Economic Impacts of Climate Change

Emily MassawaTom DowningPaul Watkiss

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

Economics of Climate Change

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.

Climate variability already has significant economic costs throughout Africa.

In East Africa, periodic floods and droughts cause major macro-economic 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.

Existing climate variability and economics

The Economic Costs of Climate Change in Africa will be significant

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)

Energy demand.Rising temperatures and demand for cooling rise of 30% by 2030.

Water resources People with high water stress, 75-250 million by the 2020s and 350-600 million by the 2050s

Increasing extremes Costs of flood and drought years already 5 – 8% of GDP. Extreme events could intensify

Loss of ecosystem servicesEffects on forests, corals, wildlife parks, and on tourism and services

Heath burdenRising incidence of health burdens (malaria, other vector borne), heat extremes

Agriculture yield reductions up to 50% by 2020 and net crop revenues up to 90% by 2100

Source: Watkiss et al SEI WeAdapt Google Earth Platform/ DFID Economics of Climate Change in East Africa / UNEP AdaptCost / EC ClimateCost

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

Costs of impacts in Africa

Annual Impact from climate change as equivalent % of GDP in Africa in 2030 .

Source: AdaptCost / East Africa study based on FUND national model.

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

Economic Costs for Africa

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

9

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)

Draft estimates from the AdaptCost project

2012 2030

1. Immediate prioritiesIncluding capacity

$1-2 Bill.

$3 Bill.

Enhancing climateresilience for future

investment (climate proofing)

2012 2030

$7 to10 Bill.

Upperbound

based onIIED reviewof UNFCCC

2 to 3 times highere.g. $20 Bill.

3. Adaptation deficit

Climate proofing any new funding to address the deficit (IIED)

2012 2030

$3-12 Bill.

Filling the deficitIIED $62-246 Bill.

4. Social protection

2012 2030

$12-17 Bill.

Based on UNFCCC

Based on SEI

Adaptation costand residual damage

2012 2030

$16.3 - 19.6 Bill.(2020-2029)

Based on World Bank

Protecting livelihoods and

health

Based on Grantham

$20 Bill.

$15 Bill.

$10 Bill.

$5 Bill.

Ad

apta

tio

n C

ost

s fo

r A

fric

a

$14 - $15.6 Bill.(2010-2019)

Based on IIED

?

Not estimated

2. Adaptation to future climate+ ++

11

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

Estimates of adaptation in Africa

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.

Low Carbon Growth

East AfricaExamples

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 TanzaniaLow carbon and poverty reduction project. Also provides adaptation through increased climate

resilience to extreme weather compared to traditional mud brick houses

Biomass / Biogas in RwandaBiomass energy strategy, includes

efficient cooking stoves with additional benefits of and reducing air pollution. Large-scale biogas plants already in

prisons plus wider opportunities

Renewables: hydro, solar, geothermal in Rwanda

e.g. Solar Power Plant (Jali Hill) isAfrica largest solar power plant

(250kW) reduce reducing dependency on diesel-generated electricity. Large potential for micro-hydro

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 KenyaLargest 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 micro-hydro project in Kenyan village of Mbuiru, north of Nairobi

BiofuelsJatropha plantation provides fuel to replace diesel in off-grid generator replacement and also provides fuel for local lamps

Efficient cooking stoves, UgandaInvestment in high efficiency cooking stoves, funded by voluntary credits (offsets). 300,000 tonnes of CO2 offset and reduction in kitchen smoke and improved health

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.

Concluding issues

Thank you