhancing energy security, improving air
quality and health, reducing pressure on natural resources.
East
Africa
Examples
Renewables: hydro, solar,
geothermal in Rwanda
e.g. Solar Power Plant (Jali Hill) is
Africa largest solar power plant
(250kW) reduce reducing dependency
on diesel-generated electricity.
Large potential for micro-hydro
Biomass / Biogas in Rwanda
Biomass energy strategy, includes
efficient cooking stoves with additional
benefits of and reducing air pollution.
Large-scale biogas plants already in
prisons plus wider opportunities
Geothermal in the Rift Valley (Olkaria)
Extension of geothermal, with additional 276
GWh/yr, which will displace electricity produced by
fossil-fuel-powered plants equivalent to 150,000
tCO2e per year, and develop local community
benefits. CDCF will purchase emission reductions
Wind Development in Northern Kenya
Largest wind development in Africa, 300 MW,
near Lake Turkana, potentially meeting 30% of
Kenya's current electricity needs, at low
marginal cost. Part financed by carbon credits.
Micro hydro. Community microhydro project in Kenyan village of
Mbuiru, north of Nairobi
Methane recovery and fuel
switching, Rwanda
Lake Kivu. 100 MW due on stream,
reducing fugitive emissions from the
lake and displacing existing high cost
diesel generation and CO2 emissions
($0.07/kWh compared to diesel
generation at $0.26/kWh)
Crop-residue fired brick Making Tanzania
Low carbon and poverty reduction project. Also
provides adaptation through increased climate
resilience to extreme weather compared to
traditional mud brick houses
Biofuels
Jatropha plantation provides fuel to replace
diesel in off-grid generator replacement
and also provides fuel for local lamps
Efficient cooking stoves, Uganda
Investment in high efficiency cooking stoves, funded by
voluntary credits (offsets). 300,000 tonnes of CO2 offset
and reduction in kitchen smoke and improved health
Concluding issues

Economic costs of climate change likely to be high in Africa.

Large need for adaptation finance. Entitlement to substantial
funds must be assured but effective mechanisms and
institutions must be developed.

Variety of low carbon funding mechanisms under discussion,
but need to enhance benefits and application for Africa.

Common negotiations positions are important – for low carbon
and adaptation.

Need to agree on early next steps, including effort over next 3 5 years.
Thank you