Review of Methods for Economic Analysis of Adaptation in the CARIAA Hot Spots

General

Preamble The Collaborative Adaptation Research Initiative in Africa and Asia (CARIAA) was launched in 2012 and is jointly funded by Canada's International Development Research Centre (IDRC) and the United Kingdom's Department for International Development (DFID). It is managed by IDRC from headquarters in Ottawa and two regional offices, one in Nairobi, Kenya, and one in New Delhi, India, in consultation with DFID's headquarters in the UK. CARIAA's goal is to develop robust evidence to inform how to increase the resilience of the poorest and most vulnerable populations in climate change hot spots in Africa and Asia. Selected hot spots are large deltas, densely populated river basins and semi-arid regions. CARIAA will provide grants for three consortia working of each hot spot. As part of the program development activities, CARIAA aims to gather knowledge facilitating the focusing of research - and its use - on common cross cutting themes of paramount importance for the program. One of these themes is a common approach to economic analysis across consortia and its integration within the larger research work plan of each consortium. Background Several developing countries where conditions of vulnerability to climate change occur have started to plan for adaptation, including through the development of Least Developed Countries National Adaptation Programs of Action (NAPAs), under the United Nations Climate Change Convention. Other countries, even if not formally required to develop NAPAs, are developing national strategies aiming to integrate adaptation actions in their overall development pathway. Many are now entering a second phase with the preparation of the National Adaptation Plans (NAPs). The success in the implementation of such plans on the ground, and the capacity for them to reach and benefit vulnerable communities, critically depend on research being able to produce rigorous evidence for the economic feasibility and opportunity of adaptation interventions, including highlighting the potential profitability of private and public investments in specific cases. In this context, reliable estimates and measures of the economic costs of adaptation require investigation of several sources of evidence. These range from local case studies through to global scale assessments. The body of information on costs of adaptation has increased dramatically in the last ten years, covering the range from specific interventions to global aggregations (IPCC AR4 2007, IPCC AR5 working draft, 2013). In most populated areas such interventions have costs lower than damage costs, even when just considering property losses (Tol, 2002, 2007, Nicholls, 2010) or agricultural yield losses (IUCN 2009, FAO 2010). However, the process leading to choice within the pool of interventions that satisfy the constraint of economic opportunity is not evident. A critical issue is to be able to reconcile and integrate, at the time of selection of a set of viable options, economic analysis with social and gender equity, and with the promotion of environmentally sustainable interventions within the space of possible socio-economic development scenarios across multiple space and time scales. This implies as much as possible the need of a multi stakeholder approach that includes social and gender appreciation of vulnerability. Even then, economic analysis should be one, but not the only criterion in the choice of which adaptation option to implement, in particular in the case of planned adaptation that often needs to be backed by boarder development policies. As adaptation is not a one step process and vulnerability changes with time, economic analysis should also look not only at the costs of adaptation for a certain option or a certain set of options, but at their variation depending on which sequence of steps are taken and within which time span, and at the costs necessary to build the willingness to adapt even when capacity is present. A gathering of examples when these multiple aspects are modulating economic analysis still needs to be undertaken to a great extent. Large scale assessments of projected adaptation costs have been attempted, but they remained mostly at a global (UNFCCC 2007, World Bank Economic Analysis of Climate Change - EACC, 2010, de Bruin et al 2009, Hope 2009, Carraro 2009) or regional level (Africa - UNEP AdaptCost 2007, East Asia - ADB 2009, East Africa - SEI 2009, AfDB 2011), and based on speculative evidence with little information coming from cost benefit analyses of adaptation projects at the local level. The EACC program of the World Bank also included a series of country level assessments In Africa, UNEP launched the AdaptCost program that produced reports on four sectorial approaches (coastal adaptation, agriculture adaptation, water adaptation and ecosystem based adaptation) and support access by African governments to various sources of adaptation finance including the GEF and the new Adaptation Fund. How uncertainty on the figures presented in these studies depend on the methods is evident: for example, the evidence analyzed by AdaptCost revealed a wide range of estimates for the amount of funding necessary for adaptation, with current (2010-2015) financing needs that range from $5-30 billion a year. These needs are likely to rise over time, with studies reporting a range from $20-60 billion a year by the period 2020-2030. Recently, a new effort to systematize a ground data based approach involving the review of a large number of single climate change projects in Asian countries was launched by USAID Asia Pacific and UNDP. During the program, multi-disciplinary technical teams in participating countries will be provided with practical skills in preparing cost-benefit analysis to inform project appraisal and to inform medium and long-term climate investment planning in the agriculture and water sectors. UNDP is also leading the technical advisory process that accompanies least developed countries in submitting adaptation projects to the GEF to implement the national adaptation programs. In a similar spirit of the Asian initiative, UNDP has recently started to offer economic analysis services to ground the countries¿ project proposals not on general projections, but on cost benefit analysis of other projects already present on the ground or in different countries under similar conditions. The initiative is in its pilot phases and in Africa may involve the work of CEEPA (Source: UNDP Africa adaptation cluster office, private communication, 2013). Some examples of economic studies of adaptation in the CARIAA hot spots Specifically on the CARIAA program hot spots (large deltas, large glacier fed river basins and semi-arid zones in South Asia and Africa), the literature is limited outside areas of traditional intervention. For instance, in the case of deltas, most studies focus on the Mekong, the Nile and to a less extent the Indus. Economics aspects of climate change impacts are treated for the Mekong delta at an aggregate level (ICEM 2009, IMWI 2010), mainly with the attention to losses to fisheries and rice/agricultural production. Some impacts, like land and infrastructure loss and flooding due to sea-level rise, excessive rains and drainage congestion in urban settings, have attracted more research than others, like costs of increasing storm variability and changes in ground salinity levels (Nicholls et al., 2010. However the World Bank EACC country studies provide broader assessments for pilot countries at a national level). In the Nile, analyses have been focusing on the cost of impacts, in particular on lost infrastructure due to coastal erosion, and to the costs of sea water infiltration on the agriculture and health sectors (El Raey 2009). Costs for the Nile delta region for an estimate of 50cm sea level rise may imply the loss of 200,000 Jobs and up to 60% of the value of industrial, health, home and agricultural services by 2050 (El Raey 2009, Abdrabo, 2010). An attempt to quantify costs and benefits of specific adaptation actions in selected coastal areas of the delta is currently undertaken by the University of Alexandria through a set of projects funded by IDRC. In Senegal, assessment of the impacts of sea-level rise in coastal areas show that costs of adaptation could amount to at least 5-10% of GDP (Niang-Diop, 2005). However, if no adaptation is undertaken, then the losses due to climate change could be up to 14% GDP (Van Drunen, 2005) in most coastal countries. Similar overviews of the projected costs of climate change impacts have been carried out for the Indus delta, where a wide vulnerability assessment program led by WWF-Pakistan (WWF, 2010) quantifies the decrease of fish catches (30% on average from 1990) as a consequence of decreased freshwater flow into the delta, loss of agricultural yields (15% from 1990 at parity of cultivated land area) and increased loss of property value due to cyclones. The program looked at these aggregate value losses in order to build up an economic case for large scale mangrove restoration. In semi-arid lands and river basins, economic analyses have been focusing primarily on projected decline of agricultural yields due to decrease in water availability. Adaptation options have been looking at the economic feasibility of extending irrigation, using improved grain varieties and managing water for a range of competing uses. Fewer studies are available on the costs and benefits of options like restoration of soil quality, and of the benefits for adaptation of general sustainable development interventions such as better linkage of farmers to markets and resolution of land tenure and land use conflicts. Finally, the choice, timing and level of capacity through which a specific option implemented is critical: In semi-arid agricultural lands different studies have found that the benefits of intuitive adaptations options are often not clearly surpassing the direct costs of interventions, or the long term indirect costs of loss of ecosystem services put under additional stress by the implementation of such options (IPCC AR4, 2007). However, current studies are increasingly aware of this interlinking of factors: In Africa, initial assessments of the mixed social, economic and environmental costs of adaptation in the Berg River Basin (again via IDRC funded research) and the Pangani River Basin (IUCN 2011) show that the costs of not adapting to climate change can be much greater than the costs of including flexible and efficient approaches to adapting to climate change into management options. In South Asia, a growing number of capacity building research looks - among others - at the evaluation of costs and benefits of adaptation and disaster risk reduction strategies in peri-urban areas and large alluvial plains, and at the costs and benefits in adjusting water, energy, agriculture and natural resources management policies in a way that is compatible with countries' goals for sustainable economic growth (see for example project "Building Research Capacity to Understand and Adapt to Climate Change in the Indus Basin" funded by IDRC). Past and present work supported by IDRC In order to critically contribute to this growing body of knowledge, IDRC has been supporting the creation and the consolidation of regional environmental economics research and capacity building networks (including CEEPA and SANDEE , working in the focus regions of the CARIAA program), and more recently facilitated the development of economic and cost benefit analysis components within the vast majority of projects financed via the Climate Change and Water (CCW) program. Support to these projects included the initial participation of environmental economic experts in the African Adaptation Research Centers' inception workshop in 2011; the facilitation of access by research teams to CEEPA resources ; the support to projects testing innovative approaches such as the stakeholder-focused cost benefit analysis pioneers by IIED (IIED Synthesis report 2012); and a study on access to public and private funds on climate financing that may lead to a larger initiative on Mobilizing Private Sector Finance for Adaptation in Sub-Saharan Africa, Latin America and the Caribbean. This last project aims to understand the conditions for rigorous costing of adaptation options to be used to mobilize actual funds, and to provide smart brokering of communication between project implementing partners and investors. Rationale for CARIAA's investment CARIAA has now a big opportunity to advance in this direction, as consortia will be requested to work on a large number of single case studies at the same time, looking not only at single costs and benefits of adaptation, but at an analysis of the conditions that determine: i) the feasibility and the implementation costs of similar options in different countries and hot spot areas; and ii) the differences and commonalities of approach in mobilizing the resources to bear such costs. In doing so, consortia will respect an ecosystem-based vision at the basis of the choice of the hot spots approach. Consortia will produce a methodology in undertaking cost-benefit analysis as well as economic analysis of adaptation options to inform policy decision that can be comparable across geographical areas, so as to allow replication of intervention. As consortia will be the ambassadors of a single program, the development of a common methodology in the work of all consortia is instrumental. Proposed activities and methods In order to achieve the above objectives, the following preliminary activities are envisioned in this research support project: a. The selection of consultants with significant experience on economic analysis methods in the hot spots b. A review of recent economic analyses looking at the costs of impacts of climate change and the costs and benefits of adaptation options in projects and studies going from a local to a hot spot scale; c. A comparison of the research methods used in those analyses, with documented discussions on their appropriateness across different hot spots scales and contexts and their efficacy in informing policy or practice; d. A stakeholder analysis of key institutions working on economics of adaptation in the hot spots; e. A set of options for further program support to the work of consortia. Consultants Either one consultant or a team of consultants with specific experience in South Asia and Africa context will be asked to prepare a review that will be the main output of the above activities. If a team is selected, the consultants will have to work in collaboration, and present a single study to IDRC. The questions to be addressed by the study are listed in the tables in the annex (see Annex tables 1 and 2) but they may undergo revisions in the final version of the ToRs presented to consultants. Use of hot spots reports To ensure coherence of scope, the proposed background study can build on preliminary results of the hot spots climate change impacts reports currently under preparation by a separate pool of consultants under CARIAA research support project 107265. For instance, the systematic review done during the preparation of the hot spots climate change impacts reports includes sources on the economic analysis or economic policy work that will facilitate the focus of the background study. If necessary, the background study team will be encouraged to seek clarifications from the hot spots consultants of project 107265. Structure and contents of the study The background study will contain the following: a. Case studies, institutions and literature analysis in Africa, including new or emerging programs; b. Case studies, institutions and literature analysis in South and Central Asia, including new or emerging programs; c. Comparisons of methodological approaches to economic analysis of adaptation, and their results, with a discussion on differences and commonalities of approach across the two continents and the three hotspots; d. Recommendations on contextualized best approaches/methods; e. Suggestions for the design of the CARIAA support activities to the economic analysis work of consortia. Intended users and uses The primary users of the back