Costs of Adaptation to Climate Change: Some Preliminary Estimates

1. Costs of Adaptation to Climate Change: Some Preliminary Estimates Access to Adaptation Finance: Building Capacity for SEAN-CC Focal Points on Access to Funds for Climate Change Adaptation Initiatives Bangkok, Thailand, 24-26 June 2013 Session 3 – Initiating Adaptation Practices Charles Rodgers Asian Development Bank Manila, Philippines

2. Overview The wide-ranging adverse impacts of climate change create substantial risks to activities and investments aimed at reducing poverty and supporting sustainable and inclusive economic growth in Asia and the Pacific. It will also add significantly to the costs of achieving these goals, although by how much we do not yet know. This presentation will examine a number of ways in which climate change imposes additional costs on development investments. Preliminary estimates are presented for some of these costs, based on the recent project-level experience of the Asian Development Bank.

3. Contents • Defining Adaptation Finance • Aggregate Estimates of Adaptation Costs • Disaggregated Costs of Adaptation, with Case Studies • Joint MDB Approach to Adaptation Cost Estimation • Summary Observations

4. 1. What Is Climate Finance? • According to the UNFCCC: • Article 4.3: Provision of new and additional financial resources to meet the agreed full incremental costs of implementing commitments under the Convention taking into account the need for adequacy and predictability in the flow of funds • Article 4.4: Assist the developing country Parties that are particularly vulnerable to the adverse effects of climate change in meeting costs of adaptation to those adverse effects. • Article 11: Defines the financial mechanism under the Convention; operation entrusted to existing international entity/entities bilateral, regional and other multilateral channels.

5. Development or Adaptation? Addressing Drivers of Vulnerability Building Response Capacity Managing Climate Risks Confronting Climate Change • Enabling human development: actions that reduce povertyand vulnerability; increase capability and coping capacity: • Livelihood diversification • Literacy and education • Women’s rights • Community health • Food security • Water supply, sanitation • Robust systems for problem solving: actions that build institutional, technical and planning capacity: • Natural resources management • Weather data collection, forecasting • Disaster early warning systems • Communications systems • Climate risk management: actions that incorporate climate information into decision-making to reduce risks: • Climate proofing projects • Disaster response planning • Drought-resistant crops; cropping systems • Robust, adaptive technologies • Addressing climate change impacts: actions that target specific, anticipated impacts outside of historical experience: • Relocation due to sea level rise (SLR) • Coastal defenses from SLR • Managing Glacial Lake Outburst Floods (GLOF) • Extra storage to capture glacial melt Vulnerability Focus Impacts Focus Traditional Development Funding New, Additional Adaptation Funding From McGray et al. (2007) Weathering the Storm

6. 2. Aggregate Estimates of Costs of Adaptation • Many studies have used integrated assessment models to estimate the impacts of climate change under “Business as Usual” (BAU) assumptions, and the cost to mitigate these impacts. • For example, the Stern Report (2006) estimated that BAU climate change will reduce welfare by an amount equivalent to a reduction in consumption per head of between 5% and 20%. • The Report estimates that the annual costs of stabilizing at around 550ppm CO2e are likely to be around 1% of global GDP by 2050, with a range from –1% (net gains) to +3.5% of GDP. • These estimates are highly aggregated, and do not provide estimates of the costs of adaptation.

7. Annual Costs of Adaptation: UNFCCC 2007 Source: UNFCCC, 2007 (higher range of estimates)

8. Annual Costs of Adaptation: WB 2010 Costs per year to 2050, Billions $ US (2005); no discounting • For lower income (ADF) countries in Asia and Pacific, water sector share of total costs ranged from 26% (wet) to 45% (dry) • These estimates do not include the “adaptation deficit” World Bank (2010) The Costs to Developing Countries of Adapting to Climate Change: New Methods and Estimates (available on WB website)

9. 3. Climate Change Adaptation Costs Disaggregated • Costs of risk screening, impact & vulnerability assessment and adaptation planning • Costs of “climate-proofing” investments (modifying materials, designs, processes; altering locations, …) • Costs of managing residual risks (reserves, contingency credit, insurance, …) • Costs of addressing the “adaptation deficit” – adapting to today’s climate variability (an aspect of development) • Costs of building societal resilience (education, health & nutrition, social capital, income diversification and savings, …) • Costs of regional public goods: climate projections, disaster risk mapping, disaster early warning systems, …

10. Costs of risk screening, impact & vulnerability assessment and adaptation planning • In ADB’s experience, comprehensive climate impact and vulnerability assessment can cost $50,000 - $500,000, with typical values around $100,000 • Desk studies (using published literature on regional, sectoral climate risks) will be less expensive, but may be insufficient for large, complex or high-risk projects • Developing custom climate change projections or scenarios will increase cost significantly ($50k - $100k) • Utilizing sectoral impact models (e.g., hydrologic, agronomic simulation models) will also increase costs • Engaging specialized consultants (e.g., climate modeling specialists) will increase costs, but improve credibility

11. Costs of “Climate-Proofing” Investments Climate proofing – a shorthand term for identifyingrisks to a development project, or any other specified natural or human asset, as a consequence of climate variability and change, and ensuring that those risks are reduced to acceptable levels through long-lasting and environmentally sound, economically viable, and socially acceptable changes implemented at one or more of the following stages in the project cycle: planning, design, construction, operation, and decommissioning. (ADB, 2006)

12. Case Study: Avatiu Port Development Project • The investment project: • Rehabilitation and expansion of Avatiu Port, primary port facility for the Cook Islands. To climate-proof the project against sea level rise (SLR): • Replace wharf structure with design more resistant to wave action • Reinforce wharf to allow raising when required by SLR Photo credit Rick Pollom The baseline project finance is $23.8 million, with an additional grant of $800,000 for climate proofing, representing around 3% of total project costs

13. Case Study: Cambodia Rural Roads Improvement Project The investment project($67 million): Improve rural connectivity to national and provincial road networks Approach to climate-proofing: • engineering design adjustments (increasing drainage, adjusting materials, raising road elevation in flood-prone areas) • capacity building • climate change vulnerability maps to influence transport sector planning • ecosystem-based adaptation strategies Climate–proofing costs were $5.4 million (Nordic Development Fund), or around 8% of total project costs

14. Case Study: Central Mekong Delta Region Connectivity Project • The proposed project: • Improve connectivity in the Mekong Delta region by extending highway from HCMC to Mekong Delta: • Two cable stayed bridges to replace current ferry services (combined length of 5.4km); • 25-km associated highway link between the two bridges • Detailed climate change impact and vulnerability study conducted by ICEM ($170,000), including: • Downscaled climate projections • Hydrologic, hydraulic modeling

15. P1% baseline conditions

16. P1% CC conditions

17. Recommendations of Study: • Two primary concerns were identified: • Bridge clearances would be impacted by combination of sea level rise, upstream flooding; complicating navigation by largest traffic • Connector roads might over-top during largest (1%) floods, leading to erosion of road embankments and scour of road foundations • In consideration of the costs of addressing risks: • Navigation clearance, though impinged by larger (P5%) events, was determined to be sufficient to allow passage of most vessels – no modification to bridge design required • The design height for embankments should be raised by 0.6m to reflect climate change impacts on flooding, adding $4.5 m to project costs (less than 1% of baseline finance)

18. Case Study: Pilot Program for Climate Resilience (PPCR) • PPCR: Adaptation window of the Strategic Climate Fund (SCF) of the Climate Investment Funds (CIF). PPCR are country-led, build on National Adaptation Programs of Action (NAPA) or equivalent; and strategically aligned with other donor funded activities • Approach: integrating climate resilience considerations into national development planning and implementation consistent with poverty reduction and sustainable development goals • Objective: to provide incentives for scaled-up action; initiate transformational change • Investments: (i) technical assistance to integrate climate resilience into national and sectoral development plans; (ii) public and private sector investments addressing climate resilience

19. Case Study: PPCR

20. Costs of Managing Residual Risks

21. Costs of addressing the “adaptation deficit” Source: ADB and ADB Institute (2009): Infrastructure for a Seamless Asia.

22. Costs of Building Societal Resilience • Costs of building societal resilience encompass e.g.: • investments in poverty reduction • income and livelihood diversification • health programmes • reducing land degradation • reforestation programmes • new varieties of crops or farming techniques • effective early warning systems • These costs are difficult to estimate, since most resilience-building activities are not easily distinguished from development • But, estimates suggest that adapting to climate change might increase the cost of achieving the Millennium Development Goals in Africa by up to 40%* * Fankhauser and Schmidt-Traub (2011): From Adaptation to Climate-Resilient Development: The Costs of Climate-Proofing the Millennium Development Goals in Africa

23. 4. Joint MDB Approach for Adaptation Finance • The joint MDB approach for adaptation finance reporting is based on the following principles: It is purpose, context and activity based: A project activity must fulfil three design process criteria for finance to be reported. It must: • Include a statement of purpose or intent to address or improve climate resilience; • Set out a context of climate vulnerability (climate data, exposure and sensitivity); • Link project activities directly to the context of climate vulnerability. Joint MDB Report on Approach to Adaptation Finance (July 2012) – draft for comment

24. Joint MDB Approach to Adaptation Finance Addressing Current Drivers of Vulnerability Building Resilience to Current, Future Climate Risks Incorporating Climate Risks into Investments Incorporating Climate Risks into Development Plans, Policies • When designed to support poor countries or communities exposed to climate risk: • investments in poverty reduction • income and livelihood diversification • health programmes • Reducing land degradation • reforestation programmes • new varieties of crops or farming techniques • investment in adaptation products and services • effective early warning systems • Especially for infrastructure with a long lifespan: • energy generation and supply • Airports • Ports • water storage infrastructure • major roads, bridges, railways and other transport corridors • local and national planning • health system policies • water allocation programs/policies • education programs/policies • support for research including climate information, agriculture, health Traditional Development Funding New and Additional Adaptation Funding

25. MDB Adaptation FinanceAccordingtotheJointApproach, 2011(USDmillions)

26. Some Concluding Observations • Thee are many areas in which climate change is likely to increase the costs of inclusive, sustainable development • The “best” recent estimates suggest aggregate cost to Asia and the Pacific of around $50 bn/year; excluding additional disaster losses associated with changing climate (can’t be quantified) • At project level, climate proofing costs may be substantial, with indicative costs of 5% to 15% of baseline finance • High quality impact and vulnerability assessment, including economic evaluation of adaptation options, will help to manage risks while controlling costs • The true costs of adaptation to climate change are elusive, as such concepts as“new and additional financial resources”and “agreed full incremental costs” are difficult to apply • In particular, blurring of distinction between “adaptation” and ”development” with implications for access to finance

27. Looking forward to the discussion! crodgers@adb.org More information and literature available at: http://www.adb.org

28. Adaptation Assessment: 3 Approaches A menu of climate-proofing decisions: Type 1: Invest Now Type 2: Be ready and invest later if needed Type 3: Do nothing and invest later if needed Important determinants: High Probability that investment will be needed Low Inflexible Nature of flexibility Very Flexible • It is not always necessary to act now; although it is important to assess now!