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Economywide Impacts of
Climate Change and Adaptation
          in Ethiopia:
      Preliminary Results
      Sherman Robins...
Ethiopia: Climate Change Impact
      and Adaptation Project
• World Bank: UK, Dutch, and Swiss funding
• Core modeling te...
Future Climate is Uncertain
   Economic & Model Uncertainty
Wide Variation at Local Scale between Models


                                Precipitation
                             ...
Observed & Predicated Trends
Consistent Message from GCMs

• Change in Daily
  Precipitation
  Intensity
• Change in inter-
  storm arrival
• Seasonal ...
Modeling Framework




             Infrastructu
             re
             •Roads
             •M&I
             Water
PRECIP CHANGES 2050
Five Agro-Ecological Zones

SAM Region Temperature and Moisture Regime

R1 (Zone 1)   Humid lowlands, moisture reliable
R2...
5 Agro-Ecological Zones (AEZs)




                            10
Crop Yield
ROADS
              total average cost from climate change

$25,000,000




$20,000,000




$15,000,000




$10,000,000


...
120
                               FLOODS
          REGION 3
100




80




60




40




20




  0
      1   3   5   7  ...
FLOODS

• Regional based on 36 Basin
• Damage Infrastructure
• Increased frequency of extreme events
CMI
Energy Resources Development Plan
Study focus: potential impacts of climate change on Ethiopian energy and
costs of adapta...
Energy Demand


                      80000
                                                       Target
                ...
Potential Climate Change Impacts
Climate Change Adaptation Costs
Shift projects within the development plan such that energy produced
under the Base scenar...
Economywide: Methodology
• Computable General Equilibrium (CGE)
  economywide model
• Regionalized
  – Based on 5 agro-eco...
Data Base: EDRI 2004/05 Social
     Accounting Matrix (SAM)
• Constructed as part of a project with IDS
  (w/support of IF...
Data Base: EDRI 2004/05 SAM

• Agricultural production
  – Crops and livestock disaggregated by five
    regions: agro-eco...
CGE Model:
    Product and Factor Markets
• Model simulates the operation of a market
  economy
  – Commodity and factor p...
CGE Model: Income Distribution

• Households disaggregated by region and
  income
• Household incomes depend on distributi...
CGE Model: Macro Specification
• Trade balance
  • Fixed foreign savings (foreign capital inflow), so trade
    balance (c...
Dynamics

• Model is run from 2006 to 2050
  – Dynamic recursive specification. Exogenous
    variables and parameters upd...
Climate Change (CC) Shocks

• Temperature and water: direct impact on
  agricultural productivity
  – Crops (yields) and l...
Adaptation Investment

• Agricultural investment (e.g. irrigation,
  chemicals, technology) reduces yield shocks
• Dam con...
Climate Change Scenarios
Scenario GCM                           CMI    Description
MB        Trend base                   ...
Differences in Present Value of
   GDP from Base Scenario




                                  30
Deviations of GDP from Base Run
           by Decade




                              31
Agriculture: Mean and Stnd Dev of
      Annual Growth Rates




                                32
Agriculture: Min and Max Annual
          Growth Rates




                                  33
Crop Output: Differences from
 Base Scenario by Decade




                                34
Regional Growth Rates:
Differences from Base, Wet2




                              35
Regional Growth Rates:
Differences from Base, Dry2




                              36
Mean Annual Growth Rates of
  Household Consumption




                              37
Standard Deviation of Growth
Rates of Household Consumption




                             38
Conclusions
• Negative impacts of CC shocks are significant
  – Regional and sectoral variation across scenarios
  – Espec...
Conclusions
• Adaptation investment
  – Very beneficial, especially in extreme scenarios
  – Reduces size and variance of ...
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Economywide Impacts of Climate Change and Adaptation in Ethiopia: Preliminary Results

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Ethiopian Development Research Institute(EDRI) and IFPRI Ethiopia Strategy Support Program 2 (IFPRI-ESSP2) Seminar Series
November 20, 2009

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Economywide Impacts of Climate Change and Adaptation in Ethiopia: Preliminary Results

  1. 1. Economywide Impacts of Climate Change and Adaptation in Ethiopia: Preliminary Results Sherman Robinson (IDS) Dirk Willenbockel (IDS) Channing Arndt (Copenhagen) James Thurlow (IFPRI) Kenneth Strzepek (MIT, Colorado)
  2. 2. Ethiopia: Climate Change Impact and Adaptation Project • World Bank: UK, Dutch, and Swiss funding • Core modeling team worked closely with: – EDRI: Hashim Ahmed – IFPRI: Emily Schmitz, Paul Dorosh – Water/climate team: Ken Strzepek, Paul Block • One of seven case studies: – Ethiopia, Mozambique, Ghana, Bangladesh, Vietnam, Bolivia, Samoa. 2
  3. 3. Future Climate is Uncertain Economic & Model Uncertainty
  4. 4. Wide Variation at Local Scale between Models Precipitation 2100 NCAR Precipitation 2100 MIROC
  5. 5. Observed & Predicated Trends
  6. 6. Consistent Message from GCMs • Change in Daily Precipitation Intensity • Change in inter- storm arrival • Seasonal & Spatial Variation
  7. 7. Modeling Framework Infrastructu re •Roads •M&I Water
  8. 8. PRECIP CHANGES 2050
  9. 9. Five Agro-Ecological Zones SAM Region Temperature and Moisture Regime R1 (Zone 1) Humid lowlands, moisture reliable R2 (Zone 2) Moisture sufficient highlands, cereals based R3 (Zone 3) Moisture sufficient highlands, enset based R4 (Zone 4) Drought-prone (highlands) R5 (Zone 5) Pastoralist (arid lowland plains) 9
  10. 10. 5 Agro-Ecological Zones (AEZs) 10
  11. 11. Crop Yield
  12. 12. ROADS total average cost from climate change $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $- 2020ncar_ccsm3_0_a1b 2030 2040 gfdl_cm2_1_a1b 2050
  13. 13. 120 FLOODS REGION 3 100 80 60 40 20 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 History WET
  14. 14. FLOODS • Regional based on 36 Basin • Damage Infrastructure • Increased frequency of extreme events
  15. 15. CMI
  16. 16. Energy Resources Development Plan Study focus: potential impacts of climate change on Ethiopian energy and costs of adaptation Timeline: 2010-2050 Predominantly hydropower Project cost and year
  17. 17. Energy Demand 80000 Target 70000 Energy [GW_hrs] 60000 Design 50000 40000 Moderate 30000 20000 10000 0 2005 2010 2015 2020 2025 2030 2035 2040 2045 Year
  18. 18. Potential Climate Change Impacts
  19. 19. Climate Change Adaptation Costs Shift projects within the development plan such that energy produced under the Base scenario is matched or minimally exceeded Costs in 2010 USD; 5% discount rate
  20. 20. Economywide: Methodology • Computable General Equilibrium (CGE) economywide model • Regionalized – Based on 5 agro-ecological zones – Regional agricultural production – Regional household incomes and consumption • Disaggregated households – Rural farm (by region) – Small urban (rural non-farm) and large urban centers
  21. 21. Data Base: EDRI 2004/05 Social Accounting Matrix (SAM) • Constructed as part of a project with IDS (w/support of IFPRI-ESSP2) • 65 production sectors, 5 Regions + urban – 24 agricultural, – 10 agricultural processing, – 20 other industry, – 11 services • 14 Households by region and income 21
  22. 22. Data Base: EDRI 2004/05 SAM • Agricultural production – Crops and livestock disaggregated by five regions: agro-ecological zones • Poor household groups defined as poorest 40% of rural and urban households according to HICES 2004/05 per capita expenditure data 22
  23. 23. CGE Model: Product and Factor Markets • Model simulates the operation of a market economy – Commodity and factor prices are solved endogenously to “clear” markets • Land: fixed by region, mobile across crops • Labor markets: – Labor supply is exogenous by skill category – Real wages solved endogenously 23
  24. 24. CGE Model: Income Distribution • Households disaggregated by region and income • Household incomes depend on distribution of factor income, including region-specific and agriculture-specific factors. – Volatility of income depends on volatility of factor incomes, which is affected by CC shocks 24
  25. 25. CGE Model: Macro Specification • Trade balance • Fixed foreign savings (foreign capital inflow), so trade balance (current account) is also fixed. • Real exchange rate adjusts to achieve export supply and import demand that yield the fixed trade balance. • “Balanced” macro closure • Aggregate investment, government demand, and consumption are fixed shares of total absorption. • Any macro adjustment burden is shared equally across macro aggregates • Govt deficit is endogenous. Savings rates adjust to achieved savings-investment balance. • Numeraire: Consumer price index is fixed • The model determines prices relative to this fixed CPI.
  26. 26. Dynamics • Model is run from 2006 to 2050 – Dynamic recursive specification. Exogenous variables and parameters updated “between” periods. CC shocks imposed. – Model solved twice in each period: • Solve after updating all exogenous variables to determine “desired” production decisions, • Then fix agricultural factor inputs and solve again with CC shocks on activities and factors 26
  27. 27. Climate Change (CC) Shocks • Temperature and water: direct impact on agricultural productivity – Crops (yields) and livestock by region • Water shocks: – Hydroelectric generating capacity – Floods affect transport (roads) and agriculture by regions 27
  28. 28. Adaptation Investment • Agricultural investment (e.g. irrigation, chemicals, technology) reduces yield shocks • Dam construction reduces impact on hydro • Road investment reduces impact of flooding on transport sector – Investment to pave and “harden” roads 28
  29. 29. Climate Change Scenarios Scenario GCM CMI Description MB Trend base Trends with no climate change Base Historical Climate Historical climate shocks Wet2 Ncar_ccsm3_0-sres (A1b) 23% Very wet CC shocks Wet1 Ncar_ccsm3_0-sres (A2) 10% Wet CC shocks Dry1 Csiro_mk3_0-sres (A2) -5% Dry CC shocks Dry2 Gfdl_cm2_1-sres (A1b) -15% Very dry CC shocks CMI: Crop moisture index change In addition, the CC scenarios have two additional scenarios indicated by a suffix: “A” for adaptation and “AC” for adaptation with investment costs. 29
  30. 30. Differences in Present Value of GDP from Base Scenario 30
  31. 31. Deviations of GDP from Base Run by Decade 31
  32. 32. Agriculture: Mean and Stnd Dev of Annual Growth Rates 32
  33. 33. Agriculture: Min and Max Annual Growth Rates 33
  34. 34. Crop Output: Differences from Base Scenario by Decade 34
  35. 35. Regional Growth Rates: Differences from Base, Wet2 35
  36. 36. Regional Growth Rates: Differences from Base, Dry2 36
  37. 37. Mean Annual Growth Rates of Household Consumption 37
  38. 38. Standard Deviation of Growth Rates of Household Consumption 38
  39. 39. Conclusions • Negative impacts of CC shocks are significant – Regional and sectoral variation across scenarios – Especially severe in last decade • Given growth scenario, planned hydroelectric capacity meets demand under CC shocks – CC shocks affect exports, not domestic supply • Extreme “wet” scenarios, with increased incidence of floods, are especially damaging • Poor and rural households are hurt more by CC shocks: mean and variance 39
  40. 40. Conclusions • Adaptation investment – Very beneficial, especially in extreme scenarios – Reduces size and variance of CC impacts – Reduces but does not eliminate negative impact of CC shocks – Benefits vary widely across CC scenarios. • Need for analysis of investment under risk – Consistent with Ethiopia’s agricultural development strategy • Infrastructure: roads, electricity, irrigation • Technology, farm management, extension 40

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