Climate Change and Agricultural and Rural Development in Asia

1. Climate Change and Agricultural and Rural Development in Asia Mark W. Rosegrant Director Environment and Production Technology Division Presented during the Conference on “Agricultural and Rural Development for Reducing Poverty and Hunger in Asia: In Pursuit of Inclusive and Sustainable Growth”, Asian Development Bank, Manila, Philippines, August 9-10, 2007

2. Outline • Climate Change and Variability Impacts on Agriculture and the Poor • Pro-poor Mitigation: Constraints and Opportunities • Investing in Climate Change for the Poor Page 2

3. Climate Change and Variability Impacts

4. Impacts and Vulnerability to Climate Change & Variability • Rich countries emit majority of GHG • Poor countries are more vulnerable • Geography (hotter, less rain, more variation) • Greater dependence on agriculture and natural resources • Limited infrastructure and low-input agriculture • Low income, poverty and malnutrition • Thus, lower adaptive capacity (also including inadequate complementary services, like health and education) Page 4

5. Vulnerability of Key Sectors to the Impacts of Climate Change by Sub-regions in Asia NA – not applicable; NI – no information Vulnerability: -2 – Highly -1 – Moderately 0 – Slightly or Not +1 – Moderately Resilient +2 – Most Resilient Level of Confidence: VH – Very High H - High M – Medium L – Low VL – Very Low Source: IPCC, unpublished

6. Geographical Distribution of Vulnerability, 2100with and without mitigation along an A2 emissions scenario with a climate sensitivity of 5.5°C Source: Yohe et al. (2006)

7. Pro-Poor Mitigation: Constraints and Opportunities

8. Pro-Poor Climate Mitigation Policy • Climate change policy can generate income for small farmers and investment flows for rural communities • Requires effective integration from global governance of carbon trading, to sectoral and micro-level design of markets and contracts, and investment in community management Page 8

9. Estimated Potential Emission Savings and Costs by Sector Source: Adapted from various estimates, Stern Review, pp. 244-63. Page 9

10. CDM Conditions for Offset Projects – High Transaction Costs • Additionality • Must demonstrate that carbon sequestration or emission reductions would not have occurred if it were not for the incentives provided by CDM • Measurable • Carbon sequestration or emission reductions of projects must be quantifiable ex-ante and monitorable ex-post • Permanence • Sequestered carbon must remain sequestered indefinitely (or for at least as long as to be equivalent to reducing atmospheric GHG by emission reductions) • Leakage prevention • Prevent (or account for) direct or indirect GHG emissions from CC mitigation project Page 10

11. CDM Conditions for Offset Projects – High Transaction Costs 5. Social benefits • Evidence of contribution to a country’s sustainable development • If cost-effective and practicable social benefits should be quantified, verified and certified together with the carbon sequestration or emission reductions 6. Environmental benefits • Carbon project with inherent local environmental benefits stands a higher chance of being sustained in the long run 7. Cost effectiveness • Land Use, Land Use Change and Forestry activities and monitoring must be cost effective and practical if they are to be applied Page 11

12. Constraints to Pro-Poor Mitigation • High transaction costs of Clean Development Mechanism (CDM) Conditions for Offset Projects in Developing Countries • Information about carbon benefits to potential buyers, obtaining information about project partners, organizing project participants, capacity building and ensuring parties fulfill their obligations • Transaction costs per unit of emission reduction are higher for projects involving many smallholders and forest communities • Projects with smaller land areas may lack economies of scale Page 12

13. Constraints to Pro-Poor Mitigation • Carbon sequestration from soil carbon and avoided deforestation––important areas for climate mitigation and for poor developing countries––are excluded from CDM • CDM-eligible assets from afforestation and reforestation are excluded from European Union-Emissions Trading Scheme Page 13

14. Expanding Pro-Poor Mitigation • Establish international capacity building and advisory services • Capacity-building and advisory services for potential investors, project designers and managers, national policymakers and leaders of local organizations and federations • Establish regional centers to assist countries and communities involved in forest carbon trading, soil carbon sequestration, others Page 14

15. Measures to Reduce Transaction Costs 2. Institutional innovations • Companies or agencies offer specialized business services for low-income producers (for example, in negotiating deals or design of monitoring systems) • Locally accountable intermediary organizations can manage projects and mediate between investors and local people (e.g., local environmental group in the Scolel-Té project, Mexico) • Transaction costs reduced by developing carbon projects in communities with active local organizations in place • E.g. a proposed carbon project in Harda, India, relies on existing hamlet and federation institutions established for community forestry Page 15

16. Measures to Reduce Transaction Costs • Simplified standards (baseline and monitoring) for small-scale projects (annual emission offsets are < 15,000 t CO2) • Agroforestry and community forestry projects should be specified as eligible for simplified modalities • Simplified emission reduction credits calculated using standardized reference emission rates for agroforestry and forestry activities in specific locations, determined and verified by independent bodies • Similar for soil carbon sequestration Page 16

17. Measures to Reduce Transaction Costs • Adequately dealing with permanence issue of carbon sequestration • Ton-year approach: Payment for mass-time units of carbon avoids the need for "locking up" land in forest land uses for prolonged periods because credits are calculated according to carbon storage duration • Reduced risk of project failure as a result of management problem or natural disaster • Enables greater participation by local communities on CDM projects • Larger areas under project • Increasing overall GHG benefits and proportion of benefits accruing to local communities Page 17

18. Example: Chicago Climate Exchange Agricultural Soil Carbon Offsets • Simple, standardized rules for issuing credits for agricultural carbon emission reduction and soil sequestration • Offset projects involving less than 10,000 mt CO2 equivalent per year register and sell through Offset Aggregator • Eligible projects include continuous conservation tillage and grass planting • 5-year contractual commitment to continuous no-till or strip till (conservation tillage) on enrolled acres • Tillage practice must leave at least two-thirds of the soil surface undisturbed and at least two-thirds of the residue remaining on the field surface • CCX contracts issued for conservation tillage at a rate between 0.2 and 0.6 metric tons CO2 per acre per year based on carbon sequestration ability of the soils Page 18

19. ADB’s Carbon Mitigation Approach • Clean Development Mechanism Facility (CDMF), Carbon Market Initiative, Asian Pacific Carbon Fund • Assists developing member countries (DMCs) to source funds for emission reductions; • Helps DMCs to process CDM requirements for identified projects; and • Provides information and advice on emerging carbon markets • Offers project co-financing facility, carbon credit marketing programs, and technical support for project preparation and implementation of CDM-eligible projects Page 19

20. ADB’s Carbon Mitigation Approach • Seeks to correct the general lack of financial and technical capacity in governments, regulatory authorities, and private sector • Provides capacity building, due diligence, documentation, and implementation support • Expansion and greater emphasis on agricultural and forest carbon could have large payoffs Page 20

21. Investing in Climate Change for the Poor • Climate change policy can create new value-added for pro-poor investment • Increases profitability of environmentally sustainable practices • Need to streamline measurement and enforcement of offsets, financial flows, and carbon credits for investors • Enhance global financial facilities and governance to simplify rules and increase and manage funding flows for mitigation in developing countries Page 21