Adaptation Cost Estimation - Asia Pacific Adaptation Network

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Costs of Adaptation to Climate Change:
Some Preliminary Estimates
Access to Adaptation Finance: Building Capacity for SEAN-CC Focal Points on
Access to Funds for Climate Change Adaptation Initiatives
Bangkok, Thailand, 24-26 June 2013
Session 3 – Initiating Adaptation Practices
Charles Rodgers
Asian Development Bank
Manila, Philippines
Overview
The wide-ranging adverse impacts of climate change
create substantial risks to activities and investments
aimed at reducing poverty and supporting sustainable
and inclusive economic growth in Asia and the Pacific.
It will also add significantly to the costs of achieving
these goals, although by how much we do not yet
know. This presentation will examine a number of
ways in which climate change imposes additional
costs on development investments. Preliminary
estimates are presented for some of these costs,
based on the recent project-level experience of the
Asian Development Bank.
Contents
1. Defining Adaptation Finance
2. Aggregate Estimates of Adaptation Costs
3. Disaggregated Costs of Adaptation, with
Case Studies
4. Joint MDB Approach to Adaptation Cost
Estimation
5. Summary Observations
1. What Is Climate Finance?
According to the UNFCCC:
• Article 4.3: Provision of new and additional financial
resources to meet the agreed full incremental costs of
implementing commitments under the Convention taking
into account the need for adequacy and predictability in the
flow of funds
• Article 4.4: Assist the developing country Parties that are
particularly vulnerable to the adverse effects of climate
change in meeting costs of adaptation to those adverse
effects.
• Article 11: Defines the financial mechanism under the
Convention; operation entrusted to existing international
entity/entities bilateral, regional and other multilateral
channels.
Development or Adaptation?
Addressing Drivers of
Vulnerability
Enabling human
development: actions
that reduce poverty
and vulnerability;
increase capability and
coping capacity:
• Livelihood
diversification
• Literacy and
education
• Women’s rights
• Community health
• Food security
• Water supply,
sanitation
Building Response
Capacity
Managing Climate
Risks
Robust systems for
problem solving:
actions that build
institutional, technical
and planning capacity:
Climate risk
management: actions
that incorporate
climate information
into decision-making
to reduce risks:
• Climate proofing
projects
• Disaster response
planning
• Drought-resistant
crops; cropping
systems
• Robust, adaptive
technologies
•
•
•
•
Natural resources
management
Weather data
collection,
forecasting
Disaster early
warning systems
Communications
systems
Vulnerability Focus
Confronting
Climate Change
Addressing climate
change impacts:
actions that target
specific, anticipated
impacts outside of
historical experience:
• Relocation due to
sea level rise (SLR)
• Coastal defenses
from SLR
• Managing Glacial
Lake Outburst
Floods (GLOF)
• Extra storage to
capture glacial melt
Impacts Focus
Traditional Development Funding
New, Additional Adaptation Funding
From McGray et al. (2007) Weathering the Storm
2. Aggregate Estimates of Costs of Adaptation
• Many studies have used integrated assessment
models to estimate the impacts of climate change
under “Business as Usual” (BAU) assumptions, and
the cost to mitigate these impacts.
• For example, the Stern Report (2006) estimated
that BAU climate change will reduce welfare by an
amount equivalent to a reduction in consumption
per head of between 5% and 20%.
• The Report estimates that the annual costs of
stabilizing at around 550ppm CO2e are likely to be
around 1% of global GDP by 2050, with a range
from –1% (net gains) to +3.5% of GDP.
• These estimates are highly aggregated, and do not
provide estimates of the costs of adaptation.
Annual Costs of Adaptation: UNFCCC 2007
Developing
Countries
Agriculture
Water
Human Health
Coastal zones
Infrastructure
Global
0
20
40
60
80
100
billion $ in 2030
Source: UNFCCC, 2007 (higher range of estimates)
120
140
160
180
Annual Costs of Adaptation: WB 2010
Costs per year to 2050, Billions $ US (2005); no discounting
Affected Region
Wet Scenario
Dry Scenario
$B
$B
%
%
Developing World
89.6
76.7
Asia and Pacific
39.8
36.5
Infrastructure
29.5
32.9%
13.5
17.6%
Coastal Zones
30.1
33.6%
29.6
38.6%
Water Supply, Flood Protection
13.7
15.3%
19.2
25.0%
7.6
8.5%
7.6
9.9%
2
2.2%
1.6
2.1%
6.7
7.5%
6.5
8.5%
Ag, Forest, Fisheries
Health
Extreme Events
• For lower income (ADF) countries in Asia and Pacific, water sector
share of total costs ranged from 26% (wet) to 45% (dry)
• These estimates do not include the “adaptation deficit”
World Bank (2010) The Costs to Developing Countries of Adapting to Climate Change: New
Methods and Estimates (available on WB website)
3. Climate Change Adaptation Costs
Disaggregated
• Costs of risk screening, impact & vulnerability assessment
and adaptation planning
• Costs of “climate-proofing” investments (modifying
materials, designs, processes; altering locations, …)
• Costs of managing residual risks (reserves, contingency
credit, insurance, …)
• Costs of addressing the “adaptation deficit” – adapting to
today’s climate variability (an aspect of development)
• Costs of building societal resilience (education, health &
nutrition, social capital, income diversification and
savings, …)
• Costs of regional public goods: climate projections,
disaster risk mapping, disaster early warning systems, …
Costs of risk screening, impact & vulnerability
assessment and adaptation planning
• In ADB’s experience, comprehensive climate impact and
vulnerability assessment can cost $50,000 - $500,000,
with typical values around $100,000
• Desk studies (using published literature on regional,
sectoral climate risks) will be less expensive, but may be
insufficient for large, complex or high-risk projects
• Developing custom climate change projections or
scenarios will increase cost significantly ($50k - $100k)
• Utilizing sectoral impact models (e.g., hydrologic,
agronomic simulation models) will also increase costs
• Engaging specialized consultants (e.g., climate modeling
specialists) will increase costs, but improve credibility
Costs of “Climate-Proofing” Investments
Climate proofing – a shorthand term for identifying
risks to a development project, or any other specified
natural or human asset, as a consequence of climate
variability and change, and ensuring that those risks
are reduced to acceptable levels through long-lasting
and environmentally sound, economically viable, and
socially acceptable changes implemented at one or
more of the following stages in the project cycle:
planning, design, construction, operation, and
decommissioning. (ADB, 2006)
Case Study: Avatiu Port Development Project
The investment project:
Rehabilitation and expansion of
Avatiu Port, primary port facility
for the Cook Islands. To climateproof the project against sea
level rise (SLR):
• Replace wharf structure with
design more resistant to wave
action
• Reinforce wharf to allow
raising when required by SLR
The baseline project finance is $23.8 million, with an
additional grant of $800,000 for climate proofing,
representing around 3% of total project costs
Photo credit Rick Pollom
Case Study: Cambodia Rural Roads
Improvement Project
The investment project ($67 million):
Improve rural connectivity to national
and provincial road networks
Approach to climate-proofing:
• engineering design adjustments
(increasing drainage, adjusting
materials, raising road elevation in
flood-prone areas)
• capacity building
• climate change vulnerability maps to
influence transport sector planning
• ecosystem-based adaptation
strategies
Climate–proofing costs were $5.4 million (Nordic
Development Fund), or around 8% of total project costs
Case Study: Central Mekong Delta Region
Connectivity Project
The proposed project:
Improve connectivity in the Mekong
Delta region by extending highway
from HCMC to Mekong Delta:
1. Two cable stayed bridges to
replace current ferry services
(combined length of 5.4km);
2. 25-km associated highway link
between the two bridges
Detailed climate change impact and
vulnerability study conducted by
ICEM ($170,000), including:
• Downscaled climate projections
• Hydrologic, hydraulic modeling
P1% baseline conditions
P1% CC conditions
Recommendations of Study:
Two primary concerns were identified:
1. Bridge clearances would be impacted by combination of
sea level rise, upstream flooding; complicating navigation
by largest traffic
2. Connector roads might over-top during largest (1%) floods,
leading to erosion of road embankments and scour of road
foundations
In consideration of the costs of addressing risks:
• Navigation clearance, though impinged by larger (P5%)
events, was determined to be sufficient to allow passage of
most vessels – no modification to bridge design required
• The design height for embankments should be raised by
0.6m to reflect climate change impacts on flooding, adding
$4.5 m to project costs (less than 1% of baseline finance)
Case Study: Pilot Program for Climate
Resilience (PPCR)
• PPCR: Adaptation window of the Strategic Climate Fund
(SCF) of the Climate Investment Funds (CIF). PPCR are
country-led, build on National Adaptation Programs of
Action (NAPA) or equivalent; and strategically aligned with
other donor funded activities
• Approach: integrating climate resilience considerations into
national development planning and implementation
consistent with poverty reduction and sustainable
development goals
• Objective: to provide incentives for scaled-up action; initiate
transformational change
• Investments: (i) technical assistance to integrate climate
resilience into national and sectoral development plans; (ii)
public and private sector investments addressing climate
resilience
Case Study: PPCR
Project
PPCR Baseline Total
(mil. $) Finance Finance
PPCR
%
Cambodia: Climate Proofing Roads
17.0
62.1
79.1
21.5
Bangladesh: Coastal Climate Resilient
Infrastructure
30.6
120.0
150.6
20.3
Cambodia: Climate Proofing Infrastructure
10.0
38.5
48.5
20.6
Cambodia: Enhancement of Flood and
Drought Management
10.0
38.0
48.0
20.8
Cambodia: Climate Proofing of Agriculture
10.0
80.5
90.5
11.0
Cambodia: Promoting Climate Resilient
Agriculture, Forestry and Water Supply
8.0
220.4
28.4
28.2
Cambodia: Flood-Resilient Infrastructure
10.0
37.0
47.0
21.3
Bangladesh: Coastal Town Infrastructure
Improvement
40.4
76.0
116.4
34.7
Cambodia: Climate Risk Management of
Small and Medium Scale Irrigation
14.0
63.0
77.0
18.2
150.0
535.5
685.5
21.9
Sum all projects
Costs of Managing Residual Risks
High frequency
Low frequency
High severity
International Donor
Assistance
Catastrophe bonds &
other Insurance
Linked Securities
Insurance /
Reinsurance
Risk
transfer
Contingent credit
Reserves / Calamity
Funds (potentially
insurance backed)
Low severity
Once in
3-5 years
Once in
10-15 years
Once in
15-20
years
Once in
Once in
25-50 years 75-100 years
Expected return period
Risk
retention
Costs of addressing the “adaptation deficit”
Source: ADB and ADB Institute (2009): Infrastructure for a Seamless Asia.
Costs of Building Societal Resilience
Costs of building societal resilience encompass e.g.:
• investments in poverty reduction
• income and livelihood diversification
• health programmes
• reducing land degradation
• reforestation programmes
• new varieties of crops or farming techniques
• effective early warning systems
These costs are difficult to estimate, since most resilience-building
activities are not easily distinguished from development
But, estimates suggest that adapting to climate change might
increase the cost of achieving the Millennium Development
Goals in Africa by up to 40%*
* Fankhauser and Schmidt-Traub (2011): From Adaptation to Climate-Resilient
Development: The Costs of Climate-Proofing the Millennium Development Goals in Africa
4. Joint MDB Approach for Adaptation Finance
The joint MDB approach for adaptation finance reporting is
based on the following principles: It is purpose, context and
activity based: A project activity must fulfil three design
process criteria for finance to be reported. It must:
• Include a statement of purpose or intent to address or
improve climate resilience;
• Set out a context of climate vulnerability (climate data,
exposure and sensitivity);
• Link project activities directly to the context of climate
vulnerability.
Joint MDB Report on Approach to Adaptation Finance (July 2012) – draft for comment
Joint MDB Approach to Adaptation Finance
Addressing Current
Drivers of
Vulnerability
When designed to
support poor countries
or communities
exposed to climate
risk:
•
•
•
investments in
poverty reduction
income and
livelihood
diversification
health programmes
•
•
•
•
•
Building Resilience
to Current, Future
Climate Risks
Incorporating
Climate Risks into
Investments
Reducing land
degradation
reforestation
programmes
new varieties of
crops or farming
techniques
investment in
adaptation
products and
services
effective early
warning systems
Especially for
infrastructure with a
long lifespan:
• energy generation
and supply
• Airports
• Ports
• water storage
infrastructure
• major roads,
bridges, railways
and other
transport corridors
Traditional Development Funding
Incorporating Climate
Risks into
Development Plans,
Policies
•
•
•
•
•
local and national
planning
health system
policies
water allocation
programs/policies
education
programs/policies
support for
research including
climate
information,
agriculture, health
New and Additional Adaptation Funding
MDB Adaptation Finance According to the
Joint Approach, 2011 (USD millions)
Some Concluding Observations
• Thee are many areas in which climate change is likely to
increase the costs of inclusive, sustainable development
• The “best” recent estimates suggest aggregate cost to Asia and
the Pacific of around $50 bn/year; excluding additional disaster
losses associated with changing climate (can’t be quantified)
• At project level, climate proofing costs may be substantial,
with indicative costs of 5% to 15% of baseline finance
• High quality impact and vulnerability assessment, including
economic evaluation of adaptation options, will help to
manage risks while controlling costs
• The true costs of adaptation to climate change are elusive, as
such concepts as “new and additional financial resources” and
“agreed full incremental costs” are difficult to apply
• In particular, blurring of distinction between “adaptation”
and ”development” with implications for access to finance
Looking forward to the discussion!
[email protected]
More information and literature available at:
http://www.adb.org
Adaptation Assessment: 3 Approaches
A menu of climate-proofing decisions:
Type 1:
Invest
Now
Type 2:
Be ready and
invest later if
needed
Type 3:
Do nothing and
invest later if
needed
Important determinants:
High
Inflexible
Probability that investment will be needed
Nature of flexibility
• It is not always necessary to act now; although it is
important to assess now!
Low
Very Flexible
28
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