Cost of Climate Change in Developing Countries

Even if global greenhouse gas emissions are cut to the level required to keep global temperature rise below 2°C this century, the cost of adapting to climate change in developing countries is likely to reach two to three times the previous estimates of $70 billion-$100 billion per year by 2050, according to a new United Nations Environment Programme (UNEP) report.

Released during a crucial round of climate talks in Lima, Peru, the first UNEP Adaptation Gap Report serves as a preliminary assessment of global adaptation gaps in finance, technology and knowledge, and lays out a framework for future work on better defining and bridging these gaps.

The report finds that, despite adaptation funding by public sources reaching $23 billion-$26 billion in 2012-2013, there will be a significant funding gap after 2020 unless new and additional finance for adaptation is made available.

Without further action on cutting greenhouse gas emissions, as outlined in UNEP’s Emissions Gap Report 2014, the cost of adaptation will soar even further as wider and more-expensive action is needed to protect communities from the intensifying impacts of climate change such as drought, floods and rising sea levels.

“As world leaders meet in Lima to take the critical next step in realizing a global agreement on climate change, this report underlines the importance of including comprehensive adaptation plans in the agreement,” said Achim Steiner, Executive Director of UNEP and Under-Secretary-General of the United Nations.

“The impacts of climate change are already beginning to be factored into the budgets of national and local authorities. The escalating cost implications on communities, cities, business, taxpayers and national budgets merit closer attention as they translate into real economic consequences,” he added.

National authorities and the international community should take steps to ensure the gaps in funding, technology and knowledge are addressed in planning and budgeting, he said. “Of particular concern are the implications on least developed countries, whose financial resources for investing in development will need to be redeployed to financing adaptation measures.”

The report provides a reminder that the potential cost of inaction carries a price tag. “Debating the economics of our response to climate change must become more honest,” he added. “We owe it to ourselves but also to the next generation, as it is they who will have to foot the bill.”

The Intergovernmental Panel on Climate Change’s Fifth Assessment Report includes estimates of the cost of adapting to climate change in developing countries of $70 billion -$100 billion per year by 2050—based largely on World Bank figures from 2010.

The Adaptation Gap Report, produced in collaboration with 19 leading institutions and research centres, expands upon these earlier estimates by including new national and sector studies in its analyses and modelling. The report finds that the earlier figures are likely to be a significant underestimate. For example, one newer study found that the annual average adaptation costs for South Asia alone were estimated at up to $40 billion.

While the Adaptation Gap Report finds that the likely increase in adaptation costs with emissions reductions in place is two to three times higher, it points to the possibility of even greater expense. Extending the analysis to all developing countries indicates a chance that adaptation costs could climb as high as $150 billion by 2025/2030 and $250 billion -$500 billion per year by 2050.

These costs are based on the assumption that further, wide-ranging action is taken to cut emissions to the level required to meet the target of limiting global temperature rise this century to 2°C compared to pre-industrial levels.

UNEP’s Emissions Gap Report 2014, released in early November, concluded that global carbon neutrality should be attained by mid-to-late century in order to limit global temperature rise to 2°C and head off the worst impacts of climate change. However, in a business-as-usual scenario, global greenhouse gas emissions could rise to up to 87 Gt CO₂e by 2050, far beyond the safe limits, and bring an increased need for spending to adapt to the consequences of a rapidly warming world. Under this scenario, adaptation costs could hit double the worst-case figures.

UNEP’s Africa Adaptation Gap Report, released prior to the Warsaw climate conference in 2013, found that adaptation costs for Africa alone could reach approximately $350 billion annually by 2070 should the 2°C target be significantly exceeded, compared to $150 billion lower per year if the target were met.

The Adaptation Gap Report also highlights that Least Developed Countries and Small Island Developing States are likely to have far greater adaptation needs; without early efforts to implement adaptation in these countries, the existing adaptation gap will widen as greater financial resources will need to be committed later.

Financial commitment rising, but more needed

There is evidence that financial commitments to adaptation objectives have increased in recent years, and that adaptation is being increasingly integrated into development policies, but scaling up financial flows to adaptation remains a priority, the report finds.

Public adaptation-related financing reached $23 billion-$26 billion in 2012-2013, 90 per cent of which was invested in non-Organisation for Economic Co-operation and Development (OECD) countries, plus Chile and Mexico.

This represents a large increase over recent years, although it is not clear how much of the funding is new as opposed to the result of shifting definitions of adaptation funding.

Private-sector funding, which is believed to account for a significant share of adaptation funding, is not systematically tracked. For this reason, estimates of adaptation finance flows are underestimated.

The report looks at the additional revenue that could be raised between 2015–2050 from a selected set of sources, such as: the international auctioning of emissions allowances and the auctioning of allowances in domestic emissions trading schemes, a carbon levy, revenues from international transportation, a wires charge, and financial transaction taxes.

The estimates show that $26 billion-$115 billion could be raised by 2020, while $70 billion-$220 billion could be raised by 2050, depending on the level of climate change mitigation efforts put in place.

Technology gaps

The report also highlights that there is a need to accelerate the propagation and international transfer of technologies for adaptation, many of which already exist. This, the report notes, requires governments to remove barriers to technology uptake, for example through incentives, regulations and the strengthening of institutions.

Critical to the successful uptake of technologies for adaptation is their applicability beyond increasing resilience to climate change. Experience shows that it is easier to scale up the deployment of adaptation technologies when they meet a number of other human needs in addition to providing climate benefits.

As an example of successful technologies, the report looks at scientifically developed seeds, which can be used to sustain agriculture within the context of a changing climate—critical for most African countries, given the dependence of large proportions of the population on farming.

In Madagascar, for example, rice varieties that mature in four months (as opposed to five or six) have been introduced. These rice varieties stand a greater chance of reaching maturity before the height of the cyclone season, increasing the probability of a sufficient harvest and ensuring seed will be available to plant the following season.

Knowledge gaps

Finally, the report points to considerable opportunities for using existing knowledge on climate change and adaptation more effectively.

For many regions and countries, there is a lack of systematic identification and analysis of adaptation knowledge gaps. Integrating and interpreting scientific evidence from different sources, and making it available to decision makers at all levels, is one of the most important knowledge needs today.

The report recommends that consideration of knowledge gaps be integrated more explicitly in project and program framing and design, to ensure that the knowledge produced responds better to user needs and identified knowledge gaps.

The report also suggests that a repository of adaptation options, which can be integrated in development decisions, could play a pivotal role in informing development decisions.