Economywide Impacts of

Climate Change and Adaptation

in Ethiopia:

Preliminary Results

Sherman Robinson (IDS)

Dirk Willenbockel (IDS)

Channing Arndt (Copenhagen)

James Thurlow (IFPRI)

Kenneth Strzepek (MIT, Colorado)

Ethiopia: Climate Change Impact

and Adaptation Project

• World Bank: UK, Dutch, and Swiss funding

• Core modeling team worked closely with:

– EDRI: Hashim Ahmed

– IFPRI: Emily Schmitz, Paul Dorosh

– Water/climate team: Ken Strzepek, Paul Block

• One of seven case studies:

– Ethiopia, Mozambique, Ghana, Bangladesh,

Vietnam, Bolivia, Samoa.2

Future Climate is UncertainEconomic & Model Uncertainty

Wide Variation at Local Scale between Models

Precipitation

2100

NCAR

Precipitation

2100

MIROC

Observed & Predicated Trends

Consistent Message from GCMs

• Change in Daily

Precipitation

Intensity

• Change in inter-

storm arrival

• Seasonal &

Spatial Variation

Modeling Framework

Infrastructu

re

•Roads

•M&I

Water

•Floods

PRECIP CHANGES 2050

Five Agro-Ecological Zones

9

SAM Region Temperature and Moisture Regime

R1 (Zone 1) Humid lowlands, moisture reliable

R2 (Zone 2) Moisture sufficient highlands, cereals based

R3 (Zone 3) Moisture sufficient highlands, enset based

R4 (Zone 4) Drought-prone (highlands)

R5 (Zone 5) Pastoralist (arid lowland plains)

5 Agro-Ecological Zones (AEZs)

10

Crop Yield

ROADS

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

2020 2030 2040 2050

total average cost from climate change

ncar_ccsm3_0_a1b gfdl_cm2_1_a1b

FLOODS

0

20

40

60

80

100

120

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49

History WET

REGION 3

FLOODS

• Regional based on 36 Basin

• Damage Infrastructure

• Increased frequency of extreme events

CMI

Energy Resources Development Plan

Study focus: potential impacts of climate change on Ethiopian energy and

costs of adaptation

Timeline: 2010-2050

Predominantly hydropower

Project cost and year

Energy Demand

0

10000

20000

30000

40000

50000

60000

70000

80000

2005 2010 2015 2020 2025 2030 2035 2040 2045

Ene

rgy

[GW

_hrs

]

Year

Target

Moderate

Design

Potential Climate Change Impacts

Climate Change Adaptation Costs

Shift projects within the development plan such that energy produced

under the Base scenario is matched or minimally exceeded

Costs in 2010 USD; 5% discount rate

Economywide: Methodology

• Computable General Equilibrium (CGE)

economywide model

• Regionalized

– Based on 5 agro-ecological zones

– Regional agricultural production

– Regional household incomes and consumption

• Disaggregated households

– Rural farm (by region)

– Small urban (rural non-farm) and large urban

centers

Data Base: EDRI 2004/05 Social

Accounting Matrix (SAM)

• Constructed as part of a project with IDS

(w/support of IFPRI-ESSP2)

• 65 production sectors, 5 Regions + urban

– 24 agricultural,

– 10 agricultural processing,

– 20 other industry,

– 11 services

• 14 Households by region and income21

Data Base: EDRI 2004/05 SAM

• Agricultural production

– Crops and livestock disaggregated by five

regions: agro-ecological zones

• Poor household groups defined as poorest

40% of rural and urban households according

to HICES 2004/05 per capita expenditure data

22

CGE Model:

Product and Factor Markets

• Model simulates the operation of a market

economy

– Commodity and factor prices are solved

endogenously to “clear” markets

• Land: fixed by region, mobile across crops

• Labor markets:

– Labor supply is exogenous by skill category

– Real wages solved endogenously23

CGE Model: Income Distribution

• Households disaggregated by region and

income

• Household incomes depend on distribution of

factor income, including region-specific and

agriculture-specific factors.

– Volatility of income depends on volatility of factor

incomes, which is affected by CC shocks

24

CGE Model: Macro Specification

• Trade balance• Fixed foreign savings (foreign capital inflow), so trade

balance (current account) is also fixed.

• Real exchange rate adjusts to achieve export supply and import demand that yield the fixed trade balance.

• “Balanced” macro closure• Aggregate investment, government demand, and

consumption are fixed shares of total absorption.• Any macro adjustment burden is shared equally across macro

aggregates

• Govt deficit is endogenous. Savings rates adjust to achieved savings-investment balance.

• Numeraire: Consumer price index is fixed • The model determines prices relative to this fixed CPI.

Dynamics

• Model is run from 2006 to 2050

– Dynamic recursive specification. Exogenous

variables and parameters updated “between”

periods. CC shocks imposed.

– Model solved twice in each period:

• Solve after updating all exogenous variables to

determine “desired” production decisions,

• Then fix agricultural factor inputs and solve again with

CC shocks on activities and factors

26

Climate Change (CC) Shocks

• Temperature and water: direct impact on

agricultural productivity

– Crops (yields) and livestock by region

• Water shocks:

– Hydroelectric generating capacity

– Floods affect transport (roads) and agriculture by

regions

27

Adaptation Investment

• Agricultural investment (e.g. irrigation,

chemicals, technology) reduces yield shocks

• Dam construction reduces impact on hydro

• Road investment reduces impact of flooding

on transport sector

– Investment to pave and “harden” roads

28

Climate Change Scenarios

29

Scenario GCM CMI Description

MB Trend base Trends with no climate change

Base Historical Climate Historical climate shocks

Wet2 Ncar_ccsm3_0-sres (A1b) 23% Very wet CC shocks

Wet1 Ncar_ccsm3_0-sres (A2) 10% Wet CC shocks

Dry1 Csiro_mk3_0-sres (A2) -5% Dry CC shocks

Dry2 Gfdl_cm2_1-sres (A1b) -15% Very dry CC shocks

CMI: Crop moisture index change

In addition, the CC scenarios have two additional scenarios indicated by a suffix:

“A” for adaptation and “AC” for adaptation with investment costs.

Differences in Present Value of

GDP from Base Scenario

30

Deviations of GDP from Base Run

by Decade

31

Agriculture: Mean and Stnd Dev of

Annual Growth Rates

32

Agriculture: Min and Max Annual

Growth Rates

33

Crop Output: Differences from

Base Scenario by Decade

34

Regional Growth Rates:

Differences from Base, Wet2

35

Regional Growth Rates:

Differences from Base, Dry2

36

Mean Annual Growth Rates of

Household Consumption

37

Standard Deviation of Growth

Rates of Household Consumption

38

Conclusions

• Negative impacts of CC shocks are significant

– Regional and sectoral variation across scenarios

– Especially severe in last decade

• Given growth scenario, planned hydroelectric

capacity meets demand under CC shocks

– CC shocks affect exports, not domestic supply

• Extreme “wet” scenarios, with increased

incidence of floods, are especially damaging

• Poor and rural households are hurt more by

CC shocks: mean and variance39

Conclusions• Adaptation investment

– Very beneficial, especially in extreme scenarios

– Reduces size and variance of CC impacts

– Reduces but does not eliminate negative impact

of CC shocks

– Benefits vary widely across CC scenarios.

• Need for analysis of investment under risk

– Consistent with Ethiopia’s agricultural

development strategy

• Infrastructure: roads, electricity, irrigation

• Technology, farm management, extension 40