45121 The World Bank PREMnotes J U L Y 2 0 0 8 N U M B E R 3 SPECIAL SERIES ON THE ECONOMICS OF CLIMATE CHANGE Climate Change and Poverty: An Integrated Strategy for Adaptation Louise Cord, Catherine Hull, Christel Hennet, and Gregory Van der Vink Developing countries are most exposed to the impact of climate change and within these countries, the poor face the brunt of the burden. Climate change is not a discrete problem that can be dealt with through isolated reforms: impacting economic growth, health, and institutional capacity, it represents a full-frontal challenge to develop- ment. This note traces the multi-dimensional impacts of climate change, particularly on the poor, and proposes a three pronged integrated response to promote adaptation and help poor households cope with related risks. Climate change and poverty-- storms could also affect landlocked countries the transmission channels such as Mongolia and Moldova. Climate change is expected to have a growing Such changes in climate will have an im- direct impact on the environment, leading to pact on agricultural productivity. Yields from natural resource degradation, elevated levels rain-fed agriculture in parts of Africa could be of disease and loss of habitats, among others. reduced by up to 50 percent as early as 2020; These direct impacts are likely to have further and by 2060, drought affected areas in Sub- complex effects at the household and aggregate Saharan Africa could expand by 60­90 million or national levels, leading to increases in both hectares. Salinization from rising sea levels income and non-income poverty and the pos- could render key agricultural areas of Vietnam sibility of permanent poverty traps. Figure 1 and the Nile Delta infertile. However, longer, provides a simplified schematic of the impact more favorable growing seasons could lead to of climate change on poverty, from its direct ef- significant expansions of agriculture in North fects on the environment to its indirect impacts America (40 percent) and the Russian Federa- on households, the economy and society. tion (64 percent). Figure 1: Climate Change and Poverty-- From Direct to Household Basic Transmission Channels Level Impacts Direct Household- National- impacts level impacts level impacts The direct effects of climate change will vary by Natural Reduced income Changes resource from agriculture in relative region, but will be particularly severe in the tropics. degradation and fisheries prices Current projections of climate change at the regional level suggest that droughts are likely to CHANGE Increased Poorer Fiscal disease health become a more severe problem in Sub-Saharan pressures prevalence outcomes Africa in particular, while floods and sea-level rise will have a greater impact in South and Elevated Loss of CLIMATE Migration conflict South-East Asia, especially in low lying regions habitats risk in Bangladesh and Vietnam. Increases in the frequency and severity of storms will have their greatest effects in the hurricane belt of the Income and non-income Pacific and Indian Oceans, although winter poverty and poverty traps FROM THE POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK While climate change is likely to bring From Household to some localized health benefits, such as de- Aggregate Impacts creased winter deaths in temperate zones, its impact on public health is expected to be pre- ponderantly negative. IPCC scenarios suggest Changes in relative prices and trade that rising temperatures could lead to signifi- opportunities will hurt the poor. cant increases in malaria in Brazil, Southern Climate change will lead to short-run variability Africa, and the Horn of Africa. Flooding is in the relative price of basic commodities as well also associated with higher risks for typhoid as long-run hikes in real prices. The increased and other water borne diseases. In Ethiopia frequency of severe weather events is leading and Kenya, children are respectively 36 and 50 to more variable food prices. Over the medium percent more likely to be malnourished if they to long run, small temperature increases associ- are born during a drought. This suggests that ated with climate change could push food prices further climate change will lead to significant down (due to a positive impact on agricultural increases in malnourishment in some of the output in mid to high latitudes), but larger in- world's most drought-prone countries. creases of 3ēC possible for the later half of this century are likely to prompt prices to rise. The poor are most exposed to the risks of As the recent food price crisis shows, rising climate change. food prices have strong poverty effects, given Poor households are more likely to reside in the high share (50­60 percent) of income spent areas exposed to flooding and drought and by the poor on food. Higher food prices may rely on income from rain-fed agriculture and also heighten inequality, as larger farmers are natural resources. Between 60 and 70 percent of better equipped to withstand weather shocks the world's poor currently reside in rural areas and take advantage of higher prices than small and directly or indirectly derive a significant producers and the urban poor. Climate change share of their income from agriculture. Across is expected to increase the reliance of develop- 54 countries, environmental income contrib- ing countries on international grain trade by 10 utes almost twice as much to the income of the to 40 percent according to some estimates. poor than the non-poor (32 and 17 percent, Rising and variable energy and water prices respectively). also affect real incomes and disease incidence Climate change increases the risk of among poor households, as well as their ability permanent poverty traps. The poor are often to sustain agricultural production and diversify forced to sell their only productive assets for into nonagricultural activities. survival during emergencies. They may resort Many climate change shocks are likely to be to low-risk, low-return activities (such as sub- location specific. The ability of national markets sistence agriculture using low-yield varieties) to diffuse shocks will depend upon the presence in the face of increasingly frequent extreme of efficient factor and product markets. Given weather events. the high transactions costs and thin markets in Climate change is also expected to have a rural areas, particularly in much of Africa, loca- disproportionate impact on the health of the tion and sector specific shocks can be expected poor. The poor tend to have more preexisting to hit poor rural households the hardest. conditions, less immunization, and limited ac- cess to health care. When disaster strikes they Fiscal pressures resulting from climate change will resort to temporary shelters, where the risks of limit the resources available to help the poor. disease transmission are elevated. The fiscal effects of climate change could Both the gradual effects of climate change place significant strains on national and local and extreme weather events are likely to prompt budgets, threatening macroeconomic stabil- migration and displacement. Although such ity and undermining governments' ability to estimates are difficult to substantiate, one study undertake expenditures to help the poor cope foresees 150­200 million "environmental refu- with climate-related risk. gees" by the middle of this century. With limited Both climate-induced disasters and gradual social networks, job skills, and capital assets, change can have major fiscal impacts. Disasters migration will be more difficult for the poor. lead to production losses, damage to infrastruc- ture and health crises. For instance, Malawi's 2 PREMNOTE JULY 2008 budget deficit increased by 23 percent over The "protection" component of adaptation three years during droughts in the early 1990s, strategies focuses on infrastructure investments as expenditures grew rapidly and revenues (such as dikes and levees) to protect assets from shrank. In the case of gradual climate change, the natural environment and the direct effects elevated disease levels can place increased of climate change, particularly flooding and demands on health systems and reductions in rising sea levels. It is a common strategy used food supplies can prompt governments to shift by developed countries. expenditure from growth-oriented investments The "resiliency" component aims to boost to expensive subsidy programs. the tolerance of households and the economy Lower growth rates from climate change to the evolving natural environment. Among could also reduce fiscal revenues. The Stern other activities, it involves investments in Review, for example, projects potential losses drought resistant agriculture (including irriga- of 1­2 percent of GDP in 2050 rising to 2­8 tion), preventive healthcare, stronger building percent of GDP by 2100, with losses in develop- codes, and climate-resilient public and private ing countries higher still. infrastructure. Houses on stilts in the flood- plains of Thailand and floating primary schools Climate change will heighten the risk of in Bangladesh are among some of the efforts conflict, leaving the poor particularly exposed to enhance the resiliency of communities to to the devastating impact of violence. the effects of climate. At an institutional level, Conflict theory identifies resource scarcity, resiliency consists of improved frameworks decreasing livelihood opportunities, and refu- for managing natural resources and economic gee crises to be among the principal causes of incentives to shift out of climate sensitive ac- conflict. Climate change has the potential to tivities. create a potent combination of all three of these The final component strengthens "risk effects. The poor ­ who tend to be marginalized management" to help households, particularly in political debates and are subject to insecure the poor, cope with climate change. This em- ownership of land and other assets ­ often bear phasizes investments in safety net programs, the brunt of losses during conflict. disaster preparedness and monitoring plans, as Since conflict is the product of a complex well as financial and market risk management web of factors, climate change alone is unlikely mechanisms, such as microfinance, forward to be the sole cause of violence. But where markets, warehouse systems and insurance. climate change coincides with preexisting ten- One example of such an activity is the weather sions, the risk and severity of conflict is elevat- ed. West Africa and the Nile Basin have been identified as at risk of future conflict due to Figure 2: The Basic Elements of an climate-induced water scarcity, compounded by Integrated Adaptation Strategy high levels of water interdependence between neighboring states and rising populations. Financial & Agriculture & market Social infrastructure Preventive mechanisms safety nets investments healthcare Adaptation: Increasing Risk Resiliency the Resilience of the Poor manage- ment to Climate Change INTEGRATED Strategies for adaptation will need an inte- Disaster Institutional and preparedness ADAPTATION economic grated multi-sectoral approach that increases incentives countries' resilience to the effects of climate change and pays particular attention to vulner- able groups whose adaptation capacities are Protec- constrained. An integrated strategy to reduce tion vulnerability and adapt to climate change could have three complementary lines of ac- Barriers and protective tion (Figure 2). infrastructure JULY 2008 PREMNOTE 3 indexed insurance scheme offered by the World and good governance offers the best strategy Bank to small-scale farmers in Malawi. for continued poverty reduction in the face of Each of these three components cuts across climate change. Mobilizing the resources and sectors and involves actions at both the local implementing the three pronged strategy for and national level. Each can be undertaken adaptation outlined above will place a signifi- through a blend of public and private actions. cant strain on national, regional and local gov- Since many activities will yield significant posi- ernments. Strengthening government capacity tive externalities, the public sector will have an at all levels, including implementing stronger important role in boosting the incentives for accountability mechanisms, will be essential to private actors to engage in adaptation. help governments design and implement an Effective adaptation strategies should be effective response to climate change. targeted to the poor and integrated into na- tional poverty reduction strategies, especially This brief draws from L. Cord, C. Hennet, and G. given their multi-sectoral nature. When design- van der Vink (2008), "Climate Change and Pov- ing these strategies, particular attention should erty--Towards an Integrated Policy Framework for be paid to releasing the binding constraints to Adaptation," PREM Economics of Climate Change adaptation. In a survey of adaptation capacity Discussion Papers. The necessary references can be across African countries, farmers consistently found here. cited poverty and the absence of credit as criti- cal constraints, while successful adjustment to a changing climate was positively associated with About the authors education. These findings underline the cross- Louise Cord is the sector manager with the Poverty sectoral nature of the interventions which may Reduction Department, PREM Network. Catherine be necessary to enable the poor to effectively Hull is a consultant with the Poverty Reduction adapt to climate change. Department, PREM Network. Christel Hennet is The correct blend of options will of course with Terrametrics, LLC. Gregory Van der Vink is be context specific, weighing benefits against at Princeton University and Terrametris, LLC. costs over the immediate to long term. In some cases, protection and risk management options About the note series with short-term benefits may entail an elevation The PREM notes on the Economics of Climate of risk in the longer term. For instance, while Change are part of the effort conducted by the Pov- protective infrastructure may appear to be an erty Reduction and Economic Management Vice attractive short-term solution, it could promote Presidency of the World Bank to raise awareness on high-risk land use and even contribute to large- poverty, distributional, financial, fiscal, and trade scale disasters, as vividly demonstrated in 2005 related issues that tend to be underestimated in the in New Orleans. On the other hand, activities more scientific and political debates surrounding that boost resilience of households and firms Climate Change. The notes do not necessarily reflect tend to carry little moral hazard risk, making the view of the World Bank, its board or its member them a particularly promising line of action. countries. However, they do reflect the content of some While a strong multi-sectoral approach of the internal debates among economists interacting that focuses heavily on the poor is vital for traditionally on emerging or overlooked economic reducing countries' vulnerability to changes consequences of environmental policies. in the natural environment, overall economic For questions, please contact Milan Brahmbhatt development underpinned by good macro poli- at mbrahmbhatt@worldbank.org. cies, equitable structural and sectoral programs, This note series is intended to summarize good practices and key policy findings on PREM-related topics. The views expressed in the notes are those of the authors and do not necessarily reflect those of the World Bank. 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