57665 \BOl 'I' TillS ISSl L uman activities, particularly fossil fuel based H energy production and use, as well as land use, have led to increases in the atmospheric concen- tration of greenhouse gases (mainly carbon dioxide, methane and nitrous oxides). These greenhouse gases emitted by one country affect countries all over the world, over decades to centuries. The impacts of such emissions include increases in the Ealth's surface temperature, altered rainfall patterns, sea level rise, and increased fre- quency and severity of storm surges, floods , droughts and heat waves. These changes in turn have broader impacts, e.g. adversely affecting many developing countries and societies through agricultural related economic losses, access to clean water, loss of livelihoods and increased incidences of vector and water-borne diseases. This special report of Development Outreach examines how climate change has affected development and what actions are needed to reduce our greenhouse gas emis - sions (referred to as mitigation), and what can be done to adjust to ongoing and potential effects of climate change (referred to as adaptation). Some initial articles articulate the global nature of the problem and the need for equitable and ethical action through the use of exist- ing and emerging technologies combined with regulato- ry and behavioral changes to help reduce greenhouse emissions in both developing and developed countries. The next set of articles focus on how various parts of the world and people have already been affected by climate change and how they are struggling with and adapting to these changes. Specific roles of insurance, microfi - nance, knowledge and capacity development are dis- cussed as tools and approaches to help move towards low carbon growth and build resilient societies in the last set of articles. This report also includes a summary of the major outcomes of the United Nations Climate Change Conference held in Bali in December ~oo7' including the Bali Action Plan, which provides hope for future col - lective action and a global response on mitigation and adaptation. It is clear that climate change has become a develop - ment issue for many countries. We hope that the articles inform you on the links between climate change and development, what actions are being taken and what is needed from all of us in the future . Habiba Gitay EXE CU TIVE AND TECHNI C AL EDI T OR VOLUME TEN , NUMBER ONE,"", APRIL 2008 PAGE 5 PA GE 21 rAGE H CLIMATE CHANGE: LOW CARBON ECONOMIES 28 Pacific Islands Unde r T hreat! AND RESILIENT SOCIETIES GERALDINE KEARNEY 2 Foreword Highlights the plight of Pacific Islanders due to rising sea levels and storm surges and the message they brought to the UN RAKESH NANGIA Climate Change Conference in Bali. 4 Achievi ng Low Carbon Growth for the Worl d: Key 30 Cli mate Change and Insurance Markets elements fo r a globa l dea l on cl imate change ARVIND GUPTA Guest Editorial Showcases examples of innovative public-private risk transfer LORD NICHO L AS STERN AND IAN NOBLE programs for weather and disaster-related insurance, and the States that global actions for cl imate change must be effective, essential role governments have in providing access to efficient and equitable and that developed countries must provide affordable insurance . resources for implementing actions in developing countries, 35 Microfi nance: C li mate change connections 8 Low Carbon, High Hopes: Maki ng cl imate action KATHARINE M CKEE wo rk for deve lopment Focuses on the role of microfinance at the community level in MOHAMMED VALLI MOOSA reducing greenhouse gas emissions and helping vulnerable, low- Illustrates tensions between developing and developed countries income populations adapt to the impacts of climate change. on technology innovation and transfer, and calls for climate action that provides fair and equitable development for all. 38 Adapti ng to C li mate C hange in Africa: II Low Carbon Growth: O ur e thica l responsibi lity T he role of research and capacity deve lopment FATIMA DENTON , M ARY O' NEILL AN D JOHN M . R . STONE JAMES L. SWEENEY Highlights major technological, regulatory and behavioral options Discusses the Climate Change Adaptation in Africa program, that would decrease energy use in economically efficient ways which aims to establish a self-sustained African body of and slow the rate of damage we are causing to the atmosphere. expertise on adaptation through capacity development and strengthen i ng institutions. 15 C hina's Move Toward a Low Carbon Economy LU XUEDU , ZHUAN GUIYANG AND PAN JIAHUA 41 Bali C li mate Conference and Its Main O utcomes Describes improvements in energy efficiency and structural L EILA MEAD , HABIBA GITAY AND IAN NOBL E adjustments that are assisting China's move toward a low carbon Describes the critical role of this UN conference in developing economy, but emphasizes the need for further technology an action plan for negotiations for a post-2012 climate regime. transfer. 18 Adap tation Activities in India 44 C hall enges and Opportun ities: Knowledge fo r developme nt under cl imate change RAJASREE RAY HABIBA GITAY AND MICHELE DE NEVER S Highlights lessons learned from implementing development schemes and policies, which have incorporated adaptation due Discusses the importance of sharing existing knowledge and to the increasing incidence of extreme weather events. technologies, generating new knowledge and enhancing capacity for applying it to reduce the risks of climate change . 22 Old Livelihoods in New Weather: Arctic ind igenous reindeer herders face the cha lle nges of climate change 48 KNOWLEDGE RESOURCES ANDERS OSKAL 50 BOOKSHELF Focuses on the impacts of climate change on reindeer husbandry in the Arctic and local adaptation techniques that are useful and 52 CALENDAR OF EVENTS others that need to developed and shared. 26 Cli mate C hange Challenges Faced by the Inui t VIOLET FORD Describes the impacts of climate change on Inuit communities, including threats to their fragile ecosystem and heritage, and underscores efforts they are undertaking to adapt to climate change. Criteria for fighting climate change Resources for three key elements GLOBAL ACTION TO FIGHT CLIMATE CHANGE must invoke DEVELOPED COUNTRIES MUST ALSO PROVIDE resources, three basic criteria: including funding, technology transfer and capacity building, The first is effectiveness. The scale of the response must for three key elements of a global agreement: be commensurate with the challenge, which means setting a First, a coherent, integrated international program to com- stability target for emission reductions that keeps risks at bat deforestation, which contributes 15-~0 percent of green- acceptable levels. The overall targets of 50 percent reductions house gas emissions, should be established. For US$1O-15 bil- in global emissions by ~050 (relative to 1990) agreed to at the lion per year, half of the deforestation could be prevented. G8/G5 summit in Heiligendamm in June ~007 are essential if Second, technology development must be accelerated and we are to have a reasonable chance of keeping temperature methods to promote technology transfer found. AddreSSing increases below ~ or 3°C. While these targets involve strong carbon capture and storage (CCS) technology for coal is par- action, they are not overly ambitious relative to the risks of ticularly urgent since coal-fired electric power will remain the failing to achieve them. dominant technology for some decades to come. However, Second, efficient means of keeping down costs of emission industrialized countries must demonstrate that CCS works reductions must be implemented, using prices or taxes wher- before developing countries can be expected to commit to this ever possible. Each of the taxation and market mechanisms technology. For price support (ideally soon taken over by the based on quotas or permits has its advantages and difficulties. carbon markets) ofUS$5 billion a year, it should be possible to Emission trading between countries, including rich and poor create 30 commercial scale coal-fired CCS stations within countries, will promote international efficiency, and helping seven to eight years. poor countries cover their costs of emission reductions will Finally, it is vital that extra resources be made available for give them an incentive to playa role in this global challenge. new initiatives to help integrate adaptation into development Third, equity is a concern we need to take to heart, as the as the extra costs developing countries face as a result of cli- starting point for taking action is deeply inequitable. Wealthy mate change are likely to be upwards of $80 billion per year as countries are responsible for the bulk of past emissions, while soon as ~015. Developed countries should move quickly to it is the poor countries that will be hit earliest and hardest by honor their commitments of 0.7 percent of GDP in aid by climate change. Fixed targets are crucial for managing risk and ~015, which would yield flow increases of $150-~00 billion even a minimal view of equity demands that the rich countries' per year. All parties must also engage in discussions of how to reductions should make up at least 80 percent of these global implement their agreements in the UNFCCC that developed targets. Currently, the US emits more than ~o tonnes of carbon countries should "assist the developing countlJ' Parties that are dioxide (CO~) per capita per year, while Europe and Japan, particularly vulnerable to the adverse effects of climate change in with similar living standards, emit around 10 tonnes. China meeting costs of adaptation to those adverse effects. " emits about five tonnes per capita, India around one and most The World Bank Group (WBG) has sought to provide leader- of Mrica much less than one. To reach a 50 percent reduction ship in each of these areas always within the context of the pri- in global emissions by ~050, the world average per capita must macy of poverty reduction as the Group's raison d'etre. At the drop from seven tonnes to two-three tonnes. climate conference in Bali, the Forest Carbon Partnership Facility was launched and it seeks to raise at least $400 million to build capacity and conduct demonstration activities to combat deforestation. In relation to technology transfer, the WBG is engaged in discussions with major donors to manage multi-billion dollar funds that will promote transformational change in low carbon tech- nologies in the developing world. In the recent replenishment of IDAI5-the WBG's highly concessional lending and granting program for the world's poorest countries- funding was increased by 4~ percent to $14 billion per year. This was partly in response to the Bank's submission that climate change will increase the resources needed to main- tain levels of benefits from IDA by $0.6 bil- lion to $1.9 billion per year. Comprehensive climate risk management in IDA projects will likely be the single largest source of funding for adaptation in least developed countries in the immediate future. 6 Development Outreach WORLD BANK I NSTITUTE Action is vital and urgent ACT! ON IS URGENT if we are to avoid the stocks of greenhouse gases building to levels that involve unacceptable risks. We can control the flows of greenhouse gases, but any delay will build up more stocks, which are very difficult to remove , making actions to stabilize at acceptable levels much more costly. Different countries will choose different instruments- such as taxes, trading and standards- and different techno - lOgical mixes, but in all countries, energy effiCiency is possi- ble. Price mechanisms for greenhouse gases will be central to correcting the market failure , but the urgency and risk of the problem and inertia in behavior imply that policy must go fur- ther. This means bringing forward technolOgies, deepening an understanding of what responsible behavior means, over- coming other market failures that inhibit energy efficiency and innovation, and combating deforestation. With leader- ship and the right incentives on carbon finance and technolo - gies, developing countries will engage in future global action, as already shown in Bali. The building of a global deal and its enforcement will come from the willing participation of countries driven by the understanding that action is vital. Commitments are increas - ingly being demonstrated by political action and elections around the world, and this understanding is being reflected in the public demand for responsible action. It is this publiC demand that will promote and sustain action at the individual, community, national and international levels. Demonstration of effectiveness, efficiency and equity in a global agreement will encourage all countries to pursue their development aspirations via low carbon growth. New tech- nologies can create great opportunities and provide impetus for new growth. Low carbon growth is the growth strategy; Shldhulal Swanllvar Sanlstha won first prize in the 2007 Ashden weak action will eventually stifle growth. The costs of action Awards for Edu~ion and WeHara. It was founded in 1998 to are a small price to pay for the grave risks they would avert . .,., help IJOOI', marginalized communities living in the remote Chalanbael region of Bangladesh to develop sustainable livelihoods. Shidhulai has achieved this by building up a fleet of Nicholas Stern, Lord Stern of Brentford, flat-bottomed boats, all made with locally available materials, Kt, FBA. Also IG Patel Professor of that make their way through tile shallow rivers and canals of tile Economics & Government, London School Chalanbeel to bring a range of educational semces and of Economics. "nswable energy supplies to water-side families. Ian Noble is Climate Change specialist in the World Bank. Note: Much of the material in this article was presented in 'Cl imate Change, Ethics and the Economics of the Global Deal ' by Lord Nicholas Stern, the 2007 Royal Economic Society (RES) Public Lecture delivered at the University of Manchester 29 November and at Logan Hall , Institute of Education in London 30 November. See also his Richard Ely Lect ure at the American Economic Association Meetings, 4 January 2008. APR I L 2008 7 Low Carbon, High Hopes Making climate action work for development BY MOHAMMED VALLI MOOSA The good news is that climate action is still evolving, which means that we still have a window of opportunity to CLIMATE ACTION IS COMPLEX . multi -faceted and, to a large build consensus around an international carbon policy extent, still evolving. It is complex, and yet we run the risk of framework that provides for fair and equitable outcomes for simple "reductionism," measuring the earth's carbon-cycling all people and nations while providing a solid and credible capacity as a commodity that can be bought or sold on the basis for mitigation and adaptation action. The Bali global market. It is multi-faceted, and yet we constantly Roadmap, which was agreed to at the Bali Climate Change champion one or two elements of climate change to the detri- Conference in December zoo7, is a start to this process. ment of other equally important aspects and impacts. 8 Development Outreach WORLD BANK I NSTITUTE In this article, I confine my contribution to discussing the purported "sustainable development" benefits have been what I see as the unanswered questions around the tensions in thoroughly analyzed and assessed or have simply been tacked political leadership and policy goals of global climate action on as an afterthought. and in the pursuit of a low carbon future . Market - based decisions in London, Tokyo or New York can have, and have had, tremendous negative and alien impacts on Tensions in political leadership peoples' livelihoods and nations' development trajectories. For example, the rich world's demand for oil and gas has THE TENSIONS IN POLITICAL LEADERSHIP on climate blithely ignored, and in some cases reinforced, poor gover- change emerge from a considerable diversity of views and nance and human rights abuses in resource - rich but econom- needs that reflect the very different carbon agendas of the ically poor countries. rich, the emerging and the poor nations of the world. Tensions We in the conservation movement have learned bitter les- exist between national growth aspirations on the one hand sons of how a "fences and fines" approach to securing anoth- and individual rights on the other. Tensions are emerging er global public good-biodiversity-can inadvertently alien- from incentives for more technological innovation and ate poor people from their traditional lands and thus derail investment and a growing civic responsibility to actually their future development prospects. change lifestyle and consumption patterns. We must be mindful of history. We need to be very clear If we view the atmospheriC concentration of greenhouse where "low carbon growth" and other associated climate gases as an "open access resource," then it follows that efforts actions are coming from, namely the developed world's his- to manage-or more accurately, stabilize- this public good at toric emissions and its inability to deal with the resulting cli- an acceptable level will produce suboptimal outcomes in the mate change. Low carbon growth must be part of a compre - absence of a fair and equitable regulatory mechanism that hensive framework that includes greater commitments by penalizes the wayward and rewards the virtuous. developed countries to reduce their emissions and increase The problem, which we in the conservation movement financial support to address the costs of adapting to the know all too well from the management of other common impacts of climate change. resources, is that it is the poweIful and rich who tend to ben- That said, while market mechanisms will never, on their efit during periods of resource mismanagement and who are own, be the sole solution, we ought not to shy away from the least affected by subsequent regulation, while the poor and potential they hold. Market mechanisms present a real oppor- disenfranchised too often lose out on both counts. tunity to transfer wealth to those who are already performing Neither the Kyoto Protocol nor the negotiations under the useful ecosystem management functions from those who ben- United Nations Framework Convention on Climate Change have efit from it, but currently do not pay for it. resolved this problem. The question remains: how do we differ- Markets can create additional incentives for poor people to entiate between roles and responsibilities of the historic big manage the environment, maintain its productive capacity emitters, the recent big emitters and the truly poorer countries? and keep ecosystems intact. For example, experience from It is still the latter who may miss out and risk becoming a Brazil's Ecol6gica Institute over the last 10 years has shown pawn in the "jump first-jump together" bargaining scenario. that market - friendly, socio - environmental and poverty Thus, when considering low carbon growth, it is critical to reduction interventions can be designed and implemented by develop different approaches that take into account the partic- local communities that contribute both to emission reduc - ular characteristics of these groups of countries. More specifi - tions and sustainable development. cally, low carbon growth is quite a different matter when it comes to countries like China, Brazil and India than when Technology transfer addressing the issue in most of sub-SabaranAfrica and parts of Latin America and Central and South East Asia. Many of these A THIRD SET OF TENSIONS revolve around how open wealth- countries have major energy deficits for the most basic needs- ier countries will be to share and codevelop cutting edge tech- to lump their roles and responsibilities in with those of emerg- nologies with poorer nations. Much of the industrialized ing economies is not only unjust, but a non-starter. countries' prosperity is due to their ability to invent and incorporate technolOgies effectively into existing production Market mechanisms and distribution cycles. Technology and its transfer are, however, not just a matter THE SECOND SET OF TENSIONS arise from the global reper- of "know- how," but also of politics. Today's innovation drives cussions of decisions taken by the wealthy and powerful, and tomorrow's competitiveness and the natural instinct in a by those who can afford to speculate on the price of carbon. globalized world is to safeguard, not to share, technolOgical While this may be stating the obvious, the fact is that the advances. financing, investment, trade, technology and policy issues Meanwhile, in poor countries-those very countries that around climate action are increasingly complex today in their the rich world wishes would pursue "low carbon growth"- interdependency and global dimensions. With big emitters investments are currently being made in energy-generating able to export part of their obligation to reduce emissions to technolOgies that are out of date when built and are destined to developing countries, one is inclined to contemplate whether become an economic and environmental millstone for those APR IL 2008 9 ing local knowledge of the rural poor's priorities and of how they deal with cat- astrophic events, and by assessing what this means in terms of future climate scenarios, the initiative aims to provide both local and national decision makers with clear options for policy and pro- gram interventions aimed at redUCing the vulnerability of communities to cli - mate change. Rapid climate change has been seen for too long as simply an environmental issue and, hence, not of central concern to governments and societies. With the recognition that climate change is fun - damental to the welfare, indeed to the survival, of the global economy, a com- prehenSive, fair and equitable frame - work for action that balances these two dimensions, namely climate change and sustainable development, is urgently needed. Nature and the people that depend on it deserve no less. cI.> Mohammed Valli Moosa is President, The World Conservation Union (lUCN). nations throughout their operational life. This not only pred - icates against our ambitions of low carbon growth but also misdirects scarce resources in our battle to reduce poverty and support economic growth. Managing the unavoidable MOST OF THIS ARTICLE has explored the global tensions around "avoiding the unmanageable"-in other words, the Business and framework for reducing emissions and promoting low carbon growth to avoid runaway climate change. However, there is Poverty Alleviation one final set of tensions on the other side of the equation that need to be touched upon-and that is how do we globally, and How can the private sector poor countries in particular, manage the unavoidable? help transform the lives of the poor? In other words, when thinking of investing in low carbon growth, we cannot afford to ignore the likely impact of more Can poor producers and consumers in turn frequent catastrophic natural disasters on poor countries' transform business models and economies. As changing climate conditions threaten food and water supplies, developing countries will be forced to divert shape new opportunities for companies? their already limited investment capital away from productive These are key questions addressed In this forthcoming Issue of efforts towards disaster management. Too little consideration Development Outreach, which examines the realities of private sector operadons at the base of the pyramid and the potendal given to the economics of climate action goes towards appre - rlsks and benefits for local development. ciating how the costs of climate inaction by the developed world are transferred to the developing world. ruCN is making its own modest contribution to address this shortfall, particularly in East and Southern Africa. Together with the International Institute for Sustainable Development and the Stockholm Environment Institute, we have developed and deployed a climate risk assessment tool For murt.:' In fo r lll,1tIO[l p!Pd"~ VI'::.l t for rural communities, called CRiSTAL (Community-based www.devandbiz.org Risk Screening Tool- Adaptation and Livelihoods). By collat - 10 Development Outreach WORLD BANK I NSTITUTE Low Carbon Growth Our ethical responsibility BY JAMES l. SWEENEY increased use is not sustainable, such as with deep sea fish, because we exploit the resource faster than it is being renewed. WE . AS HUMANS . mustface the implications of growing pres- Other resources, such as oil and gas, are depletable and finite . sures on our natural resource base. Income per person is grow- Technological advances have allowed us to tap progreSSively ing sharply in the most populous nations, particularly China, and lower qualities of such resources and to find resources that were India may not be far behind. More income implies more con- previously undetectable. Advances have also allowed us to use the sumption; more consumption implies more production; and resources we extract more efficiently. However, since techno - more production leads to increased use of natural resources. logical advances do not actually increase the resource base, these The supply of some natural- resource-intensive products has supply increases are unsustainable over the long term. increased sustainably, espeCially through technolOgical advances Fortunately, most of the key natural resources are governed such as the use of fertilizers and irrigation for agricultural crops. by market forces , so rising prices can be expected to keep sup - However, for others, the increase in supply needed to meet ply and demand roughly in balance. Consumers may not like APRll2008 II the rising prices, but markets can effectively allocate these Major lenting emissions on these people, the most vulnerable of my neighbors. The side event "Pacific Islands and Torres Strait Geraldine Kearney is a Sister of the Good Samaritan of the order of Call Out," led by our delegation on the second day of the con- St. Benedict, Australia. ference in Bali, gave flesh to their culture and their pain, their concern and their determination to let their voices be heard. And heard they were! But hearing their voices is not enough. They need action and they need action now! They need substantial support for the process of adaptation. Already the Carteret Islanders are faCing relocation and, by March ~008, the first families will be relo- cated to Bougainville, Papua New Guinea. Kiribati has already embarked on an adap - tation program which includes developing policies that respond to climate change impacts, for example in its land use and infrastructure development plans. However, it faces capacity (individual and organizational) and financial constraints. APR I L 2 0 0 8 29 Climate Change and Insurance Markets BY ARVIND GUPTA The increased frequency and intensity of extreme climatic events over the last three to four decades have played a role in ADVERSE CLIMATE EVENTS such as droughts, floods, hurri- the rising costs of natural disasters. Given the projected canes, avalanches and mudslides have had enormous eco- changes in climate, the costs will only be magnified in many nomic consequences and profound impacts on the lives, parts of the world. Not only are extreme weather events more health and property of millions of people. It is estimated that frequent, but equally worrying is that even slight changes in the the world has suffered nearly one trillion US dollars in eco- climate are likely to have disproportionately large impacts. For nomic losses due to 8000 natural disasters in the last 15 years example, the doubling of wind speed due to climate change of the ~oth century. Three - quarters ofthe losses were weath- could lead to a fourfold increase in windstorm related damages, er- related and only one-fifth were insured. while a one degree increase in temperature in some locations 30 Development Ou[re.~ch WORLD BANK INSTITUTE leads to an increase in catastrophic wildfires by as much as 143 percent. Data compiled by insurance and reinsurance companies indicates that global losses from extreme weather events have been rising for more than three decades, espeCially during recent years . According to Swiss Re, one of the world's largest reinsurers, total financial losses from natural disasters were around US$I~O billion in 2004, while in ~005, they were up to $~30 billion. The increased frequency and inten- sity of extreme climatic events have played a role in the rising costs of natural disasters. Given the project- ed changes in climate, the costs will only be magnified in many parts of the world. Every segment of society is vul- nerable to weather risks, but the poor are the most vulnerable as they lack access to timely information on climate risks. Further, their ability to respond is constrained by inade- quate capital to invest in adaptation or risk minimizing measures. Thus, socioeconomic impacts of extreme weather events on the poor tend to combine long- term financial, social and health effects, and perpetuate a cycle of inter-generational poverty. The effects of adverse weather events, exacerbated by cli- against a large loss that has a small chance of occurring. In mate change, are serious for all countries, but even more so addition to insurance policies that directly compensate policy for developing countries, where availability and afford ability holders, there are also insurance-related products such as of insurance is limited and governments lack the necessary derivatives and catastrophe bonds, which spread risk geo- funds to provide adequate protection to their citizens. In graphically, and savings, reserve funds and contingent credit many cases, the adverse consequences persist over the long arrangements, which spread risk over time. term, for example in Honduras, where four years after the Insurers underwrite weather- related catastrophes by cal- devastation of Hurricane Mitch in 1998, the gross domestic culating, pricing and spreading the risk and then meeting product (GDP) was 6 percent below predisaster projections. claims when they arise . Risks must be insurable, however, and a set of conditions and criteria must be met before insurers The role of insurance in coping with will be willing to issue an insurance policy. These are general- weather-related events ly referred to as "Standards of Insurability, " and are based on basic ideas of risk management. They include: predictable and THE INSURANCE INDUSTRY plays a pivotal role in coping diversifiable risks; identifiable and quantifiable chances of with the consequences of adverse weather events. It is a form the event occurring and extent of losses likely to be incurred; of adaptation as it can assist in dealing with the impacts of cli- setting of prices via actuarial processes; estimable and man- mate change. Typically, insurance poliCies have been the pri- ageable , yet random, risks; and infrequent occurrence of a mary instruments used to protect against weather-related risk. In addition, losses associated with a particular risk ide- losses. While insurance does not provide explicit coverage for ally would be independent of each other. For example, corre- climate change risk, policies do exist, which cover the types of lation between different types of risks must be low and suffi- damage that may be associated with it, such as floods and ciently spread broadly among the insured populations. The wind. Insurance does not decrease the losses from an adverse insurer must have the ability to set affordable premiums for event; it spreads the financial impact by enabling those at risk each potential customer or class of customers. to pay a relatively small premium so they can be protected APR I L 2 0 0 8 31 Measuring climate risk income countries, and only 3 percent in middle - income countries, have catastrophe coverage, in comparison to 30 A CHANGING AND LESS PREDICTABLE CLIMATE reduces the percent in high - income countries. In most developing coun- insurance industry's capacity to calculate price and spread tries, capital markets are undeveloped and the potential to use this weather- related risk while maintaining profitability and insurance related risk transfer instruments, such as deriva- solvency. Measuring or even defining climate risk is not easy. tives and catastrophic bonds, is limited. The changing frequency and intensity of extreme climate - Thus, in developing countries, people will continue to cope related events associated with climate change also renders with catastrophic risks by relying on family and community past data less useful for prediction purposes. Available infor- support systems or on government or international donor mation is inadequate and the projections from Global relief efforts, which will prove inadequate if weather- related Circulation Models not detailed enough, making actuarial cal- catastrophic events were to increase in frequency and intensi - culations of extreme risk events highly uncertain. As a result, ty. Evidence for this already exists. For example, government there is no immediate prospect that probability estimates will sponsored crop insurance systems wherever they exist (and emerge in which the insurance industry can have sufficient they are limited) are under stress as crop and flood insurance confidence to expand their coverage under conventional losses have grown ten-fold in recent decades. The economic arrangements. consequences are serious especially for the rural poor. Risk- The capital an insurer needs varies directly with the risk averse smallholder farmers will seek to minimize their expo - assumed. If an insurer takes on more risk, it must have addi- sure by opting for lower-value, lower- risk, and therefore pos - tional capital to assure policyholders, regulators and investors Sibly lower-return crops, and over diverSifying their income that it will be able to honor claims while ensuring continuing sources. These risk- management choices will keep them from viability of its business. Because weather risks and effects of taking advantage of profitable opportunities. climate change on weather risk are not fully understood, insur- The foregoing suggests market failure, especially in devel- ance companies will have to hold onto large amounts of back- oping countries. The private insurance industry will be unable up capital, the cost of which will increase insurance premiums. and/or unwilling to provide affordable and comprehensive The industry has been withdrawing from covering weather weather-related insurance coverage. Thus, relying on private risks; the high uncertainty and ambiguity of the risks to be insurance is unlikely to be an effective solution to the prob - insured, the low capacity among many of the potential clients to lems of weather risk and climate change. meet the necessary cost of the premiums, and the reputational and political risks incurred while legitimately denying coverage The potential role of government or claims makes weather risk insurance an unattractive busi- ness for insurance firms . The industry has been trying to cope WITHOUT SOME SORT OF PUBLIC SECTOR INTERVENTION . by increasing premiums for coverage applicable to weather- climate insurance is unlikely to become widely available. related events and catastrophes. Use of exclusions applicable to Governments in developing countries will have to assume a losses associated with climate change and deductibles for considerable share of the exposures to the costs of weather- weather- related losses have both increased. Given that private related events as is the case in developed countries. This will insurers and reinsurers are driven by profit considerations, if require developing country governments to rethink their pub - climate - related risks have a high enough potential for causing lic expenditure priorities, as well as the public sector's role. catastrophic losses in specific areas, they will not want to con- Allocating more fiscal resources to managing weather risks and tinue offering coverage unless required by law. climate change would require governments to exit more rapid- 1y from direct engagement in economic activities such as man- ufacturing' trading, financial services and infrastructure serv- Climate risks and insurance needs in ices, where the private sector is willing and able to engage. The developing countries private sector would take on these activities espeCially if reforms in the business environment would reduce the cost GENERAL WITHDRAWAL ofthe insurance industry from cover- and uncertainty of business investments and operations. ingweather risks is happening at a time when risks are increas - The case is compelling for the insurance industry, business. ing and need is the greatest. If these trends are not addressed, governments and community groups to work together in devel - adverse impacts on insurance affordability and availability could oping risk management programs and solutions that combine shift the burden to governments and individuals. prevention and risk transfer. A fruitful approach could be one In developing countries, the problem is even more acute; in which the public sector sets the policy framework and pro - governments, households and businesses cannot afford the vides cover for high levels of risk or sectors with high adminis- premiums demanded by commercial insurance to cover their tration costs, while the private sector prOvides services and disaster risks. In addition, the insurance sector in general is cover for lower levels of risk and sectors that are easily accessi- underdeveloped and use of insurance, even basic standard ble. Insurers, governments, industry regulators and the policy insurance products, is limited. Insurance coverage for weath- community also need to work together to better understand the er- related risks is even lower. According to a ~005 Munich Re physical and business risks. Insurers are well positioned to par- study, only 1 percent of households and businesses in low- ticipate in public- private initiatives to monitor loss trends, 32 Development Outreach WORLD BANK INST I TUTE APR I L 2 0 0 8 33 What can governments do? Firstly, they need to address fundamental policy and political economy questions such as mandatory insurance in hazard prone areas and land use regu - 1ation to restrict construction in such areas. Designing and enforCing improved building codes (with manageable and affordable approval processes) and increased resource alloca - tion for services and infrastructure in areas such as water man- agement' flood control and agricultural extension services are important. Periodically, there is a need for governments to review H standards of insurability" to guarantee that insurance companies provide affordable insurance, and when not possi- ble but necessary, develop policies for new standards. In developing countries, governments need to ensure licensing and investment policies are designed not only to protect domestic incumbent interests, but also to facilitate rapid diffusion of insurance services. There is also a need for more rapid deregulation to enable better access to risk man- agement technologies, more efficient distribution systems, cheaper access to reinsurance and more private capital. Governments must also work with the private sector to col- lect and analyze more comprehensive data on weather- related losses especially on small-scale events. In this context, existing public services infrastructure could be made available to insur- improve catastrophe modeling, address the causes of climate ance companies to systematically build information on losses in change, and prepare for and adapt to the impacts. The interna - sectors such as transportation, health and energy. Governments tional aid community also has an important role to play by pro - could also make sure that basic insurance loss data is readily viding assistance to public - private risk transfer programs such available in the public domain, and in poorer areas could work as those in Turkey, Mexico and Ethiopia, where private insur- with the private sector to develop innovations, such as microin- ers , governments and investors have come together to devise surance and microcredit, in order to reach the uninsured. innovative means of spreading financial risk while fostering Finally, and most importantly, governments can be part of col- loss - prevention practices for weather - related insurance lective action to curb emissions. schemes (See box on previous page). In conclusion, market based financing and risk transfer A number of basic questions would need to be addressed in mechanisms will not be sufficient in mitigating the adverse establishing a public - private climate insurance partnership economic consequences of natural disasters. The insurance program, including the following: industry has been withdrawing from weather risk markets How should climate - related hazard events be defined? because of the high uncertainty and ambiguity of the risks to What data, techniques and models should be developed to be insured. It is not eager to get back into this business. support the measurement of risk and losses? How much Underdeveloped insurance markets, regulations and institu - coverage should be available , and how should premiums tions further limit the use of market based financing and risk and deductibles be determined? Who should be eligible for transfer mechanisms in developing countries. Private - public government subsidies and to what extent? How can links financing and risk transfer partnerships can contribute in between national programs, international financial mech - overcoming the hesitancy of private insurers. Greater nation- anisms and private financial markets, and between servic - al' regional and global coordination between industry, gov- es and the end -users, be established? How can monitoring ernments and international financial institutions could and verification mechanisms be established and how increase the use of such partnerships. But governments will should operational responsibilities be divided between the have to take the lead. They need to increase public invest - government and the private sector? ments in long- term mitigation and adaptation, set aside funds · What would be the most effective role for insurance com- and enable fiscal space and flexibility, and continue improv- panies in a public - private partnership? Using their ing the business environment so that private financial mar- expertise and existing infrastructure , can insurance com- kets can playa bigger role . cl.) panies provide many essential non - risk- bearing technical functions, such as technical support for risk assessment, Arvind Gupta is Lead Finance Specialist and Program Leader, risk management, product design, distribution, market - Financial Sector Learning Program, World Bank Institute, ing, loss handling and administration? Can they use their The World Bank. knowledge of financial engineering to evaluate and design alternative risk transfer mechanisms such as self insur- ance , catastrophe bonds and weather derivatives? 34 Developmenr Outreach WORLO BANK IN STITUTE Microfinance Climate change connections BY KATHARINE MCKEE expecting their low-income clients to adapt their enterprises and lifestyles towards "greener" practices were not only unre- IN 2001 . THE IPCC concluded that "the impacts of climate alistic, but tantamount to levying a tax on those least able to change will fall disproportionately upon developing countries afford it. Innovation in the microfinance field focused on and the poor persons within all countries. " The poor are least products that would help poor people increase their incomes able to cope on their own with the threats to their homes , and reduce vulnerability in the short term. communities, livelihoods and health. What role might micro - The past year has brought a sea change in this perception. finance-the delivery of financial services, including credit, The notion is gaining acceptance that incorporating a climate savings, and insurance to the poor-play in reducing our change lens to microfinance is essential and urgent. A growing greenhouse gas emissions and helping vulnerable low- circle of microfinance institutions (MFIs), networks and fun - income populations adapt to the impacts of climate change? ders has launched new products and partnerships aimed at the Just a few years ago, most people working in microfinance microfinance - environment connections. For example, a pilot viewed environmental concerns as a luxury. While such wor- program-funded by the Citigroup Foundation and the US ries were undoubtedly important for society as a whole, Agency for International Development and managed by the APR I L 2 0 0 8 35 partnerships have been costly and problematic rela - tive to the benefits for clients, MFls and energy companies. A substantial and systematic explo- ration of lessons from the pioneer initiatives, and the broader question of how the rapidly growing microfinance sector might assist its low-income clients, while contributing to climate change mitiga- tion and adaptation, is both important and urgent. Challenges and opportunities THE FIRST FUNDAMENTAL CHALLENGE is demand. Will the various client segments-such as households, communities, microenterprises, farm- ers and energy entrepreneurs-want improved tech- nolOgies and practices and be willing to use finance for them? For typical microfinance clients, afford- ability of many of the household -level renewable energy technologies is certainly an issue, whether financing is available or not. Other factors, such as Small Enterprise Education and Promotion (SEEP) Network- perceived reliability and safety, access to installation and teamed up six MFls in Asia and Africa with renewable energy maintenance services, and cultural acceptability may be just as companies and organizations to explore potential collabora- Significant in limiting effective demand. In addition, low- tions and business models (SEEP ~007)' A number of respect- income families may find it hard to justify investment in a ed MFls and networks-includingACCION, BASIXin India and household solar electricity system, at a cost of hundreds of dol - Equity Bank in Kenya-are exploring products to respond to lars, when the savings are realized only over a number of years. climate change challenges and opportunities. Supply- side issues also need attention if we are to design and deliver financing to meet these needs on a sustainable Current practices and lessons learned basis and on a large scale. What types of financial products are most suitable for clients, while fitting the capacity and busi- MOST OF THE EXPERIMENTS so far have focused on financ- ness models of different types of MFIs? While many MFIs ing options to help low- income households acquire provide very short - term loans to groups of individuals with cleaner/renewable energy technologies such as liquefied minimal credit analysis, this method would not work well in petroleum gas (LPG), improved stoves and bio - digesters. underwriting larger- scale, more complex and longer term Other initiatives, such as the partnership between SEWA financing needs, particularly in the enterprise and communi- Bank and SELCO- India, seek to meet the energy needs of self- ty market segments. And, if MFls adapt their financial prod- employed individuals and microenterprises for processing, ucts accordingly, will they be able to get the additional financ - agriculture and other livelihoods. In one case, the SEWA- ing they need to grow their climate change-related portfolios? SELCO partnership finances the acquisition of the technology Innovative partnerships could offer one solution to both package especially designed by the solar energy company to demand- and supply-side constraints. There are promising help low- income women who own solar battery chargers and alliances being formed between financial institutions and rent out solar lanterns to vendors in evening markets. providers of energy and environmental services; in some cases, Very recently, the World Bank's Carbon Finance Unit has these involve cooperatives and others with the capacity to aggre - Signed agreements to buy the carbon credits associated with gate demand and organize low- income consumers and commu - greenhouse gas reductions through installations of solar sys - nities' including NGOs, to manage more complex initiatives. In tems in homes in Bangladesh by the Grameen Bank's clean most cases, the jury is out on whether partnership models will energy affiliate-Grameen Shakti (970,000 homes)-and its be scaleable and sustainable for all relevant stakeholders. Infrastructure and Development Company Limited (~~7'000 There may also be potential for microfinance to support homes). These agreements will help provide solar electricity community-based enterprise and infrastructure models, such to households that are not connected to the electricity grid and as processing facilities or bio -gasifiers run on renewable ener- ordinarily use kerosene and diesel, thus reducing greenhouse gy, pico- hydro facilities (hydroelectric power generation gas emissions (Reuters ~007) ' under SkW), or community- scale solar plants. However, these Several of the experiments appear promising and finanCing needs are likely to be larger and longer term and scaleable, and have commercial potential with little or no present a different set of challenges, especially as these relate long-term subSidy. Others are less successful but provide to longer term financing from MFIs. Additional challenges important lessons for future work: demand from clients may come from the need to create new microfinance products and have fallen far short of expectations, arrears have spiked, or partnerships to help clients adapt to threats to agriculture, 36 Development Outreach WORlO BANK I NST I TUTE fisheries and forest-based livelihoods that are adversely Once viewed as a distraction or even hurdle to mainstream affected by climate extremes and change. microfinance, more and more key players now see environ- "Smart subsidies" (i.e., short-term grants and concession- ment-friendly financing products and practices as critical to al loans that build nascent markets while not undermining the future of the sector and, much more importantly, to the incentives for clients or commercial firms to do what they can) low- income and vulnerable clients microfinance was created in both the financial and energy/environment spheres of to serve. But awareness will not mean much if it cannot be developing countries will have an important role to play in translated into smart, scale able financing that is tailored to making microfinance relevant and Significant. Several leading meet strong effective demand from low-income households, social investors, such as Triodos Bank of the Netherlands, are communities, microentrepreneurs, and small- scale energy keenly interested in the potential links between their microfi- and environmental businesses. Developing, testing and bring- nance and environment portfolios. A large number of main- ing these products and business models to scale is one of the stream funders-such as the World Bank Group and some of the biggest challenges facing the microfinance sector in the com- big international banks-are now committed to financing clean ingyears. energy and other adaptation-related interventions, and are interested in the potential role of microfinance providers. A Katharine McKee is Senior Advisor, Consultative Group to Assist the key wild card is whether the carbon credit markets will evolve Poor (CGAP), The World Bank in ways that could support climate change-related initiatives of MFls and their clients. Currently, these trading mechanisms References are unwieldy, costly to use, and oriented towards large and very IPCC, 2001: Climate Change 2001: Synthesis Report. A Contribution of specific types of transactions. However, the carbon markets are Working Groups I, II and III to the Third Assessment Report of the Intergovernmental Panel on Climate Change [Watson, R.T. and the Core evolving quickly, and could become more user-friendly, to the Writing Team (eds.)]. Cambridge University Press, Cambridge, United extent they offer sources of credit enhancement for MFls or Kingdom, and New York, NY, USA, 398 pp. Also at www.ipcc.ch/pdf/climate- even bulk subsidies to clients. The World Bank-Grameen changes-200 1/synthesis-spm/synthesis-spm-en. pdf agreement is a promising start. Reuters, 2007: World Bank helps Bangladesh set up solar power. The awareness of climate change amongst those involved in http://www.alertnet.orglthenewslnewsdesklDHA44742.htm microfinance-finance providers, donors, investors, policy makers and even clients-is growing at an astonishing pace. APR I L 2 0 0 8 37 Adapting to Climate Change in Africa The role of research and capacity development BY FATIMA DENTON , MARY O' NEILL AND JOHN M. R. STONE ADAPTING TO CLIMATE CHANGE is no longer mere- ly a policy option-it is now an imperative. The Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report, released in 2,007, con- cludes that climate change is unequivocal, and a range of impacts over the next few decades are inevitable given the changes we have already made to the compo - sition of the atmosphere. The report also reaffirms that Africa is one of the most vulnerable regions of the globe because of its high dependence on rain-fed agriculture and limited financial and human capacity to adapt to these changes. In sub -Saharan Africa, rain-fed agriculture provides food for roughly 90 per- cent of the population, generates around 30 percent of GDP, and provides some 75 percent of the poorest people with their livelihoods. Surface water is rela- tively limited. Five major river basins-the Nile, the Congo, the Niger, the Chad and the Zambezi-are major surface water sources and sustain 45 percent of the continent's people. These basins are prOjected to be adversely affected by changes in rainfall. Given the threat climate change poses to the hard won development gains Africa has made over the last half century, Canada's International Development Research Centre (IDRC) and the United Kingdom's Department for International Development (DFID) launched the Climate Change Adaptation in Africa (CCAA) program in 2,006 . The CCAA aims to estab- lish a self-sustained African body of expertise on adaptation that responds to the needs defined by African communities, decision makers and organiza - tions. In recognition of the long- term nature of cli- mate impacts, DFID and IDRC have made a five-year commitment, with initial five -year funding of Canadian $65 million. A need for capacity development OBSERVED TEMPERATURE INCREASES indicate a greater warming in Africa in recent decades of 38 Development Outreach WORLD BANK I NSTITUTE around 0.3 0 C per decade, although this has not been uniform. Building a base of strong Afri can Rainfall changes exhibit even greater variation in time and institutions for responding to climate space. Variability between years has increased in recent decades with more intense and widespread drought and change floods. Medium- high IPCC emission scenario climate models THE CCAA PROGRAM sees capacity development as an ongo - project a warming for Mrica of 3- 4 0 C by ~080 , but with con- ing process that should continue beyond the life of the proj - siderable differences across the continent. ects it funds. The program thus aims to leave a legacy of strong Mrican societies have continuously developed local adapta- Mrican research organizations capable of contributing to the tion strategies to cope with extreme weather events, such as field of adaptation. To further strengthen the existing base, droughts. But the expected regional changes in climate, and the the program supports targeted capacity building activities, subsequent impacts-especially on water availability, agricul- including education and training workshops: a program of tural production and human health-will severely strain their policy research and teaching fellowships with related curricu- coping capacity. 1um development and the strategic matching of Mrican and To build on existing know- how, while addressing the reali- international institutions, where outside knowledge and ty that many Mrican countries cannot cope with the current resources can enhance given areas of expertise. impacts of climate variability, the CCAA program uses a multi- Since July ~007, a series of education and training work- layered approach to capacity development. The concept of shops has been taking place across the continent to enhance "participatory action research" is central to its approach and is the skills and knowledge essential to undertaking action applied at the level of individual projects. Project-level capac- research on adaptation among the program's first funding ity is further reinforced through a series of education and recipients . Topics have included integrated climate risk training and knowledge - sharing activities that link individual assessment, research on policy linkages and project manage - project partners, and extend learning to the wider regional and ment. Training on participatory action research and gender international community. The aim is to see researchers, local analysis is planned for ~008. Training on proposal develop- stakeholder groups and organizations strengthened and cap a - ment for research institutions actively interested in the field ble of informing policies that will benefit vulnerable groups by of climate change adaptation has also been offered, follOwing prOviding solid, locally tested knowledge. the wide response to the program's first call for concepts, which showed a broad range of organizations with strong Learning by doing through potential for future contributions to the field. In recognition of the existing organizations involved in participatory action research adaptation research and training in Mrica, in ~008 a series of PARTICIPATORY ACTION RESEARCH engages research users research awards and fellowships will be launched by a CCAA- from the beginning to the end, from defining the problem to supported partnership, with START (the global change carrying out and monitoring the research. Depending on the SysTem for Analysis, Research and Training), the Mrican context, the users may be small-scale farmers , local officials, Academy of Sciences, and the Institute of Resource national ministries, or other individuals or institutions that Assessment (IRA) of the University of Dar es Salaam. The directly benefit from the shared enquiry. They set the context Mrican Climate Change Fellowships will allow 58 early- to for the research, bringing an understanding of the many cli - mid -career Mrican profeSSionals and researchers to pursue mate - related impacts they experience or expect, and identify- doctoral and post doctoral, teaching or policy-focused stud- ing the resources available to respond. Capacity building is ies . It is hoped that teaching fellowships will permit Mrican inherent, in that it is an active process of "learning by doing" faculty to develop and implement new courses related to cli- whereby the skills and knowledge of all participants are mate change at Mrican universities. increased. It is also inherently a development process, in that the research involves the direct testing of adaptation solu- tions. Implementation is thus built into the research. Sharing knowledge fo r learning and Participatory action research weds scientific and local policy influe nce knowledge to assess climate - related impacts and the ability of stakehold- TH E CCAA WI LL ALSO ACT as a ers to cope with them, and tests and facilitator by creating opportunities validates existing local adaptation for knowledge to be shared and strategies. The linkages between translated into forms that can be researchers, decision makers and applied to practices or policies that communities help to ensure that the will benefit communities most research is driven by the demands of affected by climate variability and research users , rather than the change. Knowledge sharing is at the available supply of research organi- heart of participatory action zations. research and is therefore core to every CCAA- supported project, A P R I L 2 0 0 8 39 each of which aims to test and validate a combination of local and scientific knowledge. To see the wide benefits that arise within individual proj- ects' the CCAA will support a series of networking and knowl - .. :....... ·"0 . } ~ ~ - edge exchange activities to extend the learning and policy dia - \ . ·· ~.... .' -"-o..;:. "~:r -."'* 11' . · . ~. - .~. ~:e logue. These activities will be coordinated by: the Forum for ... . · ._ _ _ Agricultural Research in Mrica (FARA), a pan-Mrican agri - cultural research organization with its secretariat in Chana; the Institute for Development Studies, a UK- based organiza- ~ . ~, tion with extensive experience in developing and hosting knowledge services on international development issues; ENDA-TM, a major international NCO based in Senegal; and the ICAD Climate Predictions and Applications Centre (ICPAC), a leading regional climate information organization based in Kenya. As with other areas of the CCAA program, leadership of knowledge sharing activities will ultimately CCAA staff members are located in IDRC's regional offices in devolve to Mrican organizations. Mrica-in Dakar, Cairo and Nairobi-ensuring on the ground engagement with stakeholders. To enhance Mrican input into Addressing Afri ca's greatest climate programming directions, while respecting the need for donor adaptation needs accountability, an adviSOry board, whose members are mainly from Mrican countries, guides the CCAA. Progress is moni - HELPING TO INCREASE RESILIENCE in the agricultural sec - tored using an approach called outcome mapping, an innova - tor is an obvious priority, given its critical importance to both tion of IDRC's Evaluation Unit, which focuses on behavioral export revenue and subsistence livelihoods. Effective water changes in the program's "boundary partners "-those institu - resource management is critical in this context of dependen- tions and groups with which it interacts directly. cy on agriculture. This emphasis can be seen in the focus of a While it is still too early in the program's life cycle to point number of initial research projects supported by the CCAA to concrete results , the program strategy developed in the program. For example, in South Mrica's Western Cape region, CCAA's first year lays a valuable roadmap for progress. The the heartland of the country's lucrative wine and fruit export strategy is conceived as a "living document" to be reviewed as industries, a team of researchers, led by the University of the needed over the life of the program, and revised on the basis of Free State, is working with planners and farmers to develop partner input and overall program learning. Consistent with modeling scenarios that will improve access to climate infor- the "learning by doing" philosophy at the heart of CCAA's mation and offer a range of options to help them prepare for a action research orientation, the program itself has been learn- water-scarce future . ing continuously. Much of this learning is already being Likewise, in Benin, action research, led by the NCO applied in the implementation of capacity development work- Initiatives "pour un developpement integre durable," aims to shops, and in the plans for more targeted niche calls for future reduce farmers' vulnerability and improve food security. This concept notes. project involves various muniCipal - level actors- farmers, vil- CCAA's efforts at fostering partnerships in its immediate lage leaders and elected officials- in local committees that will constituency in Mrica and beyond help the program to share practical knowledge through field schools and dissemi - embrace emerging issues and trends . Knowledge gained from nate climate information through pre - alerts accessible to these initiatives helps to inform strategic directions for the local fa rmers. program. Partnerships with other donors, other international Other priority areas for action resear ch are addressing the programs, and Mrican researchers, policy makers, communi- impacts of climate change on human health, coastal resources ty representatives and capacity developers will be instrumental and urban development. An increasing proportion of Mrica's in bringing Significant benefits to the poorest and most vul - population is concentrating in coastal mega -cities, such as nerable people in Mrica. These partnerships will lay the Cairo and Lagos, which have poor infrastructure for dealing groundwork for the gradual devolution of CCAA-supported with rising sea levels and extreme weather events. activities to Mrican institutions. "" Building African leadership on climate Fatima Denton is Leader of International Development Research change adaptation Centre's (lDRC) Climate Change and Adaptation in Africa (CCAA) programme, Dakar, Senegal. THE PROGRAM'S COMMITMENT to building Mrican capacity Mary O'Neill is CCAA Communications Officer, CCAA, Ottawa, Canada. and supporting Mrican leadership is reflected in the pro- John M R Stone is a Visiting Fellow, CCAA, Ottawa, Canada. gramming and governance structure, location of program staff and in funding criteria that favor initiatives led by or that For more information on the Climate Change Adaptation in Africa program , visit www.idrc.calccaa . gradually devolve to Mrican institutions. The majority of 40 Development Outreach WORLD BANK IN STITUTE Bali Climate Conference and Its Main Outcomes BY LEILA MEAD, HABIBA GITAY of greenhouse gases over the first" commitment period" from AND IAN NOBLE ~oo8 to ~01~. The 13th COP, held in Bali in December ~oo7, was a pivotal EVERY YEAR IN LATE NOVEMBER or early December, the meeting. It was the culmination of two years of informal dis- present 19~ parties to the United Nations Framework cussions to pave the way for setting new targets for a second Convention on Climate Change (UNFCCC) meet in a commitment period of the Kyoto Protocol. A major task of the "Conference of the Parties" (COP) to negotiate joint action on Bali Conference was to launch a formal negotiation process for tackling climate change and its impacts. During these meet- new targets, which need to be agreed on by ~oo9 if countries ings, countries negotiate their formal positions on climate are going to have time to prepare for their emission reductions change-what actions they are willing to undertake and when beyond ~01~ . The Bali meeting agenda included developing a to protect the earth's atmosphere and adapt to changes already roadmap to guide this negotiating process towards a possible occurring. The 1997 COP, held in Kyoto, is best known for new regime, which will engage all countries, developed and reaching agreement on the Kyoto Protocol in which developed developing. An added sense of urgency to the Bali meeting was countries agreed to meet targets for reductions in emissions brought about by a number of other factors, including the find - APRIL 2008 41 1 MITIGATION The Plan sets out a process in which countries collectively accept the need for "deep cuts" in greenhouse gas emissions and agree to long-term cooper- ative action, up to and beyond ~Ol~. Developed countIies already have commitments under the Kyoto Protocol, with the excep- tion of the United States, and are expected to continue to under- take mitigation commitments or actions. While targets are not ings ofthe IPCC's Fourth Assessment Report, the Nobel Peace specified numerically in the Plan, the ~5-40 percent reduction Prize being awarded to the IPCC andAl Gore, acceptance from by ~o~o to below 1990 levels is implicit by a reference to the many countries that climate change is a threat to development IPCC report where this range is specified. This range is associat- and action to avert this threat is necessary, increased media ed with global average warming of ~ to 30°C, which has been sug- attention, and the growing carbon market, which requires a gested as the upper limit of temperature increase for avoiding long- term framework for carbon trading. extensive, adverse and irreversible changes to the Earth's system These meetings also provide an opportunity for organiza - and thus human societies. As a comparison, the overall Kyoto tions to showcase their activities that help with the climate Protocol reductions are 5 percent below 1990 levels. The Action change agenda or identifY areas where assistance is needed in Plan does explicitly mention that countries can use various order to respond effectively. Many organizations also demand instruments (markets, technologies, etc.) to achieve this target. action and progress through demonstrations and protests, One of the most Significant developments in Bali was that, for hoping to attract the attention of government delegates and the the first time, the outcome specifically calls for developing coun- media. The Bali meeting was the biggest to date with a large tries to undertake nationally appropriate (depending on their number of government delegates, non-governmental organi - economic conditions) "mitigation actions, supported and zations' UN bodies and agencies, intergovernmental organiza- enabled by technology, finanCing and capacity- building, in a tions' media representatives and civil society groups. measurable, reportable and verifiable manner." This formula- tion has far- reaching implications and links developing country Main Outcomes actions to directly measurable technical and financial support. The decision on long-term cooperative action also, for the A NUMBER OF BODIES (e.g., those that address technical mat - first time, breaks down the strict separation of actions between ters and those that oversee implementation of the Convention developed and developing countries by not using language and the Kyoto Protocol) meet during the two-week official referring to "Annex I" and "non-Annex I" countries, categories conference period. However, given the importance placed on previously used to distinguish between these two groups of a future agreement, most attention was given to this agenda countries. This offers the prospect of moving beyond the con- item. There were other significant outcomes as well, particu - straints of the current structure of the Kyoto Protocol for defin- larly those related to adaptation and avoided deforestation, ing a future agreement and differentiating between developing which are important for the sustainable development agenda countries. This new global deal will include all Parties to the and are summarized below. Convention, including the US-who did not ratifY the Kyoto Protocol-and developing countries-who did not have any Bali Action Plan with four building commitments under the Protocol. Thus, it truly paves the way blocks for the world as a whole to take collective action. THE BALI CONFERENCE culminated in the adoption of the Bali Action Plan-or "roadmap"-which sets out a negotiating 2 ADAPTATION process for a new global deal to be concluded by ~009, at the 15th Conference of the Parties in Copenhagen (IISD/ ENB Countries have accepted that many developing countries ~007). The Action Plan focuses on four key areas or building face significant challenges in adapting to the impacts of climate blocks: mitigation, adaptation, technology, and financial change. Adaptation has been part of the UNFCCC discussions resources and investment (UNFCCC ~007). for a number of years, but the magnitude of the impacts from climate change and the risks they pose to development gains 42 Development Outreach WORLD BANK I N STITUTE add urgency for further action. Hence, the Bali Action Plan and the provision of new and additional resources, including supports" enhanced action on adaptation," which includes: official and concessional funding." · financial and capacity development support for integration of adaptation actions into sectoral and national planning Othe r major decisions for enabling climate-resilient development; · risk management and risk reduction strategies, including IN ADDITION TO AGREEMENT on the Bali Action Plan, other risk sharing and transfer mechanisms such as insurance; Significant decisions came out of Bali, including the following: · linking disaster risk reduction and adaptation measures; · Reducing emissions from deforestation and degradation- and or REDD -which is being seen as a possible mechanism for · encouraging public-private - civil - society-multilateral a pOSt-~Ol~ regime. Emissions from deforestation are organization partnerships for effective action on adaptation. estimated to contribute about ~o percent of global green- house gas emissions. A process was set up to proceed with II TECHNOLOGY DEVElOPMENT AND TRANSFER "meaningful actions," including demonstration projects and capacity development. REDD could be a market andl or a payment mechanism for the carbon conserved. This has been a major item in the UNFCCC deliberations · Launching of the Adaptation Fund. The Fund, currently for a number of years, and discussions at the Bali meeting and worth about US$30 million, is expected to grow to about on the future agreement were no exception. Developing coun- US$ 180-$300 million by ~Ol~ depending on the price of car- tries clearly expressed a need for what is often termed "tech- bon. It is finan ced by a ~ percent levy on Clean Development transfer," which, in the past, has been associated more with Mechanism (CDM) projects (mostly energy projects imple- mitigation actions. Developing countries highlighted that mented in developing countries) and will become opera- efforts to date are insufficient and the negotiated text reflects tional at an early stage during the Kyoto Protocol's first com- that" enhanced action on technology development and trans- mitment period (~008-~01~). It was decided that the Global fer" would support action on both mitigation and adaptation. Environment Facility (GEF) will function as the Secretariat The enhanced actions include effective mechanisms for for the first three years with the World Bank serving as the removing barriers-a major issue for many countries-to the Trustee. A Board was established that will manage the Fund scaling up of technology development. When technolOgies, under guidance of and accountability to Parties with develop- especially those that are environmentally friendly, are trans - ing countries representing a clear majority. ferred to developing countries, they are not necessarily pro- moted and made affordable and accessible; the text incorpo- The road ahead rates these mechanisms as part of the enhanced actions. MUCH CAN HAPPEN between now and ~009, and the role of , f&" RESOURCE PROVISION: FUNDING AND INVESTMENT publiC opinion, the media, domestic politiCS and elections should not be un derestimated. Although the final destination must still be defined, the Bali Action Plan did map out a gener- The Bali Action Plan also includes" enhanced action on the al direction for future talks and the possibility of an ambitious, provision of financial resources and investment to support attainable and necessary target of ~5 to 40 percent reductions action on mitigation and adaptation and technology coopera- in emissions for developed countries by ~o~o. The end point tion." This includes "consideration of improved access to for the journey is only two years away, meaning the clock is adequate, predictable and sustainable financial resources, already ticking for agreement to be reached and to ensure that a strong and sustainable climate agreement is implemented for the pOSt-~Ol~ period. ~ Leila Mead is a freelance photographer, writer and editor who has covered the climate change negotiations since 1998. Habiba Gitay carries out Capacity Development for Adaptation in developing countries and is based at the World Bank Institute's Sustainable Development Division. Ian Noble works on climate change issues in the Sustainable Development Network of the World Bank. References IISD/ENB, 2007: the Earth Negotiations Bulletin summary, Vol. 12, No. 354, 18 December, 2007: http://www.iisd.calvoI12/enbI2354e.htm UNFCCC, 2007. Decision -CP.13 -Bali Action Plan. http://unfecc.intlliles/meetings/cop_13/applicat ion/pdf/cp_bal i_action. pdf APR I L 2 0 0 · 43 Challenges and Opportunities Knowledge for development under climate change BY HABIBA GITAY AND of the atmosphere ii) failure or lack of markets to balance MICHELE DE NEVERS greenhouse gas emissions with the absorptive capacity of the atmosphere and iii) a global resource (atmosphere) being CLIMATE CHANGE IS AN EXAMPLE of th ree converging treated as a externality at the national level (see earlier article issues: i) technological advances that have allowed us to over - by Sweeney) . Given the recognition of the urgent need to exploit a natural resource-specifically the absorption capacity address climate change and the need to deal with these three 44 Development Outreach WORLD BANK INSTITUTE issues , what are the challenges and opportunities for effective and sustain- able outcomes for the climate system and development? Earlier articles in this report deal with these issues from different per- spectives: Stern and Noble have high- lighted the financial support and/ or investments needed to develop and/or implement effective actions for reducing greenhouse gas emissions and for adap - tation. The articles by Gupta and McKee deal with some market approaches and microfinance for mitigation and adapta- tion. Sweeney, Ray and Xuedu, and his co -authors, have summarized the tech- nolOgical and regulatory frameworks for mitigation and approaches to adapta - tion, globally or in their respective countries. National policies and regula- tory frameworks and collective action at the international level are indeed need- ed to begin internalizing the cost from greenhouse gas emissions-the Bali Action Plan is a start as pointed out by Mead and her co -authors. Denton and her colleagues demonstrate a "learning by doing approach" to knowledge gener- ation and capacity building-an essential element in all three issues. This article concentrates on knowledge manage - ment and capacity enhancement chal- lenges and opportunities for climate resilient development. as Costa Rica, a set of potential actions could be taken to avoid Strategic and concerted effort for these outcomes. They include: knowledge manageme nt · A national clearing house mechanism to assist in coordi - nating capacity development and knowledge generation ALTHO UGH TH ERE [S A NEED to generate knowledgefor both activities ; mitigation and adaptation, a more urgent need exists for a con- · The establishment of learning and knowledge organiza - certed and coordinated effort to share existing knowledge and tions with a clear mandate for knowledge management and encourage its effective use both for analyzing and developing capacity development to ensure sustainability over the policies and for action on the ground. As this knowledge is long- term; and applied, often new knowledge is generated and gaps identified. · An effort to link financial mechanisms, such as microfi- Since mitigation and adaptation actions are still in the early nance, market mechanisms and national borrowing/ grants stages of implementation in many countries, capturing and from bilateral and multilateral development agencies, with widely sharing the knowledge generated becomes a necessity. climate change related actions. For some countries, this is Along with this, capacity development and/or enhancement very important as often climate change portfolios are not in are necessary to effectively apply that knowledge. the development line ministries that typically deal with With the increasing interest in climate change, many these financial mechanisms . organizations and funders are starting mitigation and adapta - As part of the Bali Action Plan and existing programmes tion activities in multiple countries and within various sectors under the UNFCCC (for example, the Nairobi Framework, in those countries. However, there is a concern that much which concentrates on mitigation, the Nairobi Work needed resources-financial and human-would not be used Programme on Impacts, Vulnerability and Adaptation, and effectively or few long - term benefits towards either low carbon capacity building activities), there are efforts to provide coordi - economies or resilient societies would occur. Drawing on ear- nation at the international level. However, whether such coor- lier work ?n development and experiences of countries, such dination flows down to the national level is not yet clear. APR I L 2008 45 energy, agriculture, health, etc. can be developed, there is a danger that such responses could lead to further problems. For example, agricultur- al policies that increase the areas under irrigation as a response to decreased and variable rainfall can affect hydropower p roduction, water availability to urban areas downstream and the environmental flow, and thus the potentialliveli- hoods of people. Hence, one chal- lenge is for sector- based organiza- tions to effectively work together, share knowledge and respond to the mitigation and adaptation chal- lenge collectively. Past experiences in many sectors (e.g., water man- agement, community development programs-Ostrom, 1990) demon- strate that an app roach, which encourages full and active partici- pation of the varied stakeholders, leads to effective knowledge sharing and use and thus a better chance for climate resilient development. Knowledge for national and local climate Opportunities from climate change risks CLIMATE CHANGE IS PROVIDING opportunities for addi - THE GENERAL AWARENESS of climate change has increased tional innovation, moving towards collective global action, recently due, in part, to intensified media and political atten- protecting a global good and sustainable development. tion, and the fact that many societies are experiencing the Existing and new knowledge and the capacity to use that impacts of the increased frequency and intensity of extreme cli- knowledge are extremely important along with various policy, matic events. However, a deeper understanding of climate financial, market and investment instruments. In this emerg- change is needed for countries to be able to develop their own ing field, knowledge must be generated, captured and used for context-specific policies and subsequent actions on a long- practical purposes. However, cl imate impacts, adaptation term basis and integrate them into their development agendas. options and development goals can be very context specific. Developing and!or enhancing human capital and skills is an Thus, there is a need to devise ways of maintaining local important component for this. knowledge and skills over the long-term and generating A wide set ofliterature has shown that active participation and knowledge for particular contexts. Enhanced capacity and incorporation of country-specific and local -level knowledge is skills would assist in improving our ability to manage climate necessary for effective development outcomes. Broad stakehold - risk in the short to long-term, and from the local to the er participation, including those with the local knowledge, would national level, and to reach better outcomes for the atmos - allow the incorporation of such knowledge into the development phere, human societies and, ultimately, our planet. ..A:> process (Ostrom 1990, Carr et al ~007) . While the development community has faced challenges in valuing and incorporating a Habiba Gitay and Michele de Nevers are based at the World Bank diverse knowledge base, developing and!or adopting this knowl- Institute, The World Bank, Washington DC. edge for climate change presents additional challenges for the knowledge agenda, namely the urgency for the knowledge to be References generated and! or used for practical realities. Carr, E. R., P. M. Wingard , S. C. Yorty, M. C. Thompson , N. K. Jensen, and Knowledge and capacity are also critical for the development J. Roberson, 2007 . Applying DPSIR to Sustainable Development. International Journal of Sustainable Development and World Ecology 14 (6) of policies that are coherent at the national level, particularly 543-555. since climate change affects multiple sectors in multiple ways - be it in the way we produce and use our energy or how we deal Ostrom , E., 1990. Govern ing the Commons: The Evolut ion of Institutions for Collective Action. Cambridge University Press . 298pp . with the impacts of climate change. Although sectoral policies for 46 Development Outreach WORLD BANK I NSTITUTE A GLOBAL SEMINAR FOR SENIOR PoucYMAKERS Managing Capital Flows During Financial Turbulence and Risks to International Financial Stability Paris, France, April 29-May 2, 2008 The global economy is in its fifth year of continuous growth. However, overlapping with the global current account imbalances, the rccent credit crunch crises in advanced cconomies arising from indisciplined su pri e mongage loans in the US is likely to have an impact on the global economy. esc sub-prime mongages have been packaged as securitized assets and sold to major banb and investors (equity and hedge funds) all across the world. The issue of re-pricing risk and market risk management practices overlaps with that of sub-prime lending and securitization because under-pricing of risk is argued to have spurred demand for such as~ets. This policy seminar provides cutting edge analysis of the current issues in financial market turbulence and widening global imbalances, coupled with the heightening' of risks to financial stability and global economic growth arising from (I) unprecedented hike in oil prices; (2) declining value of US dollar against Euro and other curreflc!es ~ding to a realignment of major currencies; (3) slowing down of the US economy. What are tbe policy options for central bankers and ministers of finance in economic manageme t during such a confluence of rapid global changes? First, the seminar discusses Sjy,lii&d tacts about the capital flows, including the factors detennining the external e international currency exposures. AUDIENCE Second, the discussion centers aroullif' Crec!if crun h, contagion across countries arising This fcc-based seminar (USS2000) targets senior level govern- from securitized assets, role of sqv lth funds, hedge and equity funds in the ment officials, officials from ccntral banks, ministries of ongoing financial turbulence. h' 'n;u- focuses on international financial finance and planning, financial regulatory agencies, staff from architecture issues, including implem f\he Basel II recommendations. Fourth, investment and commercial banks, as well as staff from the discussion is on core sub~!$. fUC as C D!