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Home > MEA Bulletin > List of Guest Articles > Guest Article No. 104
MEA Bulletin - Guest Article No. 104 - Friday, 19 November 2010
Addressing climate change in national key sectors – assessing the costs of adaptation and mitigation
By the Environment and Energy Group, Bureau for Development Policy, United Nations Development Programme (UNDP)
Climate change already impacts the lives of people around the world, and nearly all sectors of society either contribute to greenhouses gas emissions and/or are affected by climate change. However, most developing countries have been unable to articulate the economic and policy implications of addressing this challenge. Now, UNDP is supporting more than 20 countries in their efforts to undertake national assessments to estimate the costs of addressing priority adaptation and/or mitigation options in key sectors.

The countries are using a methodology developed by UNDP in collaboration with international experts and regional centres of excellence. The national assessment of investment & financial flows (I&FF) seeks to answer the question: “From a development perspective, what does my country need to do to address climate change in my selected key sectors, and what i) policy and regulatory framework, ii) investment environment, and iii) financial landscape will be required to achieve that objective? In this sense, the assessment moves beyond a straight costing activity to consider who is investing in the sector (households, corporations, and/or government?), when major investment decisions are expected to be made, and what shifts or increases in investments or financial flows will be needed in order to address climate change. The I&FF methodology captures the full financial needs of countries – including both specific physical investments and the wider financial flows for non-physical expenditures.

Background
The I&FF assessment is the key national activity for the 19 countries participating in the US$7 million global Environment & Energy Group (EEG) project, “Capacity Development for Policy Makers to Address Climate Change”: Algeria, Bangladesh, Colombia, Costa Rica, Dominican Republic, Ecuador, The Gambia, Honduras, Liberia, Nepal, Nicaragua, Niger, Namibia, Paraguay, Peru, St Lucia, Togo, Turkmenistan, and Uruguay. Two more countries (Argentina and Chile) are undertaking I&FF assessments through a US$2.6 million sister project for Ibero-America, “Climate Policy 2012”.

Funding for the global project has been provided by the Governments of Norway, Switzerland and Finland, UNDP and the United Nations Foundation. The regional project is funded by the Government of Spain and UNDP. More information on the project can be found in the MEA Bulletin of 15 January 2009: http://www.iisd.ca/mea-l/guestarticle61.html

Methodology Overview
Conceptually, the I&FF methodology is straightforward. Once the scope of a sector is clearly defined, the relevant investment costs for that sector are projected for two future scenarios: 1) a baseline scenario, which reflects a continuation of current national policies and plans, i.e., a future in which no new measures are taken to address climate change (otherwise referred to as a “business-as-usual” scenario), and 2) a climate change scenario, in which new mitigation measures are taken (a “mitigation scenario”) or new adaptation measures are taken (an “adaptation scenario”). The investment costs of the baseline and mitigation (or the baseline and adaptation) scenarios are then compared to determine the incremental changes in investments needed to mitigate emissions from the sector (or to adapt to the impacts to the sector). Note that changes in investments may include not only increases in investments (new funding), but also shifts in existing investments (reallocations of existing and currently projected funding levels such that funds in one area decrease, and funds in another area increase).

Results to date
Under the projects, countries have selected two to four key sectors for the I&FF assessment. For mitigation, energy and forestry were the most commonly identified (by 10 and eight countries respectively), while for adaptation, agriculture and water were the most common (by 12 and 11 countries respectively). Other sectors identified were transport, health, coastal zones, forestry, biodiversity, fisheries and tourism.

Key results to date include:
54 papers prepared by national experts describing why sectors were selected and potential barriers for the I&FF assessments.
More than 1,700 participants attended national workshops in 20 countries to both kick off the I&FF assessments and improve understanding of the international climate negotiations, which are important for understanding the future potential sources of climate finance.
Nearly 470 national experts have been trained in 17 countries on the UNDP methodology.
Three countries (Costa Rica, Turkmenistan, and Niger) have presented their final results at national dialogues (table 1), while the Dominican Republic presented initial results. The remaining countries will finalise and present their assessments through the next six months.
In Niger, more than 60 institutions provided data, including the Ministries of Economy and Finance.
Costa Rica is about to begin I&FF assessments for two more sectors, tourism and agriculture, at the request of the Vice President and the respective line Ministers.
An interactive group was created on the project website to support national teams. It can be accessed at: http://www.undpcc.org/groups/iff_methodology_feedback/default.aspx
In Paraguay, a high-level breakfast meeting was held with the Ministers of Environment, Finance, Health, Agriculture and Livestock, and National Emergencies to discuss the impact of climate change on national budgetary planning and sectoral public policies in preparation for the climate talks in Cancún.

Table 1: I&FF estimates for selected key sectors in Costa Rica, Niger, and Turkmenistan
Table 1: I&FF estimates for selected key sectors in Costa Rica, Niger, and Turkmenistan

The results of the I&FF assessments are generally comparable to those from UNFCCC’s National Economic, Environment and Development Studies (NEEDS) and World Bank’s studies of Economics of Adaptation to Climate Change. Although the costs may seem high, they also need to be considered within the context of planned national expenditures within these sectors.

Go to http://www.undpcc.org/content/inv_flows-en.aspx for detailed information on the studies, methodology (in English, French, Spanish, and Russian), and other resources.

Lessons learned
1) A prerequisite for effective I&FF assessments is to set up an inter-ministerial committee that supervises the process – both for ensuring Ministerial buy-in and for grounding proposed options in terms of achievable policy instruments. Each country has set up an inter-ministerial committee consisting of line ministries from the selected key sectors as well as the ministry of finance, environment and others. Some delays to the project have resulted from the focus on ensuring this national buy-in, which is considered essential for success.
The institutional composition of the I&FF team has important implications for embedding long-lasting capacities, so a mix of national policymakers along with national institutions such as universities or research centres is ideal. Technical backstopping is also critical.

2) Creating financial scenarios requires a complex set of decisions to be made and is a challenge for many countries. It is therefore important to clearly document all aspects of the scenarios – including assumptions and the parameters used to describe trends as well as the institutional, political, economic, social and environmental factors contributing to these trends.
It was assumed that many countries would have undertaken the development of adaptation scenarios as part of their Second National Communication; this is not the case.
Identifying what should be included in the reference and adaptation/mitigation scenario can be challenging – including from a political perspective.

3) It is necessary to rigorously define concrete measures to be included in the scenarios, so that they can be adequately costed as part of the I&FF assessment. In this context, countries need to balance their ambition levels for assessing a repertoire of policies and measures in a sector against what is feasible (based on data and information availability, capacity to precisely estimate costs, etc).
Costing of options can be a challenge in sectors where there is more uncertainty and less practical experience in public policy (e.g., adaptation measures for biodiversity).

4) Country teams can face challenges in proposing technically and scientifically sound adaptation/mitigation options that could nonetheless be seen as criticisms of current national policies. One solution is to highlight the approaches and policies being undertaken in other countries as constructive input (rather than recommendations) for policy makers.
It can also be useful to emphasise the emerging nature of climate science, which requires new perspectives.

5) One useful aspect of the I&FF methodology is that it separates out Operation & Maintenance costs from other investment costs (flows). This allows for consideration of the trade-offs between some measures (as compared to baseline technologies), which is needed by governments for decision-making.

6) When undertaking the I&FF assessment, many countries face data or information constraints, which they are managing in various ways, including:
Methodological – e.g. if data gaps are small, using statistical methods like interpolation or regression to close the gaps (e.g. used to close data gaps in time series in several countries);
Thematic – e.g. if data for a sub-sector is scarce, adjusting the scope to exclude those subsectors (e.g. Namibia narrowed the scope from land-use including forestry to agriculture to make the assessment more manageable);
Organizational – e.g. if data exist, but are not accessible to the I&FF team, one option is to prepare Memorandums of Understanding (MoU) between agencies or seek high-level intervention by ministry officials to encourage data sharing;
Research – e.g. especially for data on households (Turkmenistan conducted a household survey on electricity use).

Conclusion
Understanding the financial costs of addressing climate change, as well as the potential sources of those funds, is a critical step for governments in developing longer-term national policies and measures and the I&FF assessment has been a useful tool in this context. However, an equally important outcome of the process has been the fostering of institutional collaboration and discussions for mainstreaming climate change issues into national development planning. The I&FF assessments have improved the knowledge base for national budget planning and prioritization of investments, reinforced national sectoral planning, and informed discussions at the national level regarding the post 2012 financial architecture for long-term cooperation on climate change. It is also anticipated that the I&FF assessments could provide useful inputs for the development or refinement of national strategies, such as National Adaptation Plans.
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