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