ShockWaves 106203 Managing the Impacts of Climate Change on Poverty Note 3/3 Policy Note Policy 3/3 Scalable Social Protection for Disaster Risk Management and Climate Change Adaptation Climate change and poverty are inextricably linked. Climate change threatens poverty eradication. But future impacts on poverty are determined by policy choices: rapid, inclusive, and climate-informed development can prevent most short-term impacts of climate change on poverty, while a failure to adopt good development policies could mean more than 100 million additional people are pushed into poverty by 2030. And only immediate emissions-reduction policies can prevent climate change from threatening longer-term poverty eradication. Well-designed policies and international support can ensure mitigation does not threaten progress on poverty reduction. This is Policy Note 3 (of 3) drawn from Shock Waves: Managing the Impacts of Climate Change on Poverty (2016) by Stephane Hallegatte, Mook Bangalore, Laura Bonzanigo, Marianne Fay, Tamaro Kane, Ulf Narloch, Julie Rozenberg, David Treguer, and Adrien Vogt-Schilb. Climate Change and Development Series. Washington, DC: World Bank. It discusses the cross-cutting them of social protection. Policy Note 1 provides an overview of the report, and Policy Note 2 lays out sectoral policy recommendations. Climate change will increase the frequency and severity of up rapidly after a shock and with flexible targeting systems certain shocks, including crop failures and spikes in food ­ able to redirect support toward affected households. Such a prices, natural disasters such as storms and floods, and safety net system acts as an insurance facility for vulnerable ­ climate-sensitive diseases such as malaria and diarrhea. In households (figure 1), and is an effective means to support principle, households can use a range of private instruments poor people hit by shocks and avoid detrimental coping to cope with the consequences of these shocks. They can draw strategies. In Mexico, beneficiaries of Prospera, the national on their savings, borrow from a bank or cooperative, rely on cash transfer program, are less likely to withdraw their chil- formal or informal community-based insurance, benefit dren from school when hit by shocks. In Kenya, the Hunger from domestic or international remittances, and sometimes Safety Net Program prevented a 5 percent increase in p ­ overty buy private insurance. among beneficiaries following the 2011 drought. But there is only so much these private instruments can Figure 1 Poorer households need different types achieve. Access to bank accounts and credit remains limited of solutions in the developing world. And poor people do not have More International aid enough savings to smooth against large shocks. Amounts intense events Social insurance transferred through remittances are often too small, and and scaled-up social safety nets remittances mostly go to wealthier households. For large- Market insurance Government scale events, such as a big flood, entire communities are insurance and contingent finance affected, making informal risk-sharing mechanisms inef- Savings, credit, and Government scaled-up remittances fective. And transaction costs and other limitations often reserve funds prevent private insurance uptake among poor people, Smaller Basic social protection, remittances, unless it is heavily subsidized. events and revenue diversification For the poorest, and for catastrophic shocks, govern- Poorer Richer households households ments need to provide social safety nets that can be scaled 1 This policy note details options for governments to mix of geographic and community-based targeting in rural design responsive social protection programs. It also dis- areas to identify the neediest. cusses mechanisms to ensure that liquidity constraints do Where governments have the capacity to maintain them, not prevent the quick delivery of postdisaster support to social registries are key to rapid and cost-effective expan- the population. sion of social protection systems. In Brazil, the Cadastro Unico registry includes households with a per capita income Rapidly Increasing Social Protection below half the national minimum wage, a threshold that is Social protection can be scaled up after a natural disaster higher than the income eligibility threshold of existing hits, effectively acting as an insurance facility for vulnera- cash transfer programs. Such a design allows the rapid ble households. A key challenge is to strike a balance identification of potential beneficiaries and vulnerable between providing rapid support after a shock and precisely households—even if they were not considered poor before targeting those most in need. Case studies from Ethiopia the shock—and ensures that cash transfer schemes can and Malawi suggest that the life-long cost of a drought to a rapidly respond to crises. ­ poor household can increase from zero to about $50 if ­ support is delayed by four months, and to about $1,300 if Increase the amount or value of transfer support is delayed by six to nine months. This rapid increase Another option is to increase transfers to current beneficia- is due to irreversible impacts on children and distress sales ries of existing social protection programs. This works well of assets like livestock. Early basic support should thus favor when the disaster primarily affects the poorest people, and timeliness even at the expense of targeting accuracy, with when there is already at least one large-scale social protec- larger, more targeted reconstruction support following. tion program in place in the country. There are three main ways to rapidly increase social One example of a program that was scaled up in response ­ protection in response to a shock: to a shock is the Philippines’ Pantawid Pamilyang Pilipino Program (4Ps). After Typhoon Yolanda, the Philippines was Expand coverage able to use the 4Ps’ existing conditional cash transfer system Natural disasters such as floods or droughts can cause to quickly release the equivalent of about $12.5 million households above the poverty line to fall into poverty— between November 2013 and February 2014 in emergency possibly making them poorer than existing beneficiaries of funding. Organizations including the World Food Program social protection. It is important therefore to design social and the United Nations Children’s Fund also channelled their protection programs to expand and cover at-risk house- support through the 4Ps, effectively increasing the amount holds when needed. transferred to beneficiaries. When the 2011 droughts caused food shortages and Sometimes, increasing transfers also requires relaxing famine, Ethiopia’s Productive Safety Net Program (PSNP) ­program rules and conditionality. Disasters may make ­existing expanded its coverage from 6.5 million to 9.6 million peo- program rules impractical or inappropriate: if a disaster ple in two months and increased the duration of benefits destroys schools in a region, attendance is no longer an appli- from six to nine months per beneficiary. Ethiopia’s pro- cable condition for disbursing conditional cash transfers. In gram has access to contingency budgets it can draw upon Colombia, the Familias en Acción program ­ suspended condi- when faced with a crisis to finance rapid scale-up. It uses a tionality temporarily in 2008 to accommodate the shortfalls 2 in service provision as a result of damaged infrastructure. alternative income sources are lacking. The Productive In the Philippines, all conditionality linked to the 4Ps cash Safety Net Program in Ethiopia is largely implemented transfers was relaxed after Typhoon Yolanda in 2013. through a public works component that supports income generation for poor people and explicitly encourages adap- Create a new program tation. In fact, 60 percent of the projects target soil and water conservation, strengthening both livelihoods and A third way to respond to a crisis is to introduce a new resilience to the impacts of variable rainfall. ­ program. The 1990 Honduran Programa de Asignación Familiar and the 2001 Colombian scheme Familias en Acción were launched during recessions and macroeconomic How to pay for social protection adjustment periods. In Guatemala, the food and fuel crisis of ­ Experience shows that safety nets remain affordable and 2008 prompted the introduction of a new program, Mi reduce the need for costly humanitarian interventions. Still, Familia Progresa. All three programs were later institutional- governments need to fund social protection systems, and ized and became part of the regular social protection system. ensure that financial liquidity is not a bottleneck to deliver- Putting in place a new program takes time, while the ing adequate postdisaster support. Options include: postdisaster response is urgent. To work around this prob- ■■ Reserve funds. The Risk Financing Mechanism in lem, the Citizen’s Damage Compensation Program (CDCP) Ethiopia is a fund dedicated to scaling up social that Pakistan established as a response to devastating floods protection, which allows the Productive Safety in 2010 was introduced in two phases. The first phase pro- Net Program to increase its support to vulnerable vided quick assistance to the most affected families and was people. Similarly, Mexico’s Natural Disasters Fund delivered through one-off cash grants—using the network (FONDEN) was created as a budgetary tool to rap- of private banks—and was based on crude geographical idly allocate federal funds for rehabilitation of public targeting. The second phase provided larger cash payments infrastructure affected by disasters. that could be used to rebuild houses, restore livelihoods, or ■■ International aid. When a country’s capacity to repay debt, and was allocated on the basis of a more precise cope with a disaster is exceeded, humanitarian emer- survey of flood damages. To deal with unavoidable errors gency support is critical. But foreign aid’s response in selecting beneficiary households, a strong grievance to disasters tends to be sensitive to media coverage, mechanism is essential. In the CDCP, the grievance mecha- is unpredictable, and can be slow to arrive—all of nism cut exclusion errors from an initial 61 percent to which makes it unsuitable to use as the basis for con- 32 percent. tingency plans. Foreign aid should thus be regarded An option for quickly creating new programs that does as a resource of last resort. not require high institutional capacity is to use work pro- ■■ Insurance and catastrophe bonds. Governments grams. These programs provide jobs and income through can use insurance to finance the scale-up of social public infrastructure projects (like road construction, protection—in that case the population is indirectly maintenance, irrigation infrastructure, reforestation, and insured through the government budget, reduc- soil conservation) or, especially in postdisaster situations, ing transaction costs. In 2006, Mexico’s FONDEN debris removal, rehabilitation, or reconstruction tasks. issued a $160 ­ million catastrophe bond to transfer Work programs are self-targeted: people join only if part of the country’s earthquake risk to international 3 capital markets. Insurance products also offer ben- Options (Cat-DDOs), a financing instrument allowing efits in the form of fiscal discipline and timeliness countries to access budget support in the i ­mmediate of budget ­ allocation. But high premiums reduce the aftermath of a disaster. A loan can be rapidly disbursed benefits from sovereign insurance. if a state of emergency is declared. Cat-DDOs can be ■■ Regional risk-sharing facilities. The Caribbean used to back up existing insurance pools. Cat-DDOs Catastrophic Risk Insurance Facility currently pools also incentivize proactive actions to reduce risk: to be disaster risk across 16 countries and provides partici- eligible, governments must demonstrate capacity to pating governments with quick-disbursing, short- manage natural risks. term liquidity for financing responses and early Cat-DDOs are effective, but governments tend recovery from major earthquakes or hurricanes. In to favor cash in hand over contingent instruments. response to Cyclone Pam in March 2015, the Pacific As a result—and despite strong interest from Catastrophe Risk Assessment and Financing Initiative many ­ countries—the uptake of Cat-DDOs has been provided Vanuatu with a rapid $1.9 million payment ­ limited. One option to improve access to contingent to support immediate postdisaster needs, 8 times the finance would be to remove this trade-off between government’s annual emergency relief provision. cash in hand and contingent finance by separating ■■ Contingent credit: Cat-DDOs. In 2007, the World the budget allocated to contingent instruments from Bank introduced Catastrophe Deferred Drawdown the budget allocated to traditional lending. SKU 32974 4