Are you brave enough - Economic evaluation of climate change adaptation projects

Are you brave enough? Economic analysis of adaptation to climate change on an agricultural project Gretel Gambarelli IUCN (formerly World Bank) Co-author: Mike Toman World Bank IFAD, 16 March 2011

Outline ,[object Object],[object Object],[object Object],[object Object]

Source: Adapted from IPCC 2007. What do we have to prepare for? Unsuccessful mitigation Unavoidable warming Successful mitigation

Adapting to climate change: the example of agriculture Adaptation classification Examples Autonomous / private Sectoral Change crops, crop calendars, irrigation schedules Economy-wide Market adjustments in crop prices reflect new production levels / scarcity Planned / public Hard “ Climate proof” infrastructure: irrigation systems, rural roads, … Soft Seasonal climate forecasts, capacity building, research and extension on drought resistant crops, local institutions, economic incentives for efficient water use

Is investing in climate change adaptation economically justified? ,[object Object],[object Object],[object Object],[object Object],[object Object]

Evaluating adaptation at the project level: the cost-benefit approach ,[object Object],[object Object],[object Object],[object Object],[object Object],[Basic assumption: future GHGs are exogenous]

Economic analysis of adaptation at project level: main challenges ,[object Object],[object Object],[object Object],[object Object],[object Object],U U U ,[object Object],[object Object],[object Object],[object Object],U U ,[object Object],[object Object],[object Object],U U ,[object Object],[object Object],U

Step 1: Evaluating the costs of CC on agriculture (1/3) ,[object Object]

[object Object],Step 1: Evaluating the costs of CC on agriculture (2/3) Farm value = f (farm characteristics, soil type, climate variables, etc.) 2. This information can be used to estimate how climate change affects agriculture productivity after farmers have adapted to it ,[object Object]

[object Object],AGRONOMIC RICARDIAN India (nationwide) : Climate change impacts in drought and flood affected areas Africa, China, Brazil, India, Egypt, etc. (nationwide) Morocco (nationwide) : Adaptation to climate change in the agriculture sector Bangladesh (nationwide) : Implications of Climate Change on food security: adaptation responses China (project level) : Mainstreaming climate change adaptation in irrigated agriculture

Step 1: Evaluating the costs of CC on agriculture ( 3/3 ) Alternative 3: Probabilistic methods May be applied to impacts of extreme events, but a better grasp on probabilities is a pre-condition Without adaptation With adaptation Loss Exceedance Probability

Step 2: Estimating BENEFITS of adaptation ,[object Object],[object Object],[object Object],[object Object],[object Object]

Step 3: Estimating COSTS of adaptation ,[object Object],[object Object],[object Object],[object Object]

Steps 2 & 3: Investing now vs. waiting ,[object Object],[object Object],[object Object],[object Object],[object Object]

Step 4: Discounting (1/3) ,[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Step 4: Discounting (2/3) ,[object Object]

Step 4: Discounting (3/3) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Economic versus multi-criteria approaches to project assessment ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Example: evaluating adaptation alternatives for agriculture in East Europe & Central Asia ,[object Object],[object Object],From a menu of 60 to 5 national-level and 9 agro-ecological zone level adaptation measures (including options not suitable for CBA)

Which uncertainties? ,[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],The traditional CBA approach

[object Object],[object Object],[object Object],[object Object],[object Object],Economic approach: Real Option Analysis

Example: Real Option Analysis for an irrigation modernization project in Mexico Source: Scandizzo and Notaro 2008

[object Object],[object Object],[object Object],[object Object],[object Object],Non-economic approach: “Robust” decision analysis

Example: investment decisions of a water supply agency in California Source: Groves et al. 2008 Hundreds of scenarios explore assumptions about climate change, resource-development, urban growth, program costs,... Scenarios evaluated according to the cost of supplying water to the end users plus the costs of incurring any shortages. Most important uncertain factors in generating high-cost scenarios identified.

Summary: how to improve the economic analysis of adaptation projects? (1/2) ,[object Object],Estimate impacts of CC without and with adaptation ,[object Object],[object Object],[object Object]

Summary: how to improve the economic analysis of adaptation projects? (2/2) ,[object Object],Economic evaluation of alternative adaptation investments ,[object Object],[object Object],[object Object]

Conclusions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

References ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

PUBLICATION "Economic Evaluation of Climate Change Adaptation Projects - Approaches for the Agricultural Sector and Beyond": http://siteresources.worldbank.org/ENVIRONMENT/Resources/DevCC1_Adaptation.pdf GUIDANCE NOTE "Evaluate adaptation via economic analysis“: http://climatechange.worldbank.org/climatechange/content/note-7-evaluate-adaptation-economic-analysis Other guidance notes: www.worldbank.org/adaptnotes Contact: [email_address] Thank you!

Are you brave enough - Economic evaluation of climate change adaptation projects

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Are you brave enough - Economic evaluation of climate change adaptation projects