Climate Change, Agricultural Policy and Poverty Reduction Mark W. Rosegrant Director Environment and Production Technology Division Presentation given to the Briefing Session No 4: The Climate Challenge and the ACP Responses, Session 2: Impact of climate change on rural development and the urgency to act , Brussels, Belgium, February 13, 2008

Outline Climate Change and Variability Impacts on Agriculture and the Poor Adaptation Strategies Pro-poor Mitigation: Constraints and Opportunities Conclusions: Investing in Climate Change Policy for the Poor

Climate Change and Variability Impacts on Agriculture and the Poor

Adaptation Strategies

Pro-poor Mitigation: Constraints and Opportunities

Conclusions: Investing in Climate Change Policy for the Poor

Climate Change and Variability Impacts

Impacts and Vulnerability to Climate Change & Variability Rich countries emit majority of GHG Poor countries are more vulnerable Geography (hotter, less rain, more variation) Greater dependence on agriculture and natural resources Limited infrastructure and low-input agriculture Low income, poverty and malnutrition Thus, lower adaptive capacity (also including inadequate complementary services, like health and education)

Rich countries emit majority of GHG

Poor countries are more vulnerable

Geography (hotter, less rain, more variation)

Greater dependence on agriculture and natural resources

Limited infrastructure and low-input agriculture

Low income, poverty and malnutrition

Thus, lower adaptive capacity (also including inadequate complementary services, like health and education)

Climate change will reduce production growth in many of the poorest countries and regions Percent change in agricultural production due to climate change, 2080 Source: Cline 2007

Adaptation Strategies

Climate Change Adaptation “ Many adaptations can be implemented at low cost, but comprehensive estimates of adaptation costs and benefits are currently lacking…. “ (IPCC 2007)

“ Many adaptations can be implemented at low cost, but comprehensive estimates of adaptation costs and benefits are currently lacking…. “ (IPCC 2007)

Much Adaptation is Extension of Good Development Policy Promoting growth and diversification Investing in research and development, education and health Creating markets in water and environmental services Improving international trade system Enhancing resilience to disasters and improving disaster management Promoting risk-sharing, including social safety nets, weather insurance

Promoting growth and diversification

Investing in research and development, education and health

Creating markets in water and environmental services

Improving international trade system

Enhancing resilience to disasters and improving disaster management

Promoting risk-sharing, including social safety nets, weather insurance

Effective Adaptation Strategies Requires judicious selection of measures within a policy context and strategic development framework Must go beyond good development policy to explicitly target the impacts of climate change, particularly on the poor Market signals essential factor in determining the necessary responses to a changing environment but involves potentially expensive time lags and overlooks equity Climate change adaptation must therefore be proactive, not merely reactive

Requires judicious selection of measures within a policy context and strategic development framework

Must go beyond good development policy to explicitly target the impacts of climate change, particularly on the poor

Market signals

essential factor in determining the necessary responses to a changing environment

but involves potentially expensive time lags and overlooks equity

Climate change adaptation must therefore be proactive, not merely reactive

Critical Concerns for Effective Adaptation Strategies Extent and actions to which government and international community Offer incentives and investments to create and deploy improved technology and management techniques Effect of public policy on crop and livelihood diversification Impacts on current agricultural policies of the country Incorporate climate variability and change into policy choices

Extent and actions to which government and international community

Offer incentives and investments to create and deploy improved technology and management techniques

Effect of public policy on crop and livelihood diversification

Impacts on current agricultural policies of the country

Incorporate climate variability and change into policy choices

Pro-Poor Mitigation: Constraints and Opportunities

Critical Step: Post-Kyoto International Climate Change Regime Emissions targets, rates of convergence, and rates of growth in developing-country emissions Level of emission allowances for developing countries Level of caps by sector and industry Sector-specific mitigation options Incentives for international carbon trade Transparency and complexity of administration  All influence the regime’s impacts on economic growth, agriculture, food security, and poverty in developing countries

Emissions targets, rates of convergence, and rates of growth in developing-country emissions

Level of emission allowances for developing countries

Level of caps by sector and industry

Sector-specific mitigation options

Incentives for international carbon trade

Transparency and complexity of administration

 All influence the regime’s impacts on economic growth, agriculture, food security, and poverty in developing countries

Sources of GHG Emissions Sources: World Resources Institute 2007; World Development Report 2008 60% 18% 14% 4% 4%

Sources: World Resources Institute 2007; World Development Report 2008

Pro-Poor Climate Mitigation Policy Climate change policy can generate income for small farmers and investment flows for rural communities Requires effective integration from global governance of carbon trading, to sectoral and micro-level design of markets and contracts, and investment in community management

Climate change policy can generate income for small farmers and investment flows for rural communities

Requires effective integration

from global governance of carbon trading,

to sectoral and micro-level design of markets and contracts, and

investment in community management

Estimated Potential Emission Savings and Costs by Sector Source: Adapted from various estimates, Stern Review, pp. 244-63 22-33 40.0 Fossil fuel related, excluding bioenergy 3-5 4.1 Waste and fugitive emissions, industrial processes 25 2.0-3.0 Bioenergy 27 1.0 Agriculture (methane & nitrous oxide) 20-27 1.0-2.0 Land management practices 5-15 1.0-2.0 Afforestation and Reforestation 2-4 3.5-5.0 Deforestation Average Annual Cost($/tCO 2 ) ~2025-2050 2050 Annual Emissions Savings (GtCO 2 ) Sector

But minimal carbon trades in agriculture in developing countries Only 3-4% of carbon trading is sourced from agriculture, land use, land use change, agroforestry and forestry Only 3% of carbon trading is sourced from Africa

Only 3-4% of carbon trading is sourced from agriculture, land use, land use change, agroforestry and forestry

Only 3% of carbon trading is sourced from Africa

Constraints to Pro-Poor Mitigation High transaction costs of Clean Development Mechanism (CDM) Conditions for Offset Projects in Developing Countries Additionality, measurability, permanence, leakage prevention, social benefits, environmental benefits Information about carbon benefits to potential buyers, obtaining information about project partners, organizing project participants, capacity building and ensuring parties fulfill their obligations Transaction costs per unit of emission reduction are higher for projects involving many smallholders and forest communities

High transaction costs of Clean Development Mechanism (CDM) Conditions for Offset Projects in Developing Countries

Additionality, measurability, permanence, leakage prevention, social benefits, environmental benefits

Information about carbon benefits to potential buyers, obtaining information about project partners, organizing project participants, capacity building and ensuring parties fulfill their obligations

Transaction costs per unit of emission reduction are higher for projects involving many smallholders and forest communities

Carbon sequestration from soil carbon and avoided deforestation ― important areas for climate mitigation and for poor developing countries––are excluded from CDM CDM-eligible assets from afforestation and reforestation are excluded from European Union-Emissions Trading Scheme Constraints to Pro-Poor Mitigation

Carbon sequestration from soil carbon and avoided deforestation ― important areas for climate mitigation and for poor developing countries––are excluded from CDM

CDM-eligible assets from afforestation and reforestation are excluded from European Union-Emissions Trading Scheme

Expanding Pro-Poor Mitigation Establish international capacity building and advisory services - E stablish regional centers for forest carbon trading, soil carbon sequestration, others Institutional innovations linking communities to global markets – Specialized business services for low-income producers; locally accountable intermediary organizations to mediate between investors and local community Simplified standards (baseline and monitoring) for small-scale projects - Make eligible for simplified modalities; simplified emission reduction credits calculated using standardized reference emission rates Dealing with permanence issue in carbon sequestration – Allow short term contracts, payment for mass-time units of carbon

Establish international capacity building and advisory services - E stablish regional centers for forest carbon trading, soil carbon sequestration, others

Institutional innovations linking communities to global markets – Specialized business services for low-income producers; locally accountable intermediary organizations to mediate between investors and local community

Simplified standards (baseline and monitoring) for small-scale projects - Make eligible for simplified modalities; simplified emission reduction credits calculated using standardized reference emission rates

Dealing with permanence issue in carbon sequestration – Allow short term contracts, payment for mass-time units of carbon

Conclusions

Investing in Climate Change for the Poor Preliminary estimates from World Bank: Annual Official Development Assistance = $100 billion Foreign direct investment in developing countries = $150 billion Gross Domestic Investment = $1,500 billion Incremental annual investment requirements for adaptation to climate risk = $40 billion Potential Annual Cost of Emissions Reductions in Developing Countries = $150-250 billion Can be $150-250 billion value stream with appropriate policies

Preliminary estimates from World Bank:

Annual Official Development Assistance = $100 billion

Foreign direct investment in developing countries = $150 billion

Gross Domestic Investment = $1,500 billion

Incremental annual investment requirements for adaptation to climate risk = $40 billion

Potential Annual Cost of Emissions Reductions in Developing Countries = $150-250 billion

Can be $150-250 billion value stream with appropriate policies

Investing in Climate Change for the Poor Climate change policy can create new value-added for pro-poor investment Increases profitability of environmentally sustainable practices Employ advanced ICT to streamline measurement and enforcement of offsets, financial flows, and carbon credits for investors Enhance global financial facilities and governance to increase and manage funding flows for both mitigation and adaptation

Climate change policy can create new value-added for pro-poor investment

Increases profitability of environmentally sustainable practices

Employ advanced ICT to streamline measurement and enforcement of offsets, financial flows, and carbon credits for investors

Enhance global financial facilities and governance to increase and manage funding flows for both mitigation and adaptation