Microsoft

FCFAAppliedResearchFund:Economics,PoliticalEconomyandBehaviouralScienceofAccountingforLong-termClimateinDecisionMakingToday

ReviewPhase2015-03-10Note:Thisliteraturereviewwaspreparedtoinformtheaboveproject.Itispublishedhereindraftformtocontributetogreyliteratureonthistopic,andhasnotbeenpeerreviewed.

GCAP,VividEconomics,UKMetOfficeandAtkins

FCFAAppliedResearchFund:Economics,PoliticalEconomyandBehaviouralScienceofAccountingforLong-termClimateinDecisionMakingToday

ThisreportsummarisesthefindingsofPhase1oftheproject‘Economics,PoliticalEconomyandBehaviouralScienceofAccountingforLong-termClimateinDecisionMakingToday’.ThestudyisbeingundertakenbytheGlobalClimateAdaptationPartnership(GCAP),workingwithVividEconomics,theUKMetOfficeandAtkins.

SUMMARY

ThisreportsummarisesthefindingsofPhase1oftheproject‘Economics,PoliticalEconomyandBehaviouralScienceofAccountingforLong-termClimateinDecisionMakingToday’.ThestudyisbeingundertakenbytheGlobalClimateAdaptationPartnership(GCAP),workingwithVividEconomics,theUKMetOfficeandAtkins.ThisprojectisoneofanumberofresearchactivitiesthathavebeencommissionedbytheFutureClimateForAfrica(FCFA)programme,whichisadvancingscientificunderstandingofsub-SaharanAfricanclimateondecadaltimescalesandpromotingtheuseanduptakeofclimateinformationinlong-termclimate-resilientdevelopmentstrategies.Theaimsofthecurrentprojectaretoanalyseandidentifythetypesofdevelopmentdecisionsthatshouldbeactivelyaccountingforfuture(10years+)climateindecisionstakentoday,andtoadvancequantitativeevidenceonthistohelpinformdecisionsmadebydevelopmentpractitionersinAfrica.Theaimsofthefirstphaseoftheproject–summarisedinthisreport–aretoundertakeaninitialliteraturereviewonlong-livedpolicies,toidentifypracticalexamplesoflong-termdecisions,andtoreviewthebarrierstolong-termdecision-making.Thefindingsofthesetaskswillbeusedtoprovideinitialconclusionsanddevelopaframeworkandmethodologyforphase2,whichwillundertakeaseriesofeconomiccasestudies.Thefindingsofthereportaresummarisedbelow.TASK1:IDENTIFICATIONOFLONG-LIVEDPOLICIESANDINVESTMENTSThistaskhasexploredanumberofevidencelinestoidentifywhereandhowlong-livedpolices,plansandinvestmentsarebeingmadeacrosssub-SaharanAfricaandwherethesewillshapevulnerability.PolicyreviewThestudyhasfirstreviewedthepotentialareasofinterestforthestudy.ThisbuildsonearlierworkofHallegatteandRanger,whichindicatesapotentialfocusforinfrastructure(water,

irrigationandfloodprotectioninfrastructure,butalsoenergyandtransportinfrastructure)andplanning(especiallyurbanandcoastalplanning),inthe5to40yearperiodofinterestforthestudy.However,additionalreviewhighlightsthateveninthesecases,thepictureislikelytobemorenuanced,forexamplewhilemajorhydropowerschemesmightjustifyclimateriskscreening,smallerhydropowerplantsmaynot,andthejustificationforinvestmentinroadschemesmightbelimitedtositingandcriticalnodes(bridges).Thereviewhasalsoidentifiedsomeadditionalareasthatarerelevantforthistimeperiod.Thisincludesforestry,agriculturalland-useandcropplanning(especiallykeyexportcrops)andnaturalandsemi-naturalecosystemmanagement.DevelopmentplanningreviewInadditiontothereviewabove,thestudyhasalsoidentifiedthetypesofprocessesthatareinvolvedinmedium-long-termadaptation,asthesearecriticalinlookingatpracticalimplementation.Intheadaptationcontext–inSub-SaharanAfrica–thisiscentredonadaptationmainstreaming,i.e.theintegrationofadaptationintoexistingdevelopmentplanningprocesses(andsectors)andtheinclusioninprogrammeandprojectsafeguardandscreeningprocesses.Thefocusonmainstreaming,however,createsasetofadditionalproblems,associatedwiththetransferofpotentialcomplexmediumtolong-termadaptationdecisionstosectorsandactors.Anumberofrecentreviewshaveinvestigatedtheseissues,andhighlightedsomepracticalrecommendations,whicharesummarised.EconomicscopingInmanycases,themostimportantimpactsofclimatechangearelikelytoariseinthefuture.Thebenefitsofadaptingtothesechangesaccumulateoverlong,futuretimehorizons,whilethecostsareincurrednow.Usingthediscountratesconventionallyusedindevelopingcountries,futureadaptationbenefitsinthemediumtermandbeyondareextremelysmallincurrentterms.UsingahighlyillustrativeexampleandconventionaldiscountratesforLDCs(e.g.12%),thefuturestreamofadaptationbenefits(afewdecadesaway)needtobemanytimesgreaterthanupfrontadaptationcosts,topassaneconomiccost-benefitanalysis.Analysisoftheadaptationeconomicsliteratureshowsthislevelofbenefitswillberare,especiallygivenfuturebenefitsmaynotberealisedduetouncertainty.Inpracticalterms,thismeansthatthelimitedresourcesavailableinsuchcountrieswillmostbebetteroffspentelsewhere(i.e.togivemoreimmediatesocialbenefits)anditgivesmuchgreaterpreferencetono-regretadaptationoptionsastheseproduceimmediateeconomicbenefits.However,therearesomecaseswheremediumtolong-terminvestmentscouldbejustified,andthestudyhasexaminedthesewithsomesimpleexamples/schematics.Theyinclude:• Wherethecostsoflowcostoverdesign(orflexibilityorrobustness)areextremelylow;• Wherethecostsofclimatechangeandthebenefitsofadaptationareextremelyhigh(when

therearemajorshocksorindirecteffects,suchasfromfailureofcriticalinfrastructure);• Whenthereareearlybenefitsassociatedwithlonger-termadaptationoptions;• Whenthereisavalueofinformation(thoughthisismuchlowerthanintheOECDcontext);• Wheretherearefuturenon-marginaleffects.CapitalinvestmentsWhilesomecapitalinvestmentstodaymightappearvulnerabletofutureclimateortootherwiseaffectvulnerabilitytoclimatechange,theresultingcapitalstockmaydepreciatesofastthatitseconomiclifetimeisrelativelyshort.Thishasbeenreviewed,andfoundthatcapitaldepreciatesfasterindevelopingcountries.However,eventhoughdepreciationintheAfricancontextissignificantlyfasterthanintheUS,thissuggeststhatdecisionsonassetstakenoverthe

nextfewyearswilldeterminethecharacterofcapitalstockforthenextcoupleofdecades,atleast.QuantitativeassessmentofdecisionsthatlockinclimatevulnerabilityThestudyhasanalysedthepotentialinfrastructureinvestmentinfutureyearsinAfrica.Lookingacrosstheindicatorsofinfrastructureintensityasawhole,NigeriaappearstohavethehighestabsoluteinvestmentneedsinSub-SaharanAfrica–indeed,ithasthehighestneedsfornineofthetwelveindicatorsexaminedbyasignificantmargin.EthiopiaandtheDRCalsoscorehighlyonawiderangeofindicators.Inallthreecases,thekeydriverofthisisthelargesizeofthecountrybothintermsofpopulationandlandarea.Sucheffectsbecomemorepronouncedwhenconsideringforecastsofthesevariablessuchascitypopulationgrowth.However,thesesamecountriestypicallyperformpoorlywhenlookingattheenablingenvironmentforinfrastructureinvestment.CompositecreditratingsareroughlyaroundthemidpointofSub-SaharanAfricaindicatingeachcountryhaspooraccesstofinancefrominternationalsourceswhilethelevelofdomesticcreditavailableiswithinthelowestquartilesuggestingresourcesavailabledomesticallyareevenscarcer.ThesecountriesalsohaveanaverageWGIscorebetween20and30percentwhichmaymeanthatevenwithfavourableinvestmentconditions,publicinstitutionsmayfailtoorganiseandimplementsuchinvestments.Overall,itseemsthatNigeria,EthiopiaandtheDRCarelikelytoexperiencesomeinvestmentinlong-livedinfrastructureinthemediumterm,particularlyconcerningurbanplanning,housingandamenitieshowever,thereareunlikelytobetheleadersofSub-SaharanAfricathatthemainanalysissuggests.Twoparticularintensityindicatorsthatprovidedadifferentperspectiveweretheshareofirrigablelandequippedforirrigationandhydropowerproductionrelativetopotential.Withinboth,onlyasmallsubsetofcountriesislikelytoexperienceanysignificantinvestmentinthefuture.WhiletheDRCstillhasthehighestinvestmentneedsforirrigationandEthiopiaforhydropower,othercountriessuchasAngola,MozambiqueandZambiaalsorequiredasubstantialamount.Thesethreecountriesscoredmoderatelyonboththeinvestmentclimateindicatorsandthequalityofgovernanceindicatorsuggestingthatamoderatelevelofinvestmentininfrastructureinthesesectorsislikely.SouthAfricahadrelativelyhighinvestmentneedsforbotheducationalandsocialprotectioninfrastructure.SimilartotheeffectsofNigeria’slargepopulation,thiswascausedprimarilybySouthAfrica’srelativelyhighGDPwhichcausedevenamodestintensitygaptotranslatetosubstantialabsoluteinvestmentneeds.SouthAfricaalsoscoredrelativelyhighlyinboththeaccesstofinanceindicatorsandtheaverageWGIscoresuggestingthatiftherewassufficientdemand,theopportunityforinvestmentsisavailable.Overall,thisindicatesthatsignificantinvestmentislikelytooccurininfrastructuretoprovidebotheducationandsocialandlabourprotectioninthefuture.TASK2:PRACTICALEXAMPLESOFLONG-TERMDECISIONSThistaskhasexploredanumberofevidencelines.

First,thestudyhasreviewedtheevidencebaseonthecostsandbenefitsofadaptationinAfrica.Thishasexpandedconsiderablyinrecentyears,duetoalargenumberofglobalandcountrylevelinitiativesontheeconomicsofadaptation,andalsosectoralstudiesthatapplyexistingoptionstonewcontextsorlocations.However,themajorityoftheseusescenario-basedimpactassessment,andarethusoflimitedpracticalforrealmediumtolong-termadaptationdecisionmaking.Second,thestudyhasbrieflyreviewedthemethodsandapplicationofnewdecisionsupporttoolsforadaptation,manyofwhicharetargetedtoaddressinguncertaintyinmediumtolong-termdecisions.Therearenowanumberofstudiesusingiterativeriskmanagement,realoptionsanalysisandrobustdecisionmaking,thoughthereareonlyahandfulofsuchstudiesinAfrica.However,thesenewmethodsfordecision-makingareresource-intensiveandcomplextouse.Whilsttheyhavepotentialapplicationformajordevelopmentinitiativesandinvestments,theyhavelimitedapplicationformoreroutineapplication(orinmainstreaming)inAfrica:thepriorityisthereforetodeveloppragmatic,light-touch,approachesthatcapturethecoreconceptsofthesenewmethodsandmaintainadegreeofeconomicrigour.TASK3BARRIERSTOLONG-TERMDECISIONSBarriersorconstraintstoadaptationarefactorsthatmakeithardertoplanandimplementadaptationactions.Barrierswillmakeadaptationlessefficientorlesseffective.Alternatively,itmayrequirechangesthatleadtomissedopportunitiesorhighercosts.Thestudyhasreviewedtheliteratureonbarrierstoadaptation.Ithasalsoundertakenafurthermoredetailedreviewinrelationtobehavioraleconomics.Finally,itishasdrawnupaninitialtableofhowthebarriersmightaffectthemediumtolong-termadaptationdecisionsidentifiedinprevioussections.ReviewoftheliteratureThemainbarrierstosociallyefficientadaptationaremarketfailures,policyfailures,governancefailuresandbehavioralbarriers.Marketfailurescanoccure.g.duetolackofinformation,thepresenceofexternalitiesandpublicgoods,informationasymmetryandmisalignedincentives.Economictheoryappliedtoadaptation,aswellasempiricalobservations,indicatethatsuchactionswillnotreceiveappropriatelevelsofprivateinvestment.Forexample,underdifferentmarketstructures(monopoly,oligopolyorperfectcompetition),theabilityofinvestorstoreapthebenefitsofadaptationwillvary,andthereforealsotheirincentivestoinvestinit.Policyfailuresoccurwhenconflictingpolicyobjectivesco-exist(whichisoften)andtherearenotappropriatemechanismsforaddressingthesetrade-offs,andwhenthecurrentstructureofinstitutionsandregulatorypoliciesispoorlyalignedtoaccountforadaptationobjectives.Forexample,urbandevelopmentobjectivesmaynottakeintoaccountthevulnerabilityofassetsandhumansystemstoclimaticstresses.Also,whenpoliciesresultinmarketdistortions(e.g.priceorincomesubsidies),peoplewillunder-orover-adaptdependingonhowtheiradaptationchoiceswilltranslateintoincomechanges.Governancefailuresrefertoineffectiveinstitutionaldecision-makingprocesses.Adaptationtypicallyrequiresmultipleactorsandinstitutionswithdifferentobjectives,jurisdictional

authorityandlevelsofpowerandresources.Thecomplexitiesofgovernancenetworkscanindeedconstrainadaptation.Overlappingmandatesofgovernmententitiestendtocreateconflictsandslowadaptiveresponses.Further,lengthybureaucraticprocessesandlackoftransparencyareanimpedimenttofiscalplanningandaccesstofinance,particularlyrelevantfordevelopingcountries.Poor-orlackof-leadership,lackofaclearmandate,andtheshort-termpoliticalcyclecanalsorepresentbarrierstoeffectivedecision-making.Corruptionwithininstitutionsalsounderminesadaptationefforts.Behaviouralbarriersareconcernedwiththeobservedinabilityofindividualstotakewhatappeartoberationaldecisions(i.e.tomaximizetheirnetbenefitsorutilities)andwiththeircognitivelimitationinattemptingtoachievetheirgoals.Thislimitationmanifestsitselfasinertia,procrastination,andtheuseoftime-inconsistentdiscounting.Socialvaluesandbeliefscanalsosupportorhamperadaptation,insofarastheyframehowsocietiesdeveloprulesandinstitutionstogovernrisk,andtomanagesocialchangeandtheallocationofscarceresources.Further,individuals,institutionsandthenaturalenvironmentwillclearlyadaptwithintheboundariesoftheiradaptivecapacity,andphysicalandbiologicalconstraints.Gender,age,education,accesstoinfrastructureandfinance,andaccesstomarketsandtechnologyareallelementsthatdeterminetheadaptivecapacityofsocialsystems.Naturalsystems’abilitytoadaptwillbepossiblewithincertainclimaticthresholds,andcanbehamperedbyothernon-climaticstresses,andthepresenceofphysicalbarriers(e.g.thelackofcorridorsforspeciesmigration).MappingofbarrierstodecisionsThesectionsabovehighlightthepotentialbarrierstoadaptation.However,thisprovidesatheoreticalperspective.Akeyissueforthecurrentstudyistotranslatethisintoamorepracticalsetting,andthenlookatpotentialsolutions.Toadvancethisanalysis,thestudyhasmappedthepotentialbarriersidentifiedabovetothepriorityareaswehaveidentifiedformediumtolong-termadaptationdecisions–focusingonspatialplanning,serviceandinfrastructuredelivery-andproposessomepossiblesolutions.

TABLE OF CONTENTS

INTRODUCTION.............................................................................................................................................1

TASK1:IDENTIFICATIONOFLONG-LIVEDPOLICIESANDINVESTMENTS.........................................................2

LITERATUREREVIEW................................................................................................................................................2REVIEWOFDEVELOPMENTPLANNING(PUBLICPOLICY)................................................................................................11THEECONOMICCASEFORACTION(ORNOT).............................................................................................................15DISCUSSION.........................................................................................................................................................23CAPITALINVESTMENTS...........................................................................................................................................24QUANTITATIVEASSESSMENTOFDECISIONSTHATLOCKINCLIMATEVULNERABILITY.............................................................27

TASK2:PRACTICALEXAMPLESOFLONG-TERMDECISIONS..........................................................................47

STUDIESONTHEECONOMICSOFADAPTATIONINAFRICA..............................................................................................47STUDIESONLONG-TERMADAPTATIONDECISIONMAKING............................................................................................50DISCUSSION.........................................................................................................................................................57

TASK3:BARRIERSTOLONG-TERMDECISIONS.............................................................................................58

LITERATUREREVIEWONTHEBARRIERSTOADAPTATION................................................................................................58MAPPINGOFBARRIERSTODECISIONS.......................................................................................................................72

REFERENCES.................................................................................................................................................82

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INTRODUCTION TheUK'sDepartmentforInternationalDevelopment(DFID)andtheNaturalEnvironmentResearchCouncil(NERC)arejointlyfundingafive-yearinternationalresearchprogrammecalledFutureClimateForAfrica(FCFA).Theprogrammeaimstoadvancescientificunderstandingofsub-SaharanAfricanclimateondecadaltimescalesandpromotebettercommunication,useanduptakeofclimateinformationintolong-termclimate-resilientdevelopmentstrategies.TohelpinformtheFCFAprogramme,anumberofresearchprojectshavebeencommissioned,includingthisprojecton‘TheEconomics,PoliticalEconomyandBehaviouralScienceofAccountingforLong-termClimateinDecisionMakingToday’.ThestudyisbeingundertakenbytheGlobalClimateAdaptationPartnership(GCAP),workingwithVividEconomics,theUKMetOfficeandAtkins.Theprojectaimstoanalyseandidentifythetypesofdevelopmentdecisionsthatshouldbeactivelyaccountingforfuture(10years+)climateindecisionstakentoday,andwillreviewthepoliticaleconomyandotherbarrierstoachievingthis.ThemainobjectiveistoprovidequantitativeevidenceonadaptationstrategiesthatwillhelptoinformdecisionsmadebydevelopmentpractitionersinAfrica.ThefindingsoftheprojectwillfeedintotheFCFAresearchconsortiaandCCKEUnittohelpinformtheirappliedresearchanddecisionsupportservicestovariousstakeholders.Specificallytheprojectaimsto:

• Developandapplyasimpleframeworkthatidentifieswhererealpolicies,programmesandinvestmentsarebeingmadetodaythathavelong-termimplicationsforthevulnerabilityoflocalpeopleoreconomiesinAfricaandwhereitwouldberationaltoaccountforfutureclimateindecisionmakingtoday.

• IdentifyexamplesinAfricaofwheresuchlong-termpolicies,programmesandinvestmentsarebeingmadethathaveorhavenotsuccessfullyconsideredfutureclimateintheirimplementation.

• Reviewtheliteratureonthepotentialbarrierstosucharationalapproachinpractice,withparticularfocusonthepoliticaleconomyandbehaviouralbarriers.

• Forasmallsetofrelevant(illustrative)cases,providequantitativeevidenceontheeconomicrationaleforadapting(ornot)suchdecisionstocopewithfuture(i.e.10years+)climateandwhererelevant,strategiesforimplementingadaptation,includingtheappropriatetimingandsequencingofmeasures.

Theprojectisbrokenintotwophases.Phase1includesthefollowingtasks:

a) Initialliteraturereviewonlong-livedpolicies;

b) Identificationofpracticalexamplesoflong-termdecisions;

c) Literaturereviewonthebarrierstolong-termdecision-making;

d) Developmentofinitialconclusionsanddevelopmentofaframeworkandmethodologyforphase2,whichwillundertakenewcasestudyanalysisoftheeconomicsoflong-termpolicies,plansorinvestments,toexplorewhereitwouldberationaltoaccountforfutureclimateindecisionmakingtoday

Thereportsetsoutthereviewfindingsforeachofthesefourtasksinturn.

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TASK 1: IDENTIFICATION OF LONG-LIVED POLICIES AND INVESTMENTS

Theaimofthistaskistoreviewtheacademicandgreyliteratureassessingwhereandhowlong-livedpolices,plansandinvestmentsarebeingmadeacrosssub-SaharanAfricaandwherethesewillshapevulnerability,withfocusoneconomicandsimilarlyquantitativeliterature.Toadvancethisanumberofevidencelineshavebeeninvestigated.Theseare:

• Toreviewtheliteraturetoidentifylong-livedpolicies,plansandinvestmentsthatarepotentiallyvulnerabletomediumtolong-termclimatechange.

• Toreviewthoseareasofdevelopment(fromanationaltolocalpublicdevelopmentplanningperspective)toidentifyareasofrelevanceandentrypoints.

• Toinvestigatetheeconomiccaseformediumtolong-termclimateinterventions.

• ToassessfuturecapitalinvestmentsandprioritiesforadaptationinAfrica.

Literature Review Thistaskhasreviewedtheliteraturetoidentifypotentiallivedpolicies,plansandinvestments.FuturePriorityAreasThereisaliteraturethatexaminestypesofinvestmentsthatmightbeatriskfromfutureclimatechange,basedonlifetimes.Hallegatte(2009)identifiedalistofsectorsinwhichclimatechangeshouldalreadybetakenintoaccount,becauseoftheirinvestmenttimescalesandtheirexposuretoclimateconditions,shownbelow.Sector Timescale(year) Exposure

Waterinfrastructures(e.g.,dams,reservoirs) 30–200 +++Land-useplanning(e.g.,infloodplainorcoastalareas) >100 +++Coastlineandflooddefences(e.g.,dikes,seawalls) >50 +++Buildingandhousing(e.g.,insulation,windows) 30–150 ++Transportationinfrastructure(e.g.,port,bridges) 30–200 +Urbanism(e.g.,urbandensity,parks) >100 +Energyproduction(e.g.,nuclearplantcoolingsystem) 20–70 +Source:Hallegate(2009).Stafford-Smithetal.2011presentasimilarconceptgraphically.

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Rangeretal.(2014),updatingStafford-Smithetal.2011,outlinedthetimescalesofdifferenttypesofclimate-sensitivedecisions,asbelow.Applyingtoaworldbankportfoliofor250projects,theyreportthatbetween2%and30%ofthesemayrequireactionnowto“future-proof”investmentsandpolicies.

Source:Rangeretal.(2014),updatingStafford-Smithetal.2011Thesestudiesbothindicateapotentialfocusoninfrastructure(notablywater,irrigationandfloodprotectioninfrastructure,butalsoenergyandtransportinfrastructure)andplanning(especiallyurbanandcoastalplanning),inthe5to40yearperiodofinterestforthestudy.Additionalareasofthebuiltenvironment(Hallegatte)andnaturalresourcemanagement(Ranger)arealsoincluded.Whilesocialprotectionisassignedadecadaltime-frame,thetermsofreferencehighlightthisisapotentialareaofinterest,sothisisalsoincluded.ThisfindingwasgenerallyborneoutintheFCFApilotstudies(notablyinRwanda,butalsoinMaputo),whichidentifiedinfrastructureandplanningaskeypriorityareas.However,theRwandapilot(Watkissetal.,2014)alsohighlightedamorenuancedpicture.Asexamples:

• Whilelargehydropowerinvestmentwasconsideredapriorityforclimateriskscreening,thepaybackperiodsforsmallhydrodidnotjustifyactionforinvestors.ThiswasbecausecompanieswereborrowingfromBankofRwandaatinterestratesof18%,orfromtheFONERWAclimatefundat11%,andthustherewasnofinancialincentivetoincreaseup

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frontdesigncostsforfuturerisks(notingthismightnotbeoptimalfromasocietalpointofview,especiallywhenschemesaredesignedtotransfertogovernmentinthelonger-term.

• Fortheroadsector,therewasacaseofmal-adaptationidentifiedforanactualpolicy.Thisinvolvedacommitmenttoclimate-proofruralfeederroadsintheagriculturaldevelopmentstrategy.Thisinvolvesacostpenalty,whichreducesthebudgetavailable,i.e.itleadstobuildingasmallernumberofhigherqualityroads,thanworkingwithcurrentdesignstandards.Thekeyissuehereisthatthepavementlifetimeofroadsisaroundadecade,i.e.theywillnotbeexposedtolong-termclimatechange,thusthisinvestmentisapotentialwasteofresource.Thestudynotedthatsitingroadstoavoidcurrenthighriskareasissensible,toavoidlock-intoclimaterisks(e.g.floods),anditwillbecost-effectivetoensuresomedegreeofcurrentresilience,allowsomeflexibilityforlaterupgrades,ortofocusoncriticalnodeswithlonglife-times(bridges).

• Inthewatersector,thelong-termintegratedwaterresourcesplan,whichextendsoutto2040,hadnotconsideredclimatechange.Thisisapotentialomission,especiallygivenfutureirrigationplans.However,theroleofclimatechange(andthelevelofuncertainty)ininfluencingfuturewaterdemandwassmallcomparedtosocio-economicdevelopment,i.e.climateisunlikelytobethemaindriverforthesector.Furthermore,asmostclimateprojectionsindicatedasmallincreaseinwateravailability,theperceptionofclimateriskwaslow(thoughtheCMIP5projectionsindicateadifferentoutcome,whichmeansthisassumptionwasmisleading).

Atthesametime,theFCFApilotsidentifiedsomeareasnotcoveredintheHallegateandRangerstudies,including:

• Forestrymanagement(commercialandmanagementofnaturalandsemi-naturalareas).Commercialforestryusesalong-termfinancialmodel.Thismeansithassimilarattributestoinfrastructure,inthattherearerisksoffutureclimatechange,buttheseareevenmorepronouncedbecausereturnsoninvestmentariseinthelonger-termwhentreesareharvested.Forestsarealsoclimatesensitive(Ravindranath,2007:Dasguptaetal,2014:Setteleetal.,2014),andmaybeaffectedbychangingtrendsoverfuturedecades(e.g.fromchangesingrowthorquality,fromincidenceofpestanddisease,orfromdamageassociatedwithvariabilityincludingwind).Thisleadstodualfactorsinrelationtotheplantingofvarieties(today)thatwillbesuitableforthefuturebio-climaticzoneunderclimatechange(ormoreaccuratelyachangingclimateovertime)aswellasmeasuresthatreducerisksassociatedwithvariability.TheseissuesalsoapplytoREDD+initiatives.Similarissuesariseforconservationandmanagementofnaturalandsemi-naturalforests,wheretheremaybeaneedforearlyplanningofbufferzones(landmanagement)oractiveconservationoptions(e.g.translocation).

• Exportcropdevelopment.AgricultureisusuallyanimportantcontributortoexportvalueinAfricancountries,oftenassociatedwithclimatesensitivecropssuchascoffeeandtea(e.g.inEthiopia,coffeeisaround75%ofexportcommodityvalueanditisamajorpartofthefuturegrowthplansofthecountry).Thesecropshavelongerlife-cyclesthancerealcrops(takingfivetotenyearsforplantationstoestablishandbecomeproductive),andtheyalsohavelongplanningcycles(e.g.thetimetoswitchcoffeevarieties,fromearlyR&D,testing,roll-out,maturationandharvestingisover20years).Studiesindicatethatfuturebio-climaticshiftscouldmakeareasunsuitableforcoffee(Daviesetal.,2012)andthusearlyadaptationisimportant(asidentifiedintheEthiopianClimateResilientStrategy,Watkissetal.,2013).Inmanycountries,suchasRwanda,thereareplanstoincreasetheareasofland

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undercultivationforteaorcoffee,whichalsoinvolvesearlyland-useplanningdecisionsthatwilllock-inruraldevelopmentpatterns.Theremayalsobesimilarissuesforothercrops,e.g.chocolateinWestAfrica,orvinicultureinSouthAfrica.

• Ecosystemservicesandlimits.Naturalandsemi-naturalecosystems–andtheservicestheyprovide–tendtobehighlyclimatesensitiveandhavelowadaptivecapacity.Climatechangewillshiftgeographicranges,seasonalactivities,migrationpatterns,abundances,andspeciesinteractions,andhasthepotentialtoincreasetherateofspeciesextinctioninthesecondhalfofthe21stcentury(Setteleetal.,2014).Theseincludemajoreffectsthatcouldaffecttheprovisionofecosystemservices,whichcurrentlyunderpinmanyeconomiesinAfrica.Whiletherearelowregretoptionsbuiltaroundexistingconservationandprotection,thisisalsoanareawheremoresubstantialadaptationmaybeneeded.Thereisthepotentialforearlyactionfromaprecautionaryperspectivewherethereareverylargerisks(eitherhighannuallevel,exceedanceofthresholds,orlarge-scaleorirreversiblemajoreffects)and/orwherealackofshort-termactioncouldlockinthisfuture(systemic)damagetothesesystems.Asaminimum,earlymonitoringandR&Disessential.

FrameworksWhiletheinformationaboveprovidessomegeneralinformationonpotentialareasoffocus,itisalsonecessarytolookatthejustificationforearlydecisionmakingformediumtolong-termdecisionmaking,andtoidentifytypesofadaptationdecisions.Earlierstudiesconsideredthepotentialforlonger-termdecisionmakingbyusingtypologiesofadaptation,oftenpresentingtheseasbuildingblocksoraspectrumofoptions(McGrayetal.,2007;KleinandPersson,2008).Theseincludeddifferentiatedactivitiesincludingaddressingcurrentvulnerability,buildingadaptivecapacity,mainstreamingclimaterisks,andpreparingforandtacklinglonger-termchallenges–thelattertwobeingofparticularrelevanceforthisstudy.However,withthegreaterrecognitionoftheuncertaintychallengesofadaptation(e.g.UNFCCC,2009;Hallegatte,2009;WilbyandDessai,2010:WorldBank,2012),therehasbeenashiftintheliterature,awayfrompolicy-firstimpactassessmenttoiterativeclimateriskmanagement,asseeninrecentIPCCCreviewsintheSREXand5thAssessmentReport(IPCC,2012:IPCC,2014).Asaresult,morerecentupdatesoftypologiesofadaptationhavemadethemmoredecision-led.Theyhavealsoalignedthetypesofactivitiesanddecisionstoiterativedecisionmakingframeworks(e.g.Rangeretal.,2010;WatkissandHunt,2011;DFID,2014).Importantlythisrecognisesthateachactivity(orbuildingblock)isadifferentproblemtype,requiringdifferentinformation,andvaryingmethodsofeconomicappraisal(Li,MullanandHelgeson,2015).AnexampleofsuchatypologyisincludedinBox1.Theevolutionofclimatechangeispresentedatthetopofthefigure,asaprocessthatstartswithcurrentclimatevariabilityandevolvesovertimewithincreasinguncertainty.Inresponse,thebottomofthefigureoutlinesthreedifferenttypesofadaptationresponse,whichaddresseconomicanduncertaintychallenges.Allthreetypesneedtobeconsideredtogetherinanintegratedadaptationstrategy,andtheuseofanadaptationpathwayapproachcancaptureandlinkthedifferentactivitiestogetherovertime(Watkiss,2012:Downing,2012).Forthisstudy,thepriorityareaofinterestisfortype2and3adaptation,i.e.wherethereisastrongerfutureclimatecomponent.

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Box1:IterativeAdaptiveManagement.

Thefigurebelowhighlightsthepotentialtypesofmediumtolong-termadaptationdecisions,setwithinaframeworkofiterativeclimateriskmanagement.

Source:Watkissetal,2014(DFID,2014),updatedfromWatkissandHunt,2011.First,itprioritisesearlyactionstoaddressthecurrentadaptationdeficitandhelptobuildresilienceforthefuture.Thisinvolvesearlycapacity-buildingandtheintroductionoflow-andno-regretactions,whichleadtoimmediateeconomicbenefits.Suchactionsaregroundedincurrentpolicyandcanoftenuseexistingdecisionsupporttools.However,theyareoflessrelevanceforthisstudy.Second,thereisearlyactiontointegrateadaptationintocurrentdecisionsoractivitieswithlonglife-times,suchasinfrastructureorplanning.Thisrequiresalternativeinformationsourcesandmethodstoabove,becauseoftheneedtoconsiderfutureclimatechangeuncertainty.Italsorecognisesthatthereisaneedtoconsideroptionsinadifferentwaytonormalappraisal,suchasconsideringlow-costoptions,flexibilityorrobustnesstoaddressfutureuncertainty.Finally,thereisaneedtoconsiderthepotentialmajorimpactsofclimatechange,notingthepossiblelongtime-scalesandhighuncertainty.Theconsiderationoftheselonger-termissuesinvolvesimportantchallengesandusuallyrequiresnewapproachesorthinkingbuiltaroundadaptivemanagement.Thisentailslearningfromearlyactivities,theidentificationofiterativeportfoliosthatcanbebroughtforwardordelayedaccordingtohowthefuturedevelops,andearlyactionstoaddressirreversibility,lock-inandencouragetransformation.

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Othersimilarframeworksexist.Fankhauseretal.(2013)outlinesareasforearlyadaptationas:• Adaptationswithearly,robustbenefits.Fast-trackingadaptationmakessenseifthe

proposedmeasureshaveimmediate,robustbenefitsthatwouldotherwisebeforgone,forexample,wherethereisanexistingvulnerabilityorthereareexpectednear-termimpactsfromclimatechange.

• ‘Low-regrets’adaptationmeasureswithlongleadtimes.Itmakessensetofast-track‘low-regrets’adaptationsthathavelongleadtimes,suchasresearchanddevelopment,evenifthebenefitswillnotaccrueuntillater.

• Areaswheredecisionstodaycould‘lock-in’vulnerabilityprofilesforalongtime.Fast-trackingadaptationisdesirableifawrongdecisiontodaymakesusmorevulnerableinthefutureandifthoseeffectsarecostlytoreverse.Severalstrategicdecisionspotentiallyfallintothiscategory,includingthoseonlong-terminfrastructure(e.g.thelocationofnewairports,raillinksandwindfarms),land-useplanningandthemanagementofdevelopmenttrends,suchasregionalwaterdemand.Thisincludes:

o Landmanagementandlong-livedinvestmentandlocationdecisionsconcerningbuildingsandinfrastructurewillhavelong-lastingeffectsonsocietalvulnerabilitytoclimate.Thesedecisionscanbedifficultandcostlytoreverseorretrofitlater.

o Afailuretomanageotherdriversofstresses,suchasgrowingdemandforwater,risingandunstablefoodprices,environmentaldegradationandincreasingprevalenceofdisease,couldalsolock-infuturevulnerabilitytoclimatechange.Tacklingtheseissuesnowcanstrengthenlong-termresilienceandadaptivecapacity

Illustrativedecision-makingprocessforprioritisingadaptation

Source:Fankhauseretal.,2010.Italsohighlights:• Includingsafetymarginsformeasuresandpoliciestodaytocopewithawiderrangeof

possibleclimateconditions.• Designingmeasuresandpoliciestodaythatcanbeeasilyandinexpensivelyadjustedlaterto

copewithfutureclimateconditions.

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• Designingstrategiesthatuseapackageofadaptationmeasuresthataresequencedovertimetoreducecurrentclimaterisk,whilemaintainingflexibilitytocopewithfuturerisks.

• Reducingthelifetimeofdecisions.TheDFIDTopicGuidance(Ranger,2013)takesthisfurtherandexaminestheseconceptsinthedevelopmentcontext,identifyinggenericareasfordevelopment,shownbelow.

Genericclassesofpriorityadaptationmeasures(Fankhauseretal.2013),withspecific

applicationstodevelopmentinterventions(basedonOECD2009andRangerandGarbett-

Shiels,2012).

GenericAreaofPriorityAction

Source:Fankhauseretal.2013Applicationtoprioritiesfordevelopmentinterventions

Sources:OECD(2009)andRangerandGarbett-Shiels,2012• Adaptationswithearly,robust

benefits.Fast-trackingadaptationmakessenseiftheproposedmeasureshaveimmediate,robustbenefitsthatwouldbeotherwisebeforgone;forexample,wherethereisanexistingvulnerabilityorexpectednear-termimpactsfromclimatechange[low-regrets,seeSectionIII.1]

• Investinclimate-resilientdevelopment.Well-designeddevelopmentpoliciescanbeano-regretformofadaptationthroughreducingsocialandeconomicvulnerability.

• Reducevulnerabilitytocurrentclimatevariabilityandextremeweatherevents.Disasterriskmanagementcanbealow-regretadaptation,bringingimmediatebenefits.

• Improvetheavailabilityandqualityofclimateinformation.Includingmonitoringsystems,futurescenariosandvulnerabilityassessments.

• Adoptmeasurestoreducetheimmediateimpactsofclimatechangeandotherstressesonthemostvulnerablepeopleandsystems.Somehumanandnaturalsystems,includingterrestrial,marineandfreshwaterecosystems,canbevulnerabletoevensmallchangesinclimate.Actionscouldincludeenhancingtheimplementationofrelevantmultilateralandregionalenvironmentalagreement.

• Reviewandadjustregulationsandstandardstoreflectclimatechangeimpacts.Forexample,tohelptoremoveanybarrierstoadaptationorperverseincentives(overcomemarketfailures)onfirmsorindividuals(BoxX)

•Areaswheredecisionstodaycould‘lock-in’vulnerabilityprofilesforalongtime.Fast-trackingadaptationisdesirableiftoday’sdecisionscouldcommitsocietytoaparticularmorevulnerabledevelopmentpaththat

• Incorporateclimatechangeandadaptationconsiderationswithinnationaldevelopmentpolicies,includinglong-termvisions,povertyreduction,economicgrowthandsustainabledevelopmentstrategies.Avoidmakingdecisionstodayinwaysthatcouldlock-inimpactsorincreasefuturevulnerability,insteadseeklow-costwaystodesignstrategies

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wouldbecostlytoreverselater.Severalstrategicdecisionsfallintothiscategory,includinglong-terminfrastructure,land-useplanningandmanagingdevelopmenttrendssuchasgrowingwaterdemand.

sothattheyenhancelong-termresilience.• Wheredealingwithexpensive,long-termprojects,suchas

publicinfrastructureorurbanplanning,seekoptionsandstrategiesthatwillbuildinflexibilitytocopewiththeuncertaintyoverfutureclimate.Thisisrelevanttonewprojects,butalsoupgradesandmaintenancecycles.

• Buildingadaptivecapacity • Buildingthelong-termcapacityforclimate-resilientdevelopment,includingdevelopingappropriateinstitutionalstructures,skillsandknowledgeatmultiplelevels

• ‘Low-regret’adaptationmeasureswithlongleadtimes.Itmakessensetofast-tracklow-regretadaptationsthathavelongleadtimes,suchasresearchanddevelopment,evenifthebenefitswillnotbeaccrueduntillater.

• Supportingthedevelopmentanddeploymentofrelevantagriculturaltechnologiesandotherinnovationthatcanreducelong-termsocialandeconomicvulnerabilities.

Rangeretal.(2014)identifiedthreeareaswhereadditionalactiontodayisjustifiedtoadapttofuturerisks:1. Long-lived,investmentswithlargesunkcosts,suchashydropowerstations,roads,dams,

andotherinfrastructure.Afailuretoaccountforclimatechangeupfrontinsuchlong-livedinvestmentscouldmeanthattheyunderperform(e.g.,inthecaseofwatersupplysystemsandhydropower)orbecomeexposedtoincreasingdamage.Thiscouldmeanthatinvestmentsneedtoberetrofittedorreplacedprematurely,imposinggreatercosts.Forexample,thelifetimeofdifferentinvestments;newtransportandenergyinfrastructurecanlastfor40yearsormore,largedamsforatleast60years,andpatternsofurbandevelopment(thelayoutofsuburbs,roads,andotherinfrastructureinacity),formorethan100years.Theclimateislikelytobeverydifferentonthesetimescales.Capitalinvestmentsareparticularlypronetomaladaptationbecausetheytendtobedifficulttochange.

2. Long-termplanningandpolicy-making,suchasgrowthstrategies,sectordevelopmentplans,apovertyreductionstrategy,coastaldevelopmentplans,droughtcontingencyplans,andurbanzoningcanhavefar-reachingandcomplexconsequencesthatinfluencevulnerabilityfordecades.Insomecases,theywillhavepositiveco-benefitsforlong-termresilience,forexample,throughstrengtheninggovernance,buildingcapacity,andincreasingaccesstocredit.Butinafewcasesthereisariskofmaladaptationwhenpeopleareinadvertentlycommittedtogreateranddifficult-to-reversedecisionsthatmayincreasetheriskfromclimatechange.Thisincludes:

• SocialprotectionsystemscanincreaseresiliencetoclimateshocksbutwillneedtobeadjustedovertimetocopewiththechangingprofileofvulnerabilityandclimaterisksIfthisadaptabilityisnotbuiltinfromthestart,systemscanbedifficulttoadjustovertime,duetopolitical,social,orlegislativebarriers,makingthemlesseffective.

• Aprogrammethatpromotedwater-intensiveagriculturemaychangebehavioursemi-irreversiblyandbedetrimentaliftheclimatebecamedrier.

• Aruralroadsprogrammethatbuiltintersectionsonfloodplainscouldleadtourbandevelopmentandputthesecommunitiesatriskinthelongterm.

• Aprojectthatbuiltschoolsonafloodplaincould,atbest,limitaccesstoeducationforlocalchildren,oratworst,putthemindanger.

• Evenshort-livedprojects,likeclimate-smartagricultureorruraldevelopmentprogrammes,cancumulativelyadd-uptomajorchangesinlong-termresilienceinunexpectedways.

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3. Interventionswithlonglead-times:incaseswheremeasureswilltakemanyyearstoimplement,itmayneedtostartnow.Forexample:

• Removingbarrierstoadaptationandbuildingadaptivecapacitycantaketime,asitcaninvolvemajorchangesininstitutional,governance,andlegislativestructures(e.g.,landandwaterrights),decisionprocesses,andculturalnormsandbehaviour.

• Researchanddevelopment,forexample,todevelopandpilotnewagriculturaltechnologiescanalsotakemanyyears.

• Changinglivelihoodsandmigration,forexample,enablingruralcommunitiesinunsustainableareastomoveandseekneweconomicopportunitiescantaketime.

Rangeretal.(2014)presentedadecisiontreetohelpdevelopmentpractitionersscreenwhereadevelopmentinterventionislikelytorequiresomeadaptationtodaytoaccountforfuture(10years+)climate.Thisisshownbelow.Thisleadstoasetofcriteriathatcanhelpinidentifyingprojectswhereitmaybebeneficialtofuture-proofnow.Ingeneral,wheretheprojectoritsoutcomesarelong-lived(i.e.,long-term),difficult-to-adjust,andhaveahighcostorimpact(i.e.,highstakes)thenclimatechangeislikelytobeacentralfactorindesigntoday.Thisframeworkisillustratedbythelowerthreeblocks.

Simpleframeworkillustratingtheconditionsunderwhichlong-termclimatechangeislikelyto

beanimportantfactorinthedesignofaprogramme

Source:Rangeretal.2014Afinalmatrix,fromDercon2014,identifieswhereinterventionsarelikelytobehighvalueformoneytoday(ingreen)andwhereinterventionswilllikelyrequiresomeadaptationtoreducetheriskoflock-in(inred).

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Review of Development Planning (Public Policy) Thesectionaboveidentifiestypesoflivedpolicies,plansandinvestments,andawaytoviewpotentialearlyadaptationformediumtolong-termdecisions.However,itisalsousefultoidentifythetypesofprocessesthatareinvolvedwiththesedecisions,asthesearecriticalinlookingatpracticalimplementationofadaptation(IDRC,2015)1.Akeyissuehererelatestorelevantentrypoints(OECD,2009;UNDP-UNEP,2012),i.e.theopportunitiesinthenational,sectororprojectplanningprocesswhereclimateriskconsiderationscanbestbeintegrated.Theseareparticularlyimportantforadaptation,becausethereisacurrentfocusonmainstreaming,whichseekstointegrateadaptationintoexistingprocessesanddecision-makingacrossarangeofpolicyareas,ratherthanintroducingstand-aloneadaptationpolicy.Inthisregard,adaptationisverydifferenttomitigation(Watkiss,BenzieandKlein,2015)andthisisduetothestrongoverlapbetweenadaptationandexistingactivitiesthataddresscurrentclimateresilience(e.g.disasterriskreduction,watermanagement,etc.).Policymeasuresthatwillaffectadaptationareoftenimplementedfornon-climatereasons,withmultipleobjectivesandancillarycostsandbenefitsthatarematerialtotheoverallchoiceofthemeasures.Itisthereforeimportanttounderstandthecontextforaninterventionanddecision,includingtheexistingpolicyandobjectives,non-climaticdrivers,andthecurrentdecision-makingprocess.Asanexample,resiliencemaybemainstreamedaspartofanurbanregenerationprogramme,butthedesignofsuchaprogrammewillbedominatedbylocal1ThissectionsummarisesrecentworkundertakenbytheprojectteamaspartoftheIDRCfundedprojectontheEconomicsofClimateResilience,andwillbepublishedintheOECDbook‘ECONOMICSOFADAPTATIONINOECDCOUNTRIES’inJune2015.

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economicdevelopmentobjectivesandotherdrivers,suchasdemographicandland-usechange.Suchamainstreamingpracticewillalsorequireagoodunderstandingoftheindividualorganisations,institutionalnetworksandprocessesmakingrelevantdecisions.Critically,allofthesewilldifferwitheachspecificadaptationproblem.IntheAfricancontext,thisthereforerequiresanunderstandingofthelinksbetweenclimatechangeadaptationandnationalorsectordevelopmentpriorities.Itisalsoimportanttoconsiderhowtheselinkagescascadefromhighlevelstrategicpolicythroughtoimplementation,aswellashowtheyaresituatedwithintheinstitutionalandpoliticalcontexts.Interesting,inadevelopingcountrycontext,mainstreamingactivitiesusuallyfollowaslightlydifferentpaththanindevelopedcountries,withdifferententrypoints,reflectingthedifferencesinnationalstrategicplanning.Inthiscontext,thereareasetofentrypointsformainstreaming,outlinedinthetablebelow(UNDP-UNEP,2011)notingthattheseoftenoperatethroughdifferentorganisationalleads.Thisstructurecloselyparallelsthatoutlinedforenvironmentalmainstreamingmoregenerally(OECD,2012).Possibleentrypointsformainstreaminginnationalstrategicplanningpolicyindeveloping

countries

Planninglevel Entrypoint

Nationalgovernmentandcrosssectorministries

• Nationaldevelopmentvision(long-term)• Povertyreductionstrategy• Nationaldevelopmentplan(e.g.5year)• Nationalbudgetallocationprocessorreview

Sectorministries • Sectordevelopmentplans• Sectormasterplans• Sectorbudgets

Subnationalauthorities • Decentralisationplans• Districtplans• Subnationalbudgets

Source:UNDP/UNEP(2011),MainstreamingClimateChangeAdaptationintoDevelopmentPlanning:AGuideforPractitioners,UNDP-UNEPPoverty-EnvironmentInitiative,KenyaThissituationismadeslightlymorecomplicatedasmanydevelopingcountriesareproducingNationalAdaptationPlans(NAP).TheUNguidanceforthedevelopmentofNAPsoutlinestheneedformainstreamingindevelopingsuchplans-criticalbecauseofthestrongoverlapwithexistingdevelopmentactivities(LDCExpertGroup,2012a;2012b),however,mostexistinginitiativestendtobeundertakenasstand-aloneactivities.TherearenowexamplesofthepracticalimplementationofmainstreaminginsomeAfricancountries,thoughcountrieshaveadoptedarangeofapproaches.Oneroute–ormodality–istointroduceadaptationasanextensiontoexistingenvironmentalmainstreaming.Forexample,somecountriesalreadyinclude“environment”asacross-cuttingthemeintheirnationaldevelopmentvision,nationaldevelopmentplans(e.g.medium-termplans,fiveyearplansorpovertyreductionstrategies),andsectordevelopmentplans.AnexampleistheGovernmentofRwanda,whichhasintegratedclimatechange(with

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environment)asoneofsevencross-cuttingissuesinnationaldevelopmentandsectordevelopmentplanning(RepublicofRwanda,2014).Itisevenpossibletoextendthistocaptureclimatemainstreaming,andinRwanda,theseactivitiesarebeingintegrated,oratleasttracked,inthenationalbudgetallocationprocessandinsectorbudgetactivities.Othercountrieshaveadoptedaslightlydifferentapproach,developingstand-alonesectoraladaptationaction,planswhichcomplementexistingsectordevelopmentplansandactivities.ExamplesincludeEthiopia,withitsClimateResilienceStrategyforAgriculture(FDRE,2014)andTanzania,whichhasdevelopedasectorAgricultureClimateResiliencePlan,2014–2019(GoT,2014).Thesemainstreaminginitiativesareledbytherelevantsectorministries/line-ministriesandbuildonexistingsectordevelopmentplans,butproducestand-aloneandcostedadaptationplans,becauseofthedifferentiation/opportunityforclimatefinance.Thisapproachisclearlyinfluencedbythepotentialforadditionalinternationalclimatefinance,thoughitinvolveslessdirectintegration.Movingdowntotheprogrammeandprojectlevel,existingsafeguardmechanisms,suchasenvironmentalimpactassessment(EIA),provideanaturalentry-pointforconsideringwhetherprojectsarevulnerabletoclimatechangeorcouldexacerbateclimateriskselsewhere.Althoughoriginallydesignedtopreventnegativeimpactsontheenvironment,theEIAprocesshasthebenefitofbeingafamiliarandwell-establishedpartofthepolicy-makingprocessinOECDcountries.However,itonlycapturesthosepoliciesthataresubjecttoenvironmentalimpactassessments,suchasinfrastructureconstruction.Moreover,itmayrequirerevisionofthelegalframeworktoincludeclimaterisks.Asdiscussedlater,itmayalsocometoolateintheprocesstobereallyinfluential.Moregenerally,climateriskscreeningcanbeappliedasastepinthepolicy-makingprocesstoidentifywherepolicies,programmesorprojectsmaybeparticularlyvulnerabletoclimatechange.Thishasemergedstronglyinrelationtoinvestmentprojectsfundedbytheinternationalfinanceinstitutionsandmultilateraldevelopmentbanks.Forexample,theAfricanDevelopmentBank(AfDB,2011)hasintroducedaClimateSafeguardSystemthatincludesatrafficlightsystemorscorecardtoidentifywhichprojectsmaybehighlyvulnerabletoclimateriskandrequireamoredetailedevaluationtoconsiderintegrationofclimateaspectsintodesignandimplementation.Thesetendtohaveastrongfocusonenhancingtheclimateresilienceofinfrastructureormajorinvestments.Thisdoesraiseaninterestingpointinthatthestimulusformedium-longtermdecisionsmaycomefromthedevelopmentcommunityandfromstipulationsonfinance,whichislikelytobemoreinfluentialthanwhenoriginatingfromsectorsinLDCsthemselves.Acomplementtotheidentificationofhigh-riskpolicies,projectsandprogrammesistheintegrationofadaptationintoexistingpolicyandprojectappraisalguidance.Thisentailsthemodificationofexistingappraisalguidancetoalsocoverclimatechangeortosupporttheconsiderationofsomeoftheadditionalaspectsandchallengesofadaptation.However,suchguidanceisoftenweakinsub-Saharancountries.Finally,afurtherapproachistoupdateclimatechangeallowances,ashasbeendoneforfloodsinseveralOECDcountries(WilbyandKeenan,2012):thiscanbeextendedtoupdatedesignstandards.However,cautionisneededtoensurethatthebenefitsofsuchactionsjustifytheadditionalcosts,especiallygivenfuturediscountingofuncertainbenefits

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Inlookingattheseissues,recentstudieshavehighlightedthatmainstreamingenvironmentorclimatechangedoesinvolvemajorchallenges,notablyduetothelackofcapacity,timeandresourcesinthesectors(i.e.asclimatedecisionsmovefromtheMinistryofEnvironmentoutwards).Thesestudiesalsoprovidesomeusefulrecommendationsonhowtoaddressthesechallenges.TheOECD(2012)studyongreeningdevelopmenthighlightedspecificinterventionsincluding:usingmulti-yeardevelopmentplanningprocesses,developkeyactorstechnicalskills,encouragetheparticipationofnon-governmentactors,buildfunctionalandtechnicalskills,andplanandtargeteffortscarefully.Italsoprovidedsomerecommendationsonhowdevelopmentsupportcandeliverbettercapacity,highlighting:viewcapacitysupportfortheenvironmentasunderpinningalldevelopmentsupport,collaborateacrossdomesticagencies,harmoniseapproachesamongdevelopmentsupportproviders,nurturelocalownership,focusonresults,implementbestpracticeguidelines,andreflectandlearn.TheIDRC(OECD,2015)reviewhighlights:

• Mainstreamingwillneedtoaligntothepolicyandinstitutionallandscape,andconsiderexistingprocessesorguidance,suchasprojectcyclestepsandappraisaldocumentationalreadyinplace.

• Pragmatismisessentialasanytoolorguidanceneedtofitwiththeresource,time,capacityandexpertiseavailableforpolicyorprojectanalysts;otherwisetheywillnotgetused.

• Thestageatthedecision-makingprocesswhenadaptationisconsiderediscritical.Itisimportanttoensurethatthemainstreamingactivitiescomeearlyenoughintheprocesstoinfluencethedecision,oraretargetedatkey‘windowsofopportunity’(Ballard,2014;MoserandEkstrom,2010)whichwilloftenbenon-climaticinnature(e.g.replacementormaintenancecycles).Thismayrequirestrategicissuestobepickedupearly-on,eitherinrelationtothesectorstrategyortheoverallinvestmentportfolio(e.g.atriverbasinlevelratherthanprojectlevel).Italsomeansthatclimaterisksandmainstreamingactivitiesneedstooccurearlyintheprojectcycle,attheconceptordesignstage,andideallybealignedtoapprovalmilestones.Theinclusionofadaptationconsiderationsattheenvironmentalimpactassessmentstage,forexample,isusuallytoolatetohaveamajorinfluenceonprojectdesign.

• Itmaybeusefulfordecision-makerstoalsoidentifyopportunitiesthatcanbecreatedbyimplementingadaptation,ratherthanfocusingonlyontherisksandameliorationactions(Hallegatte,2011).

• Thepathfromidentifyingpotentialentrypointsandprovidingtoolsthroughtoimplementationischallenging.Achievingthisrequiresinvolvingadiversityofusersandstakeholders,findingrelevantchampions,buildingpartnershipsandprovidingsupportnetworksandcapacitybuilding.

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The Economic Case for Action (or Not) Whilethesectionsaboveprovidesomegenericpriorityareas,itisimportanttolookattheeconomiccaseforactiontotesttheseassumptions.Thisisparticularlyimportantformediumandlong-termdecisionmaking,becauseoftheprofileofcostsandbenefitsovertimeforadaptationdecisions(DFID,2014).Inmanycases,themostimportantimpactsofclimatechangearelikelytoariseinthefuture,say2030andbeyond,whentheclimatesignalemerges.Withineconomicanalysis,thebenefitsofadaptingtothesechangesaccumulateoverlonger,futuretimehorizons,whilethecostsareincurrednow.Usingthepublicdiscountratesconventionallyusedindevelopingcountries(e.g.DFIDusuallyworkswitha12%discountrate–thoughfurtherdiscussiononthisispresentedlater),futureadaptationbenefitsinthemediumtermandbeyondareverysmallincurrentterms.Thiscanbeseeninthefigurebelow.A£1benefitthatarisesin2040(in25years),hasapresentvalueof£0.06andevena£1benefitin2030(in15years)apresentvalueof£0.18.

Profileofcostsandbenefitsformedium-long-termadaptation(left)andeffectofdiscounting

(right)showingthevalueofafuturebenefit(inyearsfrom2014to2040)whendiscounted

backtoacurrentpresentvalue

Source:FCFA,2014:DFID,2014Toshowhowdramatictheeffectofdiscountingreallyis,particularlyindevelopingcountries,asimpleexampleisprovidedbelow.Westartwithanupfrontadaptationcostof£1inyear0,andcomparethistoastreamoffutureadaptationbenefits.Theseadaptationbenefitsstartin2035(in20years),anddeliverabenefitof£0.1/year,continuingatthisleveloverthenext30years.Thetotalundiscountedbenefitsaretherefore£3(comparedtotheup-frontcostof£1).However,thesefuturebenefitsneedtobediscounted:usingconventionalUKdecliningdiscountrates(startingat3.5%),thediscountedstreamofbenefitsisapproximately£1,thusthecostsandbenefitsarebroadlyequal(i.e.thebenefit:costratioisapprox.1).ThishighdeclinehappensbecausethediscountratesItime-invariant,implyingexponentialreductions.

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Profileofcostsandbenefitsformedium-long-termadaptation,comparing£1in2015

(adaptationcosts)withatotalstreamofadaptationbenefitsof£3(2035–2065),whichafter

discountingat3.5%decliningalsoequal~£1inpresentvalueterms(approx.BCR=1).

However,ifthissameexampleisconsideredinthedevelopingcountrycontext,usingatypicaldiscountrateof12%,thepicturechangesdramatically.Infacttheannualbenefitstreamof£3(undiscounted),dropsbyanorderofmagnitude,toapproximately£0.1,thusthebenefit:costratiois~0.1,whichishighlyunattractive.Thecorollaryofthisisthattogetabenefit:costratioofapproximately1inadevelopingcountry,theannualbenefitstreamhastoincreasebyanorderofmagnitude,i.e.anupfrontadaptationcostof£1onlymakeseconomicsenseiftheannualstreamofbenefitsare£1/year,startingin2035andextendingcontinuallyfor30years.Incredibly,thismeansthatatotaladaptationbenefitof£30,afterdiscountingat12%,equatestoonlyapproximately£1inpresentvalueterms.AnalysisoftheECONADAPTinventory(onadaptationcostsandbenefits)showsthatthislevelofbenefitstocostsisfairlyunprecedented.TherearesomeexamplesofundiscountedbenefittocostratiosthatarethishighforearlyDRRoptions,andforlong-termcoastalprotection,buttheseareexceptions.Inpracticalterms,thismeansthatthelimitedresourcesavailableinsuchcountriesarebetteroffspentelsewhere(i.e.togivehighersocialbenefit)andgivesgreaterpreferencetolow-andno-regretoptionsastheseproduceimmediateeconomicbenefits.However,theremaybesomecaseswheremediumtolong-terminvestmentscanbejustified,andthestudyhasexaminedthesewithsomesimpleexamples/schematics.Theyareoutlinedbelowanddrawonsomeofthelow-regret,value-for-moneyanalysisidentifiedintheDFIDstudy(2014)formainstreamingandaddressinglong-termchallenges.ThecostsofresilienceareverylowEarlystudies(seeAgrawalaandFankhauser:OECD,2008)estimatedthecostsofadaptationusinganinvestmentandfinancialflowanalysismethod.Thisappliesanadaptationcost“mark-upˮtofutureinvestmentplanstotakeaccountoffutureclimatechange,usuallyaround10%(forexample,theWorldBank(2006)estimatedthataccountingforfutureclimateinhigh-riskprojectstodaycouldpotentiallyincreaseprojectcostsbybetween5%and15%).Inpracticalterms,thismeansthatifadaptationincreasesthecostsofaprojectby10%,thenthebenefits

17

thatitproducesneedtobegreaterthan100%andoccurineachyear,iftheystartinthefuture,atleastfora12%discountrate(seeabove).However,ifthecostsofadaptationareverylow,thentheremaystillbeajustificationforearlyaction.Forexample,ifthecostsofadaptationare1%oftheprojectcosts(or£0.1intheschematicabove),anddeliverfuturebenefits(£0.1peryear,totalling£3undiscounted,andjustunder£1discounted,thusapproximatelyaBCRof~1),thentheinvestmentmaymakesense.Ofcourse,theactualratioofprojectcostsandfuturebenefitswillvaryonacasebycasebasis,butthisillustratesthatifverylowcostover-designispossible,thenthismightbeworthconsidering,evenunderconditionsofhighdiscountrates(thoughperhapsnotunderconditionsofhighfutureuncertainty).Thefutureimpactsofclimatechangeareveryhigh(shocksandindirecteffects)Reversingthelogicabove,therewillalsobeacaseforadaptationwhenthefutureadaptationbenefitsareveryhigh.Thismayariseforanumberofreasons.First,whentheimpactsofclimatechange,andthusthepotentialbenefitsofadaptationintermsofavoideddamages,areverylarge.Thismayarisefromlargeshocks(naturalhazards).Majorextremes,suchasmajorfloods,tropicalstorms,ormajordroughts,alreadyleadtohigheconomiccosts(IPCC,2012),andchangesinthefrequencyandintensityofmajoreventscouldleadtolargefuturedamagecosts.Inturn,thebenefitsofdisasterriskreductioncouldbeverylarge.Ifthereisanexistinghighadaptationdeficit,notingtheseeventsareprobabilisticinnature,earlyactionwillhavebenefitsinreducingtherisksofearlydamage.However,thisisalow-regretoption,i.e.thisissomethingthatshouldbedoneanywayandthereforenotdirectlyrelevanttothe10–40yearlifetimeofinterest.TheissuethereforeiswhetherthechangeinrisksassociatedwithclimatechangeshouldbeaccountedforinearlyDRRactions,i.e.whethercoastalorriverflooddikesshouldbebuilthighertotakeaccountofchangesinstorm-surgeorfloodintensity.Itisthereforethemarginalcosts–andthemarginalbenefits–toaddressfuturerisks,whichisimportanthere(notingthisgetsverycomplicatedveryquickly,becauseitdependsontheassumptionsofreturnperiods).Whatisclearisthatusingthesimplifiedschematicabove,themarginalcostsoftheseadditionalevents(ortheirextraintensity)needstobeverylargetojustifyadditionalearlycosts.Thefigurebelowassumesthatalargeeventoccurseverytenyears,startingin20years.Ifthisleadstolargedamagecosts–andbyassociationlargeadaptationbenefits(shownasanadaptationbenefitof£10everytenyear,discountedat12%)–thenthispassesaCBAtest.However,whatisinterestingisthatitisonlythefirsteventthatjustifiestheearlycosts(thisalonehasabenefittocostratioof1):whereasverylargefutureeventsgetdiscountedveryheavily(ascanbeseenbythedecliningpresentvalueoffutureevents).Asabove,adaptationmayreducebutnoteliminatetheeffectsoftheseevents,andtheseeventsareprobabilisticaswellasuncertain,sotheymaynotmaterialise.

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Profileofcostsandbenefitsforlong-termadaptation,investigatingfutureshockandhigh

futureadaptationbenefits.

Asecondcaseariseswhenthereareindirecteffects.Usingfloodsasanexample,thiswouldincludedirecteffects(e.g.buildingdamage),directintangibleimpacts(e.g.lossoflife,damagetoecosystems),indirecteffects(disruptiontotransportorelectricity)andindirectintangibleeffects(e.g.effectsonwell-beingfrompostdisasterstress).Thishasclearoverlapwiththeextremesabove,butofmostrelevance,itcouldapplycriticalinfrastructure.Infrastructureisdeemedcriticalifitsfailurethreatensthesafety,economy,lifestyleandpublichealthofacity,aregion,orevenastate.Thesecriticalinfrastructuresarespecificinthattheygobeyondgeographical,political,culturalandorganisationalboundaries(Boin&McConnell,2007).TheWorldBank(2011)hashighlightedpreviouslythatcriticalinfrastructureisapriorityforfutureproofing.Ifduringanevent,criticalinfrastructureisdestroyed(e.g.watersupplysystems,watertreatment,healthcareinfrastructure,etc.),thiswillleadtolargerindirecteffectsincludingintangibleeffects.Forthisreason,thereislikelytobeastrongereconomiccaseforover-protectingcriticalinfrastructure,ineconomicaswellassocialandhealthterms.FuturebenefitsstartnowandbuildupovertimeAfurthercasewhereearlyactionmightbejustifiediswhentherearesomeearlybenefitsofearlyadaptationaction,evenifthesearenotsufficienttojustifyinvestmentontheirown.Twofiguresareshownbelowtoillustratethis.Thefirstassumesanadaptationcostof£1inyear0.Itthencomparesthistoabenefitstreamstartingin2035of£0.1/year,continuingfor30years(£3).Afterdiscountingat12%,thestreamoffuturebenefitsonlytotals~£0.1,thusfailsacost-benefitanalysis(BCR~0.1).However,ifearlybenefitsarefactoredin,thingsimprovesignificantly.Ifweassumeadaptationbenefitsstartinyear1,at£0.1/year,andcontinueatthislevelovertime,thenthepresentvalueofbenefitsincreasestojustunder£1afterdiscounting(at12%),thusanapproximateBCRof~1.Thisdoesrunintosomeproblems,notablythereneedtobeearlyrobustclimatetrendswhichcangeneratethesebenefits,anditisafinelineastowhethermostoftheseoptionswillbeearlylow-regretmeasures.Furthermore,thedeliveryofbenefitsinthefirstfewyearsiscritical,astheseprovidethelargestdiscountedbenefits.

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Profileofcostsandbenefitsformedium-long-termadaptation,comparing£1in2015

(adaptationcosts)withatotalstreamofadaptationbenefitsof£3(2035–2065),whichafter

discountingat12%decliningequalsapprox..£1inpresentvalueterms(BCR=~0.1).

Profileofcostsandbenefitsforadaptation,comparing£1in2015(adaptationcosts)witha

totalstreamofadaptationbenefitsof£5(2015–2065),whichafterdiscountingat12%

decliningequalsapprox..£1inpresentvalueterms(BCR=1).

DifferentassumptionsaremadeondiscountratesClearlyoneofthesimplestwaystoincreasetheattractivenessoflong-termadaptationistochangetheassumptions–providedthiscanbejustified.Ascanbeseenfromthefirstexample,thediscountrateneedstodropsignificantlytomakeadifferenceforlong-termbenefits,i.e.towardstheratesusedinOECDcountries.However,giventheextremelyhighimpactofdiscountingat12%,evenmodestreductionsindiscountratecanmakealargedifference–thefigurebelowshowstheimpactofreducingrates.

20

DiscountinginUKPublicPolicyAppraisal

HMT(2007)recommendsaSocialTimePreferenceRate(STPR)forpublicpolicyappraisal,derivedfromtheequationρ+μ.g,basedontheRamseydiscountingformula,where:ρ=therateatwhichindividualsdiscountfutureconsumptionoverpresentconsumption,whichiscombinedwith• theproductoftheannualgrowthinpercapitaconsumption(g)and• theelasticityofmarginalutilityofconsumption(μ)withrespecttoutility,reflectingthefactthat

ifpercapitaconsumptionisexpectedtogrowovertime,thiswillimplyfutureconsumptionwillbeplentifulrelativetothecurrentpositionandthushavelowermarginalutility.

ρitselfcomprisesoftwoelements:• Catastropherisk(L);and• Puretimepreference(δ).Catastropheriskisthelikelihoodthattherewillbesomeeventsodevastatingthatallreturnsfrompolicies,programmesorprojectsareeliminated,oratleastradicallyandunpredictablyaltered.Examplesaretechnologicaladvancementsthatleadtoprematureobsolescence,ornaturaldisasters,majorwars.Thepuretimepreference,reflectsindividuals’preferenceforconsumptionnow,ratherthanlater,withanunchanginglevelofconsumptionpercapitaovertime.HMT(2007)reportsthattheevidenceindicatesavalueforρofaround1.5percentayearforthenearfuture,anannualrateofgat2percentperyear,andanelasticityofthemarginalutilityofconsumption(μ)ofaround1.Thereforewithg=2percent,ρ=1.5percent,μ=1.0,thentherealdiscountrateis0.015+1.0*0.02=3.5percent.Whyuse10-12%indevelopingcountries?

Intheory,asimilarUKsocialdiscountformulacanbeappliedindevelopingcountries,thoughclearlyρismuchhigher(becausetheyarepoorerandbecausegrowthratesandfutureincomesarehigher).ThisleadstohigherdiscountratesthanusedintheOECD(notingOECDratesaretypically3to6%).However,theconventionistousesocialdiscountratesof10-12%indevelopingcountries,whichimpliesratesthatarehigherthanwouldarisefromtheuseoftheRamseyformulaabove.Inpractice,theseratesarebasedonalternativeapproachesforderivingthesocialdiscountrate.AgoodreviewofpracticeisincludedintheADBreviewofZhuangetal.,2007).Insummary,aswellastheuseoftheRamseyformula,ZhuangalsocitesexamplesoftheempiricalestimationofSRTP.TheyalsoreportontheuseoftheMarginalSocialOpportunityCostofCapitalforestimatingsocialdiscountrates.Thisarguesthatresourcesinanyeconomyarescarce,thatgovernmentandprivatesectorcompeteforthesamepooloffunds;thatpublicinvestmentdisplacesprivateinvestment,andthusthatpublicinvestmentshouldyieldatleastthesamereturnasprivateinvestment.Afurtheralternativeistouseaweightedaverageapproach,toreconciletheSRTPapproachwiththatofSOC,andafurthervariationofthis,usingtheshadowpriceofcapital(SPC).Zhuangetal.,2007alsosummarisediscountratesinuse,notingthatvariouscountriesuseSTRPorSOCapproaches(thelattergenerallyleadingtohigherrates).Ingeneral,thereviewfoundmoreuseofSTRPindevelopedcountriesandmoreuseofSOCindevelopingcountries(e.g.IndiaandPakistanuse12%(SOC)),thoughwithsomeuseofweighedaveragesinMDBs.

21

However,amorepracticalreview,focusedondevelopmentpartnersandinternational/multi-lateralfinanceorganizations,aspartofthisstudy,revealsthatratesareoftennotbasedonastrongeconomicrationale.TheWorldBankpublishedaHandbookonEconomicEvaluationofInvestmentOperations(Bellietal,1997),onpage127,itsays:"[...]Thediscountrateusedshouldreflectnotonlythelikelyreturnsoffundsintheirbestrelevantalternativeuse(i.e.,theopportunitycostofcapitalor“investmentrateofinterest”),butalsothemarginalrateatwhichsaversarewillingtosaveinthecountry(i.e.,therateatwhichthevalueofconsumptionfallsovertime,or“consumptionrateofinterest”).TheBanktraditionallyhasnotcalculatedadiscountratebuthasused10-12percentasanotionalfigureforevaluatingBank–financedprojects.Thisnotionalfigureisnotnecessarilytheopportunitycostofcapitalinborrowercountries,butismoreproperlyviewedasarationingdeviceforWorldBankfunds.Taskmanagersmayuseadifferentdiscountrate,aslongasdeparturesfromthe10-12percentratehavebeenjustifiedintheCountryAssistanceStrategy.TheADBfollowstheWBandadoptsthesameapproach.ADBGuidelinesstatesthatbecauseitistoodifficulttopreciselyestimatetheopportunitycostofcapitalineachcountry,10-12%isused.seepage37http://www.adb.org/sites/default/files/institutional-document/32256/eco-analysis-projects.pdfSources:HMT(2007);WorldBank(2007),ADB[Zhuangetal]2007.Therearesomepotentialreasonswhyalowerdiscountratemightbeused.Applyinghighdiscountratestocountriesinthefuturemaybebiased,astheirfuturegrowthwillslowwithdevelopment,anduncertaintyandcatastropheriskwillalsofall.Thereisadiscussionwhetherclimatechangeitselfmightreducefuturegrowth,whichwouldimplytheuseoflowerordecliningdiscountratesforadaptation.Afurthersetofadjustmentscanbeintroduced,decliningrates(HMT,2003)[hyperbolicdiscounting]orintergenerationaldiscountrates(HMT,2009).Thedecliningrate(intheUK)isusedbecauseofuncertaintyaboutthefuturevaluesoftimepreferenceandcalculatesacertaintyequivalentratetakingintoaccounttherangeofthisuncertainty.However,becausethereducedratesdonotkick-inuntilyear31,seetheschedulesbelowforthestandarddecliningandintergenerationaldecliningschemes,thiswillnotmakemuchdifferencetoadevelopingcountrycontextthatstartswithahighdiscountrate(becausethemaineffectofdiscountingwillhavealreadyoccurred).OfcourseintheUKorOECDcontext,wherelowersocialdiscountratesareused,theseschemesdomakeadifference.Theuseofintergenerationalratereflectsthefactthatdiscountingcanleadtoperverseoutcomes,especiallywherepotentialcatastrophicconsequencesoccurinthefuture,evenifthesecanbeavoidedwithsmallearlyinvestment(i.e.theendoftheworldbecomesoptimal).Thisisaparticularissueforclimatechangemitigation.AshighlightedbyWeitzman(2009),withclimatechange,thereisthepotentialforplausible,ifunknown,catastrophicclimatechangeandsocalled‘fattails’,wherethetailsofthedistributiondominateandtheexpectedwelfarelossispotentiallyunbounded(e.g.duetomassspeciesextinctionandbiosphereecosystemdisintegration).Theconsiderationoftheseextremeoutcomesleadstoradicallydifferentconclusionsfromtheconventionalstandardeconomicanalysisandformalizedcostbenefitanalysis.

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Thereisastrongeconomicjustificationforavoidingtheseextremeoutcomes(Sternetal,2006)andtheSternrevieweffectivelyuseda0.1%valueofρintheRamseyformulaabove,duetothecatastrophicrisk–leadingtolowrates,thoughitstilldiscountedforgrowth.HMT(2009)introducedadiscountingschemetotakeaccountofintergenerationalissues,i.e.irreversiblewealthtransfersfromthefuturetothepresent.ThisisdifferenttotheSternschemeandisshownbelow.

SourceHMT,2008.Again,suchanadjustmentmaynotmakeasmuchdifferenceintheLDCcontext,becausethisisafairlylowcomponentoftheoverallsocialdiscountrate.Indevelopingcountries,thegrowthcomponentofthediscountrateismuchhigher,thuschangesinρarelesslikelytoimpactonthefinalrate.OptionvaluesandthevalueofinformationareincludedRealoptionsanalysis(ROA)quantifiestheinvestmentriskwithuncertainfutureoutcomes.Itisparticularlyusefulwhenconsideringthevalueofflexibilitywithrespecttothetimingofcapitalinvestment,oradjustmentofthesizeandnatureofinvestmentoveranumberofstagesinresponsetounfoldingevents.Intheadaptationcontext,thisallowsfortheanalysisofflexibility,learningandfutureinformation,particularlyrelevantforuncertainty(McDonaldandSiegel,1986;DixitandPindyck,1994).Itisparticularlyusefulwhenconsideringthevalueofflexibilitywithrespecttothetimingofcapitalinvestment,oradjustmentofthesizeandnatureofinvestmentoveranumberofstagesinresponsetounfoldingevents.Intheadaptationcontext,thisallowsfortheanalysisofflexibility,learningandfutureinformation,particularlyrelevantforuncertainty(Watkissetal,2014).ROAtypicallygivestwotypesofresultthatsetitapartfromconventionaleconomicanalysis.Thefirstappliestoprojectsthatarecost-efficientunderadeterministicanalysis:ROAmayshowthatitmakesmoresensetowaitfortheoutcomeofnewinformation,ratherthaninvestingimmediately,ifthebenefitsofthenewinformationoutweighthecosts–i.e.deferredbenefits–ofdelayingimplementation.Thevalueofwaitingwillthenbehigherifthedegreeofuncertaintyregardingthereturnoftheprojectisgreater;andthedurationoftheperiodofwaitingbeforeinformationisgainedisshorter.Thevalueofwaitingneedstobebalancedagainstthecostofwaiting,becausewhilewaiting,theprojectwillnotbedeliveringbenefits.ThesecondappliestoprojectswhichfailaconventionalCBAunderdeterministicanalysis,butunderconditionsofuncertaintyitmaymakefinancialsensetostarttheinitialstages,oratleast

23

keeptheoptionopenforpotentialfutureinvestment.ThisarisesbecauseROAhelpsunderstandhowprojectvalueevolvesduringdevelopment:therewilloftenbeflexibilitytoadjusttheprojectasitproceedsanditcanexpand,contractorstop.ROAcanincorporatethisvalueofflexibility(whichisomittedinstandardeconomicanalysis).AswithCBA,effectivetreatmentofriskpreferencesdependsontheabilityoftheanalysttodescribetheseaccurately.However,asROAdependsonexpectedvalueswithinaconventionaleconomicframework,thediscountingissuesindevelopingcountrieswillstillarise.Indeed,thepenaltyofwaitinganddeferringearlyprojectbenefitsincountriesexperiencinghighGDPgrowthwillbehigh.Other(sustainability)argumentsareintroducedAfurthersetofliteraturehighlightsthatwhileeconomics(andtheuseofdiscounting)reflectspreferences,thiscanresultinsomewhatstrangeoutcomes(e.g.asinthemitigationdomain,wherethe‘endoftheworld’canbecomeoptimal).Anumberofdifferentargumentshavethereforebeenadvancedtohighlightkeyproblems,ortoincludeextracriteriaoradjustmentsthatshouldbemadetostandardCBA.Asanexample,Annandale(2013)presentsacaseonlargehydropowersitesinthecontextofalimitednumberofsuitablesites.Hehighlightsthatthesesitesareaffectedbysedimentation,whichreducesstoragecapacity.Currenteconomicanalysisdoesnottakeaccountofthecostsofloststorage,becauseitisdiscountedheavilyasitoccursinthefutureaftermanyyears.Asaresult,ongoingsedimentationmanagementapproachesdonotappearfavour.However,thisthenleadstohighlevelsofsiltationthatrenderthesitesunusablewithoutmajorsedimentationremoval.Asaresult,heraisestheprincipleofhotelling,i.e.thatthevalueofanexhaustibleresourceincreaseswiththediscountrate(i.e.discountedvaluedoesnotchange),thoughtheeconomiccaseforthisisnotstrong(indeedabetterapproachmightbetouserealoptionsanalysis,seeabove).

Discussion Drawingonthesectionsabove,thekeyareasidentifiedformediumandlong-termplanningareoutlinedbelow,splitintotypeII(short-termdecisionswithalonglife-time)andtypeIII(addressingfuturechallenges).Theprioritiesinclude:• Criticalinfrastructure,becauseofrolepostdisaster(notingfailureduringmajorclimate

shockswillleadtohighindirectlosses).Thiscouldincludebridgesascriticalnodesforsimilarreasons,andbecauseofthelargelyirreversiblenature.

• Largehydropower(orwaterstorage),notingthisisaffectedbychangingtrendsbecauseoftheongoingoperationalcostsoflowergenerationorunmetdemandindrierscenarios,aswellasdamagefromheavyprecipitationextremes.

• Urbanland-useplanning,duetothelonglife-timeofspatialdecisions,andthepotentialexposuretofutureextremes(andindirectcosts).

• Agriculturalland-useplanninganddevelopment,especiallycoffeeandtea,forestrymanagement,duetothelonglife-timesinvolved.

• Infrastructure–ifthereisopportunityforlowcostover-design,flexibilityorrobustness.

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• Anumberofmajorfuturemajoreffects,wheresomeearlyiterativeplanningiswarrantedbecauseofirreversibilityandhighratesofchange/lowadaptivecapacity.

Theseformpossibleareastoexploreinthecasestudiesinphase2.

Capital Investments What’stheissue?Inputtingtogetheraconceptualframeworkforidentifyingdecisionstodaythataffectclimatevulnerabilityinthelongtermandthatshouldtakefutureclimaticconditionsintoaccount,itisimportanttobeawareofratesofdepreciationonthesortsofcapitalinvestmentinvolved.Whilesomecapitalinvestmentstodaymightappearvulnerabletofutureclimateortootherwiseaffectvulnerabilitytoclimatechange,theresultingcapitalstockmaydepreciatesofastthatitseconomiclifetimeisrelativelyshort,saynotmorethanadecadeortwo,whereincurrentclimatevariabilityisthedominantfactorinitsperformance.

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CapitaldepreciationinAfricaCapitaldepreciationisarelativelyunder-researchedissue.Inthevastmajorityofstudies,therateofdepreciationissimplyassumedandmoreoverthesamerateisassumedtoapplytodifferentcountries.Typicalassumptionsfortheaggregatecapitalstockareinarangefromabout7%(Easterly&Rebelo1993)toabout10%(Nordhaus&Sztorc2013),whichimpliesthat,overthecourseofitsfirstdecadeinuse,thevalueofarepresentativeassetfallsby52-65%andafter20yearsitdoessoby67-88%.However,therearereasonstobelievethatratesofcapitaldepreciationarenotuniformacrosscountriesandinparticularthattheremaybesystematicdifferencesbetweencountriesbasedontheirlevelofdevelopment.Intheory,thedisparitycouldgoeitherway:

• Capitaldepreciationinlower-incomecountriessuchasthoseinAfricacouldbelowerthaninhigh-incomecountries,ifalargeproportionofinvestmentisinusedratherthannewgoods,usedgoodsdepreciatingmoreslowly.

• Ontheotherhand,ittendstobeassumedthat,ifthereisadifference,itisthatcapitalinlower-incomecountriesdepreciatesfaster.Thereareseveralcandidateexplanationsforthis,includingfinancialconstraintsthatleadinvestorstopurchaselessdurableinvestmentgoods(Udryetal.2006),andinparticulararangeofmechanismsthatultimatelyresultinunder-maintenanceofcapitalassets,includingthatthegoodsareimportedfromhigh-incomecountriesandareunsuitableforlocalconditions,corruption(Davoodi&Tanzi1997),anticipatedcapitalunder-utilisation(whichmakesitefficienttodolessmaintenance),highratesoftimepreference,andmarketdistortionsthatmakescapitalinvestmentartificiallycheap.

Therehavebeentworecentstudiesestimatingcapitaldepreciationratesindevelopingcountries,bothfocusingonthemanufacturingsector.Schuendeln(2013)analysessurveydataforIndonesianfirmsandestimatesdepreciationratesbetween8%forasimplestatisticalmodeland14%foramodelwithmoreconvincingcontrols.Largerandyoungerfirmshadhigherdepreciationrates,whichmayindicatetheyusenewerequipment.AmoredirectlyrelevantstudyisBu(2006),whoanalysedsurveydatafrommanufacturingfirmsinsevendevelopingcountriesincludingfourcountriesinSub-SaharanAfrica(Coted’Ivoire,Ghana,KenyaandZimbabwe).Thedataarerathernoisy,so,usingthemedianfirmasthemeasureofcentraltendency,depreciationratesintheAfricancountriesvariedfrom17%to62%acrosscountriesandusingdifferentmethodsofaccountingforinflation.Thisstudyalsolooksatdepreciationratesfordifferentkindsofasset,findingthatdepreciationislowerforbuildingsandhigherformachineryandequipment,asonemightexpect.Overall,BuconcludesonthebasisoftheevidencethatcapitaldepreciatesfasterindevelopingcountriesandtheevidenceinSchuendelnmightalsobetakenas(somewhatequivocal)supportforthis.Usefullifeoffixedassets

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Inadditiontostudiesonthedepreciationrateofthecapitalstockinaggregate,researchhasexaminedthedepreciationratesofindividualassetclasses.Thesestudies,inturn,informtaxcodes.CountriessuchastheUSprovidestandardassetlivestobeusedincalculationsofcorporatetaxliabilitiesforawidevarietyofassetclasses,manyofwhicharerelevantforthisstudy.Unfortunately,studiesonthedepreciationratesofparticularassetclassesindevelopingcountries,andinAfricainparticular,arerare.Taxcodestendtodistinguishbetweenmanyfewerclassesofassets,ifguidanceonusefullivesisprovidedatall.Inaddition,thereisoftennoevidencethatthejudgementsonusefullivesprovidedwithintaxcodesarebasedonrigorousresearchonthedepreciationrateofassets.Table1providestheusefullifeoffixedassetsasestimatedbytheBureauofEconomicAnalysis,basedintheUnitedStates,andusefullivesforequivalentassetsasrecommendedbytheIRSforuseincalculatingtaxliabilities.FortheBEAdata,wherepossible,depreciationrateshavebeenestimatedusingassetpricesintheresalemarket.Wherenodirectdatawereavailable,therateshavebeenbasedonavarietyofsources,including‘theresearchofBEA,DaleJorgenson,theBureauofLaborStatistics,andJackFaucettAssociates,aswellastheirownjudgementtodeterminethegeometricrateofdepreciationonacasebycasebasis’.ThemethodologyusedbytheIRSislesstransparent,butaslightlybroaderrangeofassetsappearstobecovered.Theusefullivesreportedineachofthetwosourcesarebroadlyconsistent.Ascanbeseen,mostoftheassetsconsideredofrelevanceinthisprojectappeartohaveusefullivesbetween30and50years.EvenifdepreciationintheAfricancontextissignificantlyfasterthanintheUS,thissuggeststhatdecisionsonassetstakenoverthenextfewyearswilldeterminethecharacterofcapitalstockforthenextcoupleofdecades,atleast.Depreciationrateandusefullifeoffixedassets,BEA

Sector Assettype(BEA) Usefullife

(years,BEA)Assettype(IRS) Usefullife

(years,IRS)

Energyandcommunicationsinfrastructure

Communicationstructures

40 Telephonedistributionplant

24

Electricaltransmission,distributionandindustrialapparatus

33 Electricpowergeneratinganddistributingsystems

19

Electriclightandpowerstructures

45 Electricutilitysteamproductionplant

28

Electricutilityhydraulicpowerplant

50

Urbanplanning,infrastructureandreconstruction

Sewageandwastedisposal

40 Municipalwastewatertreatmentplant

24

Municipalsewer 50 Residentialrentalproperty 27.5

Watersupply Watersupply 40 Waterutilities 50Transportinfrastructure

Railroadequipment

28 Railroadstructures 30

Railroadreplacement

38 Railroadtrack 10

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Sector Assettype(BEA) Usefullife

(years,BEA)Assettype(IRS) Usefullife

(years,IRS)

trackAirtransportationstructures

38

Highwayandconservationanddevelopmentstructures

40

Publicbuildings Medicalbuildings 36 Non-residentialrealproperty

39

Educationalbuildings

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Source: http://www.bea.gov/national/pdf/BEA_depreciation_rates.pdf,http://www.irs.gov/pub/irs-pdf/p946.pdf

Quantitative assessment of decisions that lock in climate vulnerability IntroductionandmethodsPreviousworkhasgivenususefulframeworksforidentifyingwhatkindsofdecision,beingmadetoday,arelikelytorequireconsiderationoffutureclimateintheirdesignandimplementation.Thesearedecisionsthat:

1. Affectclimatevulnerability(eithertheperformanceoftheprojectitselfisvulnerabletoclimate,orprojectoutcomesmorebroadlyaffectvulnerabilitytoclimate);

2. Dosointhelongrun(10yearsormore);3. Arequasi-irreversible;4. Arelargeenoughtomeritattentionfromdevelopmentorganisations.

Ranger,HarveyandGarbett-Shiels(2014)analysed250developmentprojectsfromtheWorldBankandDFIDinthreecountriesandidentifiedthetypesofprojectmost‘urgent’accordingtocriteriasimilartothoseabove.Innoparticularordertheyare:2

• Energyandcommunicationsinfrastructure;• Urbanplanning,infrastructureandreconstruction;• Watersupplyinfrastructure;• Transportinfrastructure;• Majorhydropower;• Majorirrigationinfrastructure;• Publicbuildings(schools,hospitals);• Naturalresourcemanagement.

However,welackaquantitativeunderstandingofwherethesekindsofinvestmentdecisionsarelikelytobemadeinSub-SaharanAfricainthecomingyears.Wherearethehotspots,whichwouldconsequentlybedeservingofspecialattention?

2 Weather-riskinsuranceandsocialsafetynetprogrammesarementionedinthispaper,thoughnotincludedinthelist.

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Thissectionseekstoidentifypotentialhotspotsforinfrastructureinvestmentthataffectsclimatevulnerabilityandthatrequiresconsiderationoffutureclimateindesignandimplementationtoday.ItdoessousingaseriesofquantitativeindicatorsthatarecomparableonanationalbasisacrossthewholeSub-SaharanAfricanregion,obtainedfromarangeofinternationaldatabases.Itisnottobeconfusedwithquantitativeanalysisofclimatevulnerability(e.g.Barr,Fankhauser,&Hamilton,2010;Yoheetal.,2006).Suchanalysisisconcernednotwithdecision-makingandinvestmentperse,butwiththeoutcomesforclimatevulnerability.Thereforethefocusinthesestudiesisonmeasuresofexposure/impactsuchasdamagetocropyields,measuresofsensitivitysuchasfoodimportdependency,andmeasuresofadaptivecapacitysuchasgovernanceindices.Theprincipalmethodologicalproblemconfrontedindoingaregional,comparativeanalysisofinfrastructureinvestmentisthatsuitable,directdatadonotingeneralexist.Thereforeindirectproxiesmustbereliedupon.Forsomeoftheabovecategoriesofinfrastructure,goodproxiesdoexist.Forinstance,projectionscanbeobtainedfromUNDESAofpopulationgrowthincitiesinSub-SaharanAfrica,whichisstronglyindicativeoflikelyfutureurbanplanningandinfrastructureinvestment.Suchdataareincludedinthisanalysis.Yetforthemostpartthisisnotthecaseandreliancemustbeplacedonmoreindirectproxies.Tothisendwerelycentrallyonthenotionofinfrastructuredeficits(Yepesetal.,2008)orinfrastructureintensitygaps,inordertoquantifythepotentialforfutureinvestment.Thejustificationfordoingsoliesintheempiricallydemonstratedphenomenonofconvergenceofeconomiesalongagrowthpath(e.g.Barro&Sala-i-Martin,2004).Economiesthatstartfurtherbehindgraduallycatchupwiththeleadersintermsnotonlyofultimatelivingstandards,butalsocapitalorinfrastructureintensity:theygrowfasteronthesedimensions.Theimplicationisthatthosecountrieswithalargegaprelativetoaleading,benchmarkcountryinasuitablynormalisedmeasureofinfrastructure(i.e.infrastructureintensity)havethepotentialtoseemostinvestmentinthefuture.Theanalysisthatfollowscalculatesandpresentsresultsforarangeofmeasuresofinfrastructureintensitycorrespondingtothevariouscategoriesofinfrastructureaffectingfutureclimatevulnerabilitymentionedabove.Intensityiscalculatedindifferentwaysdependingonthecategoryofinfrastructure.Forexample:

• Theslumpopulationmaybenormalisedbythetotalurbanpopulation.Countrieswiththelargestshareofslum-dwellershavethegreatestneedofurbanplanningandinfrastructureinvestmenttoprovideadequateconditionsforsuchpeopleandthegreatestpotentialaccordingtotheconvergencestory.

• Theareaofagriculturallandthatisequippedforirrigationmaybenormalisedbytheestimatedareaoftotalirrigablelandtoshowwherethereispotentialforinvestmentinfurtherirrigation.

Thebenchmarkcountrythatischosenfortheanalysisisthedevelopingcountry,anywhereintheworld,withthehighestinfrastructureintensityinaparticularcategory.AnalternativewouldbetobenchmarkagainsttheleadingcountryinSub-SaharanAfrica,but,insofarasanabsolute,cardinalinterpretationcanbegiventothedata,doingsowouldnotconveythepotentialfor

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furtherinvestmentevenintheleadingcountry.Regardless,apotentialweaknessisthatthebenchmarkcountrymayhaveuniquecharacteristics,whichmakeitespeciallyinfrastructure-intensive.Weaccountforthiswherepossible(forexample,verysmallcountriesareexcludedfrombenchmarkingwithrespecttopavedroaddensity),butfurtherworkcouldbecarriedouttoexcludeoutliers.Eachofourindicatorsisnormalisedbyanunderlyingabsolutevariabletoensurethattheyarecomparableacrosscountries.Tocalculatewhatlevelofinvestmentwouldberequiredtocloseaninfrastructureintensitygap,thegapismultipliedbythecurrentvalueoftheunderlyingabsolutevariabletoarriveatanabsolutelevelofinvestment.Forexample,theinpublicspendingoneducationasapercentageofGDPismultipliedbycurrentGDPtoarriveattheabsoluteadditionallevelofspendingrequiredtoclosethegap.Formostoftheindicators,forecastsoftheunderlyingvariablearethenmultipliedbytheinfrastructureintensitybenchmarkinordertoestimatewhatinvestmentwouldberequiredtomaintaininfrastructureintensityatthebenchmarklevel.Thelatestavailableforecastsareusedforeachunderlyingvariable.Thisisnotpossibleforsomeunderlyingvariablessuchasirrigablelandorpotentialforhydropowerproductionastheyareconstantovertimeorforecastsareunavailable.Unlessotherwisestated,theresultspresentedinthisanalysisarethesumoftheinvestmentrequiredtofirst,closethecurrentinfrastructureintensitygapandsecond,maintainthebenchmarkintensityinthefuture.Thisabsolutelevelofinvestmentisthenstandardisedbythetotalrangeofinvestmentneedsforeachindicatorsothateachcountryisassignedavaluebetween0and1.Ofcoursecountriesdonotalwaysneatlyfollowaprocessofconvergence.Theexistenceofaninfrastructure-intensitygapdoesnotautomaticallyimplythatthegapwillbeclosed;itmayexistforagoodreasonsuchasweakgovernance.Toaccountforthis,wepresenttwofurthersetsofresults.First,infrastructureintensitygapscanbecalculatednotwithrespecttotheleadingcountryineachcategory,butwithrespecttowhateachcountrymightbeexpectedtohaveachieved,givenitslevelofdevelopmentandothernationalcharacteristics.Inparticular,Yepesetal.(2008)carryoutaneconometricanalysisofthedeterminantsofvariouskindsofinfrastructureintensityindevelopingcountries,showingthattheydependamongotherthingsonnationalincomepercapitaandpopulationdensity.Weusethestatisticalestimatesfromthisworktoprovideapredictionofwhatdegreeofinfrastructureintensityacountrywouldhave,giventheaverageeffectofnationalcharacteristicssuchasincomepercapitaoninfrastructureintensityacrossalldevelopingcountries.Ifagapexists,thenitisnotexplainedbythesecharacteristicsanditmightbeassumedtobemorereadilyclosed.Second,dataoninfrastructureintensitygapscanbecomparedwithdataongovernanceandthenationalinvestmentclimate.Ifalargegapexists,yettheinvestmentclimateispoor,itcanbeconcludedthatitislesslikelytobeclosed.ResultsForeachoftheindicatorsexamined,thefollowingsectionpresents:

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• Adefinition;• Anexplanationofitsrelevancetoinvestmentinlong-livedinfrastructure;and• DataontheinvestmentrequiredbyeachcountryinSub-SaharanAfricatocloseits

infrastructureintensitygaprelativetothemostinfrastructure-intensivedevelopingcountry.

NationalindicatorsProducedcapitalintensityProducedcapitalintensitymeasureshowintensivelycapitalisusedinaneconomy.Itisdefinedasthevalueofthetotalstockofproductivecapitalpercapitawhereproductivecapitalcanbephysicalcapitalsuchasmachinery,buildingsandtransportinfrastructureaswellasurbanland.Higherlevelsofproductivecapitalintensityareassociatedwithincreasedlabourproductivity.Ascountriesdevelopandeconomicactivityshiftsawayfromagricultureandtowardsmanufacturingandservices,producedcapitalintensityislikelytoincrease,whichrequiresinvestmentinawiderangeoflonglivedassets.Asthefiguredemonstrates,Nigeriarequiresthemostfutureinvestment,inabsoluteterms,inproductivecapitalbyalargemargin,owingmainlytohighratesofexpectedfuturepopulationgrowth.EthiopiaandtheDemocraticRepublicoftheCongo(DRC),thesecondandthirdhighest,requirelessthanhalfofthisinvestment.ThereisalsoawiderangeofcountriesinthenorthandsoutheastofSub-SaharanAfricarequiringbetween10and20percentofNigeria’sinvestmentneeds.Nigeriarequiresmorethandoubletheadditionalproductivecapitalofanyothercountry

Note: Countriesforwhichdatawasunavailableappearas0.Source: WorldBank(2013,2014),VividEconomics

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UrbanplanningandinfrastructureCitypopulationgrowthforecastsToensurebasiclivingstandardsaremetforanyincreaseinthepopulationofcities,thequantityofhousingandtheprovisionofamenitiessuchaswater,electricityandsanitationmustbeexpanded.Urbanplanningregulationscanoftenbecomplexandhenceinvestmentplanscantakealongtimetoorganiseandapprove.Moreover,datafromtheUSsuggeststhatsupportinginfrastructuresuchaswaterpipelinesandseweragesystemscanstayinplaceforupto50years(USDepartmentoftheTreasury,2012).WhileassetlivesinSub-SaharanAfricamaybeshorter,urbaninfrastructurecancastashadowonspatialpatternsofdevelopmentthatlastsmuchlongerthanthelifeoftheoriginalasset(e.g.thestreetpatternintheCityofLondonstillbearstheimprintofRomansettlementpatterns).Nationalurbanpopulationgrowthisdefinedasthesumofpopulationchangesinallagglomerationsinagivencountrythatareover300,000peopleinsize,andtheforecastinghorizonisupto2030.Nigeriaexperiencesthevastmajorityofgrowthinthepopulationofcitiesandhencewillrequirethehighestinvestmentinurbanplanningandserviceprovision,asreflectedbelow.TheDRCrequiresaround44percentofthisinvestmentandonlyfiveothercountriesrequiremorethan10percent.CitypopulationgrowthisconcentratedinNigeriaandtheDemocraticRepublicoftheCongo

Note: Countriesforwhichdatawasunavailableappearas0.Source: UNDESA(2014),VividEconomicsShareofurbanpopulationlivinginslums

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Slumstypicallyhaveahighpopulationdensityandlackaccesstoelectricityandwater.Ascountriesdevelop,theshareoftheurbanpopulationlivinginslumsislikelytodecreaseasincomesriseandpeopleseekbetterlivingconditions.Similartocitypopulationgrowth,thiswillrequiresubstantialinvestmentsinlonglivedinfrastructuretoensurebasicamenitiescanbeprovided.Thefigurepresentstherelativeinvestmentrequiredtoachievethelowestshareofthepopulationlivinginslumsacrossalldevelopingcountries,giveneachcountry’scurrentpopulation.Itdoesnotaccountforfuturegrowthinpopulation.Thisshowsaverysimilarpatterntothatofcitypopulationgrowth,withNigeriaandtheDRCrequiringthemostinvestmentininfrastructurefollowedbyseveralcountriesontheeastcoast.Theshareofurbanpopulationlivinginslumstellsasimilarstorytocitypopulationgrowth

Note: Countriesforwhichdatawasunavailableappearas0.Source: WorldBank(2014b),VividEconomicsIrrigationinfrastructureShareofirrigablelandequippedforirrigationIrrigationcandramaticallyincreasecropyields,theproductivityoflabourandtheincomesofagriculturalworkers.Ascountriesdevelop,farmersarelikelytobecomericher,gainbetteraccesstocreditandbemoreabletoinvestintheinfrastructurerequiredforirrigation,suchasirrigationcanalsandequipmentforsurfaceandpressurisedirrigation.Thustheshareoflandthatisabletobeirrigatedandthatisalreadyequippedwiththenecessaryinfrastructureprovidesanindicationofthecapacityacountryhasforfutureinvestment.Highersharesindicatelowerlevelsofinvestmentaremorelikely.

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Error!Referencesourcenotfound.indicatesthattheDRChasthelargestpotentialforfutureinvestmentinirrigationinfrastructuremainlyattributabletoitsrelativelylarge(andunequipped)areaofirrigableland,7,000km2.Angola,EthiopiaandMozambiquealsohavelargeunusedpotentialrequiringover40percentofthatoftheDRC.SeveralcountriessuchasCapeVerde,EquatorialGuineaandLesothohavenoinvestmentneedsduetonegligibleareasofirrigableland.TheDRChasthehighestpotentialforfutureinvestmentinirrigationinfrastructure

Note: Countriesforwhichdatawasunavailableappearas0.Source:FoodandAgricultureOrganizationoftheUN(2014),VividEconomicsWaterinfrastructureShareofpopulationwithaccesstoimprovedwaterProvidingaccesstowatertonewcommunitiesrequiresavastnetworkofinfrastructuretoextractwater,throughwaterwellsandreservoirs;treatwater,intreatmentstations;anddistributewater,usingpipelinesandpumpingstations.Asinfrastructureforextractionandtreatmentcanbecostly,thecapacityofreservoirsortreatmentstationsisoftenlargeentailingsignificantinvestments.EvidencefromtheUSsuggestsassetsofthistypehaveausefullifeofapproximately40years(USDepartmentofCommerce,2014).Itcanalsobedifficulttoadjustthelocationofdistributinginfrastructureonceitisbuiltwithoutcausingsignificantdisruptionstodomesticsupply.Thedefinitionof‘accesstoimprovedwater’usedisconsistentwiththatoftheMillenniumDevelopmentGoals.Similarlytotheshareofthepopulationlivinginslums,thefigurepresentstherelativelevelsofinvestmentrequiredtomeetthehighestshareofthepopulationwithaccesstoimprovedwateracrossalldevelopingcountries,giveneachcountry’scurrentpopulation.Itdoesnotaccountforfuturegrowthinpopulation.Nigeria,EthiopiaandtheDRCrequirethehighestlevelsof

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investmentowingtobothlargepopulationsandlowcurrentlevelsofaccesstowater.Kenya,TanzaniaandUgandaallrequirebetween20to30percentofthatofNigeria.ArangeofcountriesinthenortheastofSub-SaharanAfricahavemid-rangeinvestmentneeds

Note: Countriesforwhichdatawasunavailableappearas0.Source: WorldBank(2014b),VividEconomicsEnergyandcommunicationsElectricitygenerationcapacitypercapitaAscountriesdevelopandincomesrise,bothresidentialandindustrialdemandforelectricityislikelytoincreaseaslargerportionsofthepopulationareconnectedtonationalgrids,consumersdemanddifferentgoodsandmoreadvancedproductionprocessesareputinplace.Toincreasethesupplyofelectricity,investmentisneededingeneration,transmissionanddistributioninfrastructure,forwhichusefulassetlivescanrangefrom30to50years(USDepartmentofCommerce,2014;USDepartmentoftheTreasury,2012).Asindicatedbelow,Nigeriarequiresthehighestlevelofinvestmentinenergygenerationinfrastructureduetoitshighforecastsoffuturepopulationgrowth.Thesetofcountrieswithmid-rangeinvestmentlevelsissimilartothatforwaterinfrastructuresuggestingthatforbothoftheseindicators,populationforecastsplayakeyroleindetermininglikelyinvestment.Electricitygenerationcapacityislikelytoexpandmost,inabsoluteterms,inNigeria,theDRCandEthiopia

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Note: Countriesforwhichdatawasunavailableappearas0.Source: U.S.EnergyInformationAdministration(EIA)(2014),WorldBank(2014a),VividEconomicsHydropowerproductionrelativetopotentialHydropowerproductionisaparticularlycapital-intensiveformofelectricitygeneration.Moreover,conventionalhydroelectricplantstypicallyhavelargecapacitiesandstayinoperationforlongperiodsoftime.Ifacountry’scurrentlevelofhydropowerproductionisbelowitspotentialproduction,itmaybeassumedmorelikelytoinvestinhydropowerinfrastructureinthefuturetoincreasethis.Potentialproductionisdefinedasthelevelofeconomicallyfeasiblepotentialproduction,thatis,thepotentialforproductionwherethevalueoftheelectricitygeneratedexceedsoperationalcosts.Wheredataforeconomicallyfeasiblepotentialproductionwasnotavailable,anassumptionwasmadeontheproportionoftechnicallyfeasiblepotentialproductionthatiseconomicallyfeasible.Thereareonlyfivecountriesthatshowlikelyfutureinvestmentinhydropowerinfrastructure.Thisisdrivenbytwofactors:lowornegligiblepotentialforhydropowerproductionandthepaucityofdataavailableonsuchpotential.Ethiopiaislikelytoexperiencethemostinvestmentandhasarelativelylargepotentialat268,000GWhperyear.Angolamayhavearound20percentofthislevelofinvestment,whereasMozambique,NigeriaandZambiaconsiderablyless.Veryfewcountriesarelikelytoseesubstantialinvestmentinhydropower

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Note: Countriesforwhichdatawasunavailableappearas0.Source: TheProgrammeforInfrastructureDevelopmentinAfrica(2010),WorldBank(2014b),WorldEnergyCouncil(2013),VividEconomicsFixedbroadbandinternetsubscriberspercapitaAsurbanisationoccursandruralsettlementsbecomemoredeveloped,demandforcommunicationsinfrastructurewillincrease.Broadbandinternetisanexampleofatechnologythatiswidespreadinthedevelopedworldbuthasachievedlittlepenetrationinthedevelopingworld.Itcanserveasaproxyforthedevelopmentofcommunicationsinfrastructuremoregenerally.Thenumberoffixedbroadbandinternetsubscriberspercapitameasuresthelevelofconsumptionofbroadbandrelativetoacountry’spopulation.Countrieswithalownumberofsubscribersarelikelytoinvestininfrastructuresuchastelecommunicationstowers,withausefulassetlifeof40years(USDepartmentofCommerce,2014),toincreasethis.ThehighestlevelsofinvestmentinbroadbandinternetconnectionswillagainbeseeninNigeria,theDRCandEthiopia.Thoughalargerrangeofcountries,focussedontheeastcoast,seeinvestmentlevelsupwardsof10percentofthatofNigeria.Nigeriaislikelytoinvestmostheavilyinbroadbandandwidercommunicationsinfrastructure

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Note: Countriesforwhichdatawasunavailableappearas0.Source:WorldBank(2014a,2014b),VividEconomicsTransportPavedroaddensityonarablelandPavedroaddensityonarablelandisdefinedasthetotalkmofpavedroadpersquarekmofarableland.Thisisausefulmeasureofhowwelldevelopedacountry’stransportinfrastructureis;ascountriesdevelop,moresettlementswillbecomeconnectedtothepavedroadnetworkandbuiltupruralsettlementswillbecomemoredenselypopulated.Pavedroadsareusedasopposedtoallroadsastheboththenecessaryinvestmentandassetlifeofnon-pavedroadsislow.Tocomparethislevelofinfrastructureacrosscountries,thelengthofpavedroadisnormalisedbythetotalareaofarablelandasthisexcludeslargeareasofunhospitablelandunsuitableforroadconstruction.InthefigureweseeamoreevendistributionoflikelyinvestmentovercountriesinSub-SaharanAfricanrelativetootherindicators.WhileSudanandtheDRCwillrequirethemostinvestment,Angola,Chad,Ethiopia,Mali,NigerandSouthAfricawillallexperienceapproximatelyhalfthislevel.ItisworthnotingthatseveralcountrieswithaparticularlysmalllandareasuchasCapeVerde,LesothoandtheSeychelleshavebeenexcludedfromthisanalysisandappearas0.InvestmentsinpavedroadsarelikelytobedistributedmoreevenlyacrossSub-SaharanAfrica

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Note: Countriesforwhichdatawasunavailableappearas0.Source: WorldBank(2014b),VividEconomicsEducationandhealthHospitalbedspercapitaThenumberofhospitalbedspercapitaisausefulindicatorofboththestockoflonglivedinfrastructuretoprovidehealthcareandthequalityofhealthcareasitapproximatesthefloorareaoffunctioninghospitals.Ascountriesdevelop,itmaybethatthepopulationplacesmorescrutinyontheprovisionofpublicservicesandthequalityofhealthcareimprovesasaresult.Thiswillrequiresubstantialinvestmentinhospitalbuildingswhichhaveatypicalusefulassetlifeof36years(USDepartmentofCommerce,2014).Intermsoflikelyinvestmentinhealthinfrastructure,Nigeriarequiresasubstantialamountmoreinvestmentthananyothercountry.ThefigureshowsEthiopia,theDRCandTanzania,thesubsequentthreehighestcountries,arelikelytoinvestonly30percentofthatofNigeria.Again,thisisdrivenlargelybyforecastsoffuturepopulationgrowth.Nigeriawillinvest70percentmoreinhealthinfrastructurethanthenexthighestcountry

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Note: Countriesforwhichdatawasunavailableappearas0.Source: WorldBank(2014a,2014b),VividEconomicsPublicspendingoneducationasashareofGDPSchoolsaretypicallybuiltsolelyfrompublicfundsandrequireseveralyearstoplanandconstruct.Asaresult,publicspendingoneducationisagoodleadingindicatorofwheninvestmentinschoolbuildingsislikelytooccur.ExaminingthelevelofpublicspendingasashareofGDPprovidesanapproximationofthequalityoftheeducationsystemandhence,isausefulmetrictocomparelevelsofdevelopment.Ascountriesaimtoimprovethequalityoftheireducationsystem,theyarelikelytoincreasepublicspendingoneducationasashareofGDPandinvestininfrastructureforeducation.Asthefigureindicates,whileNigeriaagainhasthehighestlevelsoflikelyinvestmentforeducationalinfrastructure,SouthAfricaisalsolikelytoinvestupto70percentofthatofNigeria.Thisisdrivenlargelybytherelativelyhighlevelofbothcountries’GDP.Angolamayalsoinvestaround40percentwhilemostothercountriesexperiencearelativelysmallinvestment.SouthAfricamayinvestupto70percentofthatofNigeriaineducationalinfrastructure

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Note: Countriesforwhichdatawasunavailableappearas0.Source: IMF(2014),WorldBank(2014c),VividEconomicsInsuranceandsocialprotectionTotalspendingonsocialandlabourprotectionmeasuresasashareofGDPSocialandlabourprotectionmeasuresoftenrequireseveralyearsofplanningandsubstantialamountsoftechnicalinfrastructuretoimplementandmonitor.Moreover,astheircoverageisoftennationalinsize,theycanbedifficultandcostlytoadjustinthefuture.Moredevelopedcountriesareoftenassociatedwithamoresophisticated,andgenerous,socialsafetynetandsoitislikely,ascountriesdevelop,thattherewillbesignificantinvestmentintheseprotectionmeasures.ThefiguresuggeststhattheexpansionofsocialandlabourprotectionmeasureshasarelativelymutedeffectoncountriesotherthanNigeriaandSouthAfrica.Again,thisislikelytobeduetothedifferencesinthelevelofGDP,asmostcountriesinSub-SaharanAfricawillbestartingfromarelativelylowlevelofGDPandhenceincrementalincreasesintheproportionofGDPspentonprotectionmeasureswillcauserelativelysmallchangesinabsolutespending.SouthAfricaandNigeriawillspendthemostonsocialandlabourprotectionmeasures

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Note: Countriesforwhichdatawasunavailableappearas0.Source:IMF(2014),WorldBank(2014b),VividEconomicsBarrierstoclosinginfrastructureintensitygapsAsmentionedearlier,itisalsopossibletocalculateinfrastructureintensitygapsrelativetowhatwemightexpectacountry’sinfrastructureintensitytobe,givenitslevelofdevelopmentandothernationalcharacteristics.Thisprovidesanadditionalinsighttotheresultsbycontrollingfortheeffectthatsuchcharacteristicsmighthaveonacountry’sinfrastructureintensity.Thisdoesnotmeanthattheintensitygapwillalwaysbesmallerwhenusingexpectedintensities,as,whileanincreaseinsomecharacteristicswillcauseagiveninfrastructureintensitytorise,otherswillcauseittofall.However,oneoftheparticulareffectsofcontrollingfornationalcharacteristicsinthiswayisto‘cleanout’oftheresultsintrinsiclimitationstoinvestment.Thefigurebelowcontraststheresultsusingbothmethodsfortheshareofthepopulationwithaccesstoimprovedwater.Therelativelevelsofinvestmentrequiredtoclosetheintensitygapfollowasimilarpatternacrosscountries.However,thosecalculatedwithreferencetotheexpectedintensityarealmostalwaysslightlylower.Thisprovidessupportforthemethodusedinthecoreanalysis,suggestingthatthegapsidentifiedforaccesstoimprovedwaterareindeedmorelikelytobeclosed.Theresultsforaccesstowaterarebroadlyconsistentacrossbothbenchmarkmethods

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Note: Resultsfromeachbenchmarkmethodarestandardisedbythetotalrangeofinfrastructureinvestments.Source: WorldBank(2014d),VividEconomicsEventhisalternativeapproachtobenchmarking,however,mayfailtocaptureallrelevantfactorsaffectingthepropensitytoinvestinnationalinfrastructure.Pooraccesstofinance,anunfavourableinvestmentclimateorineffectivegovernancecanallpreventacountryfromsecuringthenecessaryinvestmenttoclosetheinfrastructureintensitygapsidentifiedinthisanalysis.SomeoftheseindicatorsareincludedintheeconometricanalysisofYepesetal.(2008),yetstatisticalproblemssuchasidentificationandcorrelationofregressorsmaypreventtheireffectsfrombeingproperlyaccountedfor.Tobetterunderstandhowthismightinfluencetheconclusionsdrawnfromthisanalysis,threeindicatorsareexaminedforeachcountry:acompositecreditrating,thelevelofdomesticcreditprovidedbythefinancialsectorandtheaveragescorefromthe2014WorldGovernanceIndex(WGI)update.Thefirsttwooftheseindicatorsrelatetoacountry’saccesstofinancewhereasthelatterrelatestothequalityofgovernance.Thecompositecreditratingisbasedonanassessmentofacountry’sratingwithallthreemajorinstitutions–StandardandPoor’s,Moody’sandFitch–aswellastheperceivedstabilityofthoseratings(TradingEconomics,2014).Thisassessmentisthentranslatedintoascoreoutof100.Therefore,thecompositeratingprovidesanindicationofhoweasyitisforacountrytoraisefinancethroughinternationalcapitalmarkets,aswellasthelikelycostsofborrowing.Bothofthesefactorswillplayaprominentroleinmanycountries’publicinvestmentplans.TheamountofdomesticcreditprovidedbythefinancialsectorasapercentageofGDPprovidesanindicationofhowwelldevelopedthedomesticfinancialsectoris.Similarly,thiswillhave

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directimpactsonthequantityandcostofcreditavailableintheeconomy,bothtothepublicandprivatesector.ThefigurebelowcomparesstandardisedvaluesofthesetwoindicatorsforcountriesinSub-SaharanAfrica.Thecompositecreditratingisstandardisedbythemaximumpossiblescorewhereasdomesticcreditisstandardisedbythehighestvalueacrossall(developedanddeveloping)countries.MostSub-SaharanAfricancountriesstruggletoscoremorethan40percentoneitherindicator.Someofthecountriesthatwererepeatedlyidentifiedashavingthehighestinvestmentrequirements–NigeriaandtheDRC–havesomeofthelowestscoresonbothindicators,broadly25percentforthecompositecreditratingand15percentfordomesticcredit.Thisissuggestivethatwhiletheremaybealargerequirementforinvestmentifthesecountriesaretomeettheinfrastructureintensitybenchmarkidentified,theymayhavedifficultyindoingso.OneofthehighestscoringcountriesinbothindicatorsisSouthAfricawhichhadhighinvestmentrequirementsforbotheducationalandsocialsafetynetinfrastructure.TakentogetherthissuggeststhatthereislikelytobehighlevelsofthistypeofinvestmentinSouthAfricainthefuture.Thepatternofaccesstofinancedoesnotmatchthatofinvestmentneeds

Note: Themaximumpossiblevaluefordomesticcreditwastakenasthemaximumvalueglobally.Source: TradingEconomics(2014),WorldBank(2014d),VividEconomicsTheWorldGovernanceIndexreportsindicatorsfor215economiescoveringsixkeyareasofgovernance:voiceandaccountability;politicalstabilityandabsenceofviolence;governmenteffectiveness;regulatoryquality;ruleoflaw;andcontrolofcorruption.Thesearebasedon32individualdatasourcesandproducedbyavarietyofsurveys,institutes,thinktanks,NGOs,internationalorganisationsandprivatesectorfirms(WorldBank,2014e).Thisanalysistakesthe

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averageofthebestestimateofeachindicatortoprovideacompositeindicatorofgovernancequality.Muchlarge-scaleinfrastructureinvestmentisundertakenbygovernmentandgovernmentinstitutionsmustbeeffectivetosuccessfullyplan,financeandimplementsuchinvestments.Hence,acountry’saverageWGIscoreisagoodindicatorforthelikelihoodthatinfrastructureinvestmentneedswillbemet.Thisaveragescoreisthenstandardisedbythemaximumpossiblescoreacountrycouldachievetogiveapercentagevalue.AsimilarpatterntoaccesstofinanceisseenwiththeaverageWGIscorebelow.Mostcountriesdonotscoreover40percentandthosecountriesthatwererepeatedlyidentifiedashavingthehighestinvestmentrequirementsscoreinthelowerhalf.ThissuggeststhatthedistributionofinvestmentamongSub-SaharanAfricancountriesmay,inreality,bedifferentfromwhattheconclusionsdrawnfromthemainanalysissuggest.TheWGIscoresshowarelativelysimilarrelationshipacrosscountriesasaccesstofinance

Source: WorldBank(2014e),VividEconomicsConclusionsandnextstepsInitialconclusionsLookingacrosstheindicatorsofinfrastructureintensityasawhole,NigeriaappearstohavethehighestabsoluteinvestmentneedsinSub-SaharanAfrica–indeed,ithasthehighestneedsfornineofthetwelveindicatorsexaminedoftenbyasignificantmargin.EthiopiaandtheDRCalsoscorehighlyonawiderangeofindicatorspointingtoarelativelyhighoveralllevelofinvestmentneeds.Inallthreecases,thekeydriverofthisisthelargesizeofthecountrybothintermsofpopulationandlandarea.Aseachinfrastructureintensitygapismultipliedbytheabsolutevalueofthevariableunderlyingtheintensitytoarriveatanabsolutelevelofinvestment,evenifother

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countrieshavealargergap,themuchlargerunderlyingvariablesseeninthesethreecountriesleadtoalargerlevelofinvestmentneed.Thiseffectbecomesmorepronouncedwhenconsideringforecastsofthesevariablessuchascitypopulationgrowth.However,thesesamecountriestypicallyperformpoorlywhenlookingattheenablingenvironmentforinfrastructureinvestment.CompositecreditratingsareroughlyaroundthemidpointofSub-SaharanAfricaindicatingeachcountryhaspooraccesstofinancefrominternationalsourceswhilethelevelofdomesticcreditavailableiswithinthelowestquartilesuggestingresourcesavailabledomesticallyareevenscarcer.ThesecountriesalsohaveanaverageWGIscorebetween20and30percentwhichmaymeanthatevenwithfavourableinvestmentconditions,publicinstitutionsmayfailtoorganiseandimplementsuchinvestments.Overall,itseemsthatNigeria,EthiopiaandtheDRCarelikelytoexperiencesomeinvestmentinlong-livedinfrastructureinthemediumterm,particularlyconcerningurbanplanning,housingandamenitieshowever,thereareunlikelytobetheleadersofSub-SaharanAfricathatthemainanalysissuggests.Twoparticularintensityindicatorsthatprovidedadifferentperspectiveweretheshareofirrigablelandequippedforirrigationandhydropowerproductionrelativetopotential.Withinboth,onlyasmallsubsetofcountrieswerelikelytoexperienceanysignificantinvestmentinthefuture.WhiletheDRCstillhadthehighestinvestmentneedsforirrigationandEthiopiaforhydropower,othercountriessuchasAngola,MozambiqueandZambiaalsorequiredasubstantialamountoftheleaders’needs.Thesethreecountriesscoredmoderatelyonboththeinvestmentclimateindicatorsandthequalityofgovernanceindicatorsuggestingthatmoderatelevelsofinvestmentininfrastructureinthesesectorsislikely.SouthAfricahadrelativelyhighinvestmentneedsforbotheducationalandsocialprotectioninfrastructure.SimilartotheeffectsofNigeria’slargepopulation,thiswascausedprimarilybySouthAfrica’srelativelyhighGDPwhichcausedevenamodestintensitygaptotranslatetosubstantialabsoluteinvestmentneeds.SouthAfricaalsoscoredrelativelyhighlyinboththeaccesstofinanceindicatorsandtheaverageWGIscoresuggestingthatiftherewassufficientdemand,theopportunityforinvestmentsisavailable.Overall,thisindicatesthatsignificantinvestmentislikelytooccurininfrastructuretoprovidebotheducationandsocialandlabourprotectioninthefuture.NextstepsThisreportpresentshaspresentedasummaryofthemethodologyusedfortheanalysis,theinitialfindingsandconclusionshowever,theanalysisisongoing.Specificaspectsoftheassessmentmethodologyandhence,theconclusionsdrawnwillcontinuetoberefined.Forthenextdraft,weproposetoundertakethefollowingchanges.Foreachintensityindicator,wewillrefinethesetofcomparisoncountriestoexcludeoutlierswhichmayexaggeratetheinvestmentneedsofSub-SaharanAfricancountries.Thiswillbedonebyexaminingarelatedvariableandtruncatingthedatasetbyasensiblevalue,forexample,inthecaseofpavedroaddensity,anycountrywithatotallandareaoflessthan1,000km2wasexcluded.Toensurewearelookingatthemostrelevanttimeframefortheproject,wewillrestrictforecastsoftheunderlyingabsolutevariablessuchaspopulationandGDPto10yearsinthe

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future.Thiswillalsohelptoensurethereisconsistencyacrosstheintensityindicatorsexamined.Theinvestmentneedstomaintaintheshareofpopulationlivinginslumsandwithaccesstowateratthebenchmarklevelinthefuturewillalsobeadded.Thiswasnotincludedinthisdraftduetotimeconstraints.Toensurethattheanalysisdoesnotresttooheavilyontheinfrastructuregapframework,twonewabsoluteindicatorswillbeadded–plannedadditionstohydropowercapacityandtheareaoflandpredictedtochangefromruraltourban.Thiswillhelptoaddresstheweaknessesinthegapanalysis,namelythatgapsmaypersistasitisdifficulttosecuresufficientinvesttoclosethem.Withineachofthechloroplethmaps,wewilldistinguishbetweenthosecountriesthatappearas0becausetheyrequirenoinvestmentandthosethatappearas0becausethereisnodataavailable.Foreachofthechloroplethmaps,thekeywillbeenlargedsoitismorereadableandtheheadingincludingthecodenamewillberemoved.

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TASK 2: PRACTICAL EXAMPLES OF LONG-TERM DECISIONS

Theaimofthistaskistoidentifyanypracticalexamplesinthegreyorpeer-reviewedliteratureofwheretheeconomicanalysisoflong-termdecisionmakinghasbeenparticularlygood,preferablyinareasdirectlyrelevanttoadaptationinAfricaorfailingthisinotherrelevantareas.Thestartingpointforthistaskhasbeentocompilethestudyteam’sexistinginventoriesofadaptationeconomicstudiesinAfrica,andmoregenerally,economicanalysisoflong-termdecisionmakingforadaptation.

Studies on the Economics of Adaptation in Africa Previousreviewsofthecostsandbenefitsofadaptation(OECD,2008;UNFCCC,2009;Agrawalaetal,2011;Chambweraetal.,2014)generallyreportthattheevidencebaseonthecostsandbenefitsislow.However,overrecentyears,additionalevidencehasemerged.Thisisduetoalargenumberofglobalandcountrylevelinitiativesontheeconomicsofadaptation,andalsosectoralstudiesthatapplyexistingoptionstonewcontextsorlocations.Arecentreviewandcompilationofthesestudies(ECONADAPTproject,2015)hasidentifiedseveralhundredstudies.Overrecentyears,anumberofinitiativeshaveemergedthatprovideestimatesoftheearlycostsofadaptationinAfrica.Thecoverageisshownbelow.

Nationalandsub-nationalleveladaptationcoststudiesinAfrica

Nationalassessmentsorinitiatives Otherstudieswithnationalorsub-nationalcoverage

Source:ECONADAPT,2015.Fourkeyinitiativeshavebeenundertaken:theWorldBankEACCcountrystudies(WorldBank2010),UNDPAssessmentofInvestmentandFinancialFlows(IFF)toAddressClimateChange(UNDP,2011),theUNFCCCNationalEconomic,EnvironmentandDevelopmentStudy(NEEDS)(UNFCCC,2010)andtheRegionalEconomicsofClimateChangeStudies(RECCS).Thesestudies

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usedifferentmethods,andhavedifferentassumptions,makingdirectcomparisondifficult.Nonethelesstheyprovidesomeusefulinformationforthecurrentstudy.TheWorldBankEconomicofAdaptationtoClimateChange(WorldBank,2010)studyusedglobalscenario-basedimpact-assessmenttoestimatetheeconomiccostsofclimatechange,thenestimatedthecostsofadaptationtoachievepre-climatelevelsofwelfare.Thestudyconsideredtwoclimaticfutures,withminimumandmaximumtemperatureand‘wetter’and‘drier’rainfalloutcomes,findingthathighercostsarosewithwetterscenariosduetoimpactsoninfrastructure.Thechoiceofaggregationrulealsoaffectedtheestimates,notablywhethergainsfromclimatechangewereaddedtoadaptationcosts.Thestudyincludedanexplicitconsiderationoffuturedevelopmentbaselines,aswellastheeffectsofclimatechangebysector,anddidconsider(climate)uncertainty.However,asthereportacknowledges,adaptationcostswerestillcalculatedasthoughdecision-makersknowthefuturewithcertainty,withestimatescalculatedforeachdiscreteprojectioninturn:inrealitycostswouldbehigherduetotheneedtohedgeagainstarangeofoutcomes.Furthermore,thecoverageofimpactsandsectorsispartial(andsimilartotheUNFCCCstudy)focusingonasmallnumberofimpacts(albeitimportantones),i.e.wherequantificationwaspossible.TheglobalstudyreportedthatthecostsofadaptationforSubSaharanAfrica–fortheperiod2010to2050(thusfora2°Cwarmerworld)–wereUSD14billiontoUSD17billionperyear(2005$billions,nodiscounting).ThiscomparedtoglobalcostsindevelopingcountriesofUSD71billiontoUSD98billion(aboutthesameorderofmagnitudeascurrentforeignaid).ThisvaluewascitedintheIPCC5thAssessmentReport,thoughthisacknowledgedtheshort-comingswiththevalue.Theglobalstudywascomplementedwithanumberofcountrystudies–ofwhichthreewereinAfrica(Ethiopia,GhanaandMozambique).Thesealsousedsectorimpactassessmentthoughalsoincludedwidereconomicmodelling.ThestudiesusedtheDIVAmodelforsea-levelrise,agriculturalcropmodels,watermanagementmodels,andsomeinfrastructuredamagefunctions.Thesecountrystudiesindicatehighercoststhantheglobalstudy,around20%higherduetotheconsiderationofcross-sectoralandsociallycontingenteffects.However,insomecases,thecountrystudiesindicatedverymuchhighercoststhantheglobalanalysis.Forexample,thecountrystudyinEthiopia(WorldBank,2010)estimatedthecostsofadaptationandtheresidualimpactsforthisonecountryalonecouldbe$1.2billionto$5.8billionperyear(2010–2050).Similarly,thecostsforMozambiqueforaddressingsealevelrise(WorldBank,2010c)wereestimatedat$0.3to$0.8billionperyearbythe2030s.AnalternativesetofcountryanalysiswasproducedundertheUNDPInvestmentandFinancialFlowstoAddressClimateChangeinitiative,whichusedadifferentmethod,centredoninvestmentandfinancialflows,i.e.estimatingadaptationmark-upsonfutureinvestmentprofiles.Thesestudiesestimatetheadditionaladaptationcostsrequiredthroughto2030.Atotalof15countrystudieswereundertaken,withAfricanstudiesinGambia,Liberia,Namibia,Niger,Togo,eachfocusingon1or2keysectorseach(primarilyagricultureand/orwater).Again,thesecostsindicatehighercoststhanimpliedbytheglobalassessments.Thiscanbeexplainedpartlybythedifferentmethods,assumptionsandcoverage.TheIFFstudiesarebettergroundedincurrentpolicyandtheyincludeamuchgreatercoverageofrisksastheylooktobuildresilienceacrossallexistingpolicyareas.Theyalsohaveamorerealisticassessmentofcostsofdeliveringadaptation(includingimplementationandpolicycosts,andthecoststothe

49

privateaswellasthepublicsector)andtheydonotaggregatewinnersandlosers.However,theyincludesomecostsforactionthataretargetedatreducingtheexistingadaptationdeficit,theyoftenareoftenfocusedonirrigationoptions,andtheyomitthebenefitsoftradeinoffsettingtheneedfordomesticaction.SummaryoftheUNDPIFFassessments–totaladditionalinvestmentcosts(USDto2030)

Country I&FFassessments

andresults

Estimatedcosts

Gambia Agriculture–andwateradaptation

US$435million[$1440undiscounted]isneededtoadapttotheeffectsofclimatechangeintheagriculturesector,andUS$17millionisneededtoadapttotheeffectsofclimatechangeinthewatersector.

Liberia Agriculture-adaptation

Fortheagriculture/livestocksector(adaptationtotheimpactsofclimatechange)US$1.41billionisneededtoadapttotheeffectsofclimatechange.

Namibia Land-usechange-adaptation

Fortheland-usesector(adaptationtotheimpactsofclimatechange),theoverallincrementalcostsofthemeasuresareUS$3.0billion(livestockandcrops)[discounted].

Niger Agriculture/livestock-adaptation

Fortheagriculture/livestocksector(adaptationtotheimpactsofclimatechange)US$374millionisneededtoadapttotheeffectsofclimatechangeintheagriculture/livestocksector.

Togo Agriculture-adaptation

TheI&FFassessmentontheagriculturesectorfocusedoncrops,livestockandfisheries.US$167millionareneededtoprotectagricultureagainsttheimpactsofclimatechange.

Source:UNDP(2010)Afurtherstudy–theUNFCCCNEEDSprojectwasundertakeninanumberofcountriesincludingEgypt,Ghana,MaliandNigeria(UNFCCC,2010).Thisassessedtheshort-andlong-termcostsofadaptationfinancingneeds.Thesestudiesalsoindicatehighindividualcountryestimates,thoughthecountriesuseddifferentmethodologiesandapproaches,overdifferenttime-scales.Aggregatedestimatedshort-andlong-termfinancialcostsofadaptationasreportedby

countriesparticipatingintheNationalEconomic,EnvironmentandDevelopmentStudyfor

climatechangeproject

Country Short-term

costs(2020)

Long-term

costs(2050)

Comments

Egypt 2.8billion 4billion Costestimatescoverobservationsystems,agriculture,irrigation,coastalzones,socioeconomicstudiesofthecostofadaptation,andcapacity-buildingandtraining.

Ghana 697.2million 701.7million Estimatesofthecostofcontainingtheeffectsofclimatechangeonhealth,agricultureandcoastalzones

Nigeria 11.45billion(annually)

20.69billion(annually)

Estimatedincrementalcostsofadaptationmeasuresinrelationtowater,agriculture,healthandtransportation

SourceUNFCCC,2010.Alongsidethis,alargeanumberofotherregionalandcountrylevelinitiativeshavebeenundertaken,includingtheRECCstudiesinKenyaandRwanda(SEI,2009)andTanzania(GCAP,2010),andalsostudiesinEthiopia(Watkissetal,2013;FDRE,2015),Tanzania(GoT,2014)andUganda(CDKN,forthcoming).

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Otherstudiesinclude:

• ApplicationoftheDIVAmodeltoallAfricancountries,withdisaggregatedcostsofsealevelriseandadaptationcosts(Brownetal,2009).Considerationoftherisksandadaptationcostsfor136globalcoastalcities(ofwhichAbidjan,Alexandria,AlgiersandBanghaziinAfricawereidentifiedaspriorities)(Hallegatteetal,2013).Atamorelocalisedlevel,thereisthestudyofadaptationincoastalzonesinDurban,SouthAfrica(Cartwrightetal,2013).

• Someestimatesofthecostsofadaptingexistingbuildingnewclimate-proofedurbanwaterinfrastructurein(sub-Saharan)Africa(Muller,2007)estimatedatUS$2-5billionannual.AfDB(2011)andDocziandRoss(2014)reviewotherestimatesforAfricainthisarea.ThereisalsothestudyofwaterinfrastructureinvestmentintheBergRiver,SouthAfrica(AIACC,2006),andwaterresourcemanagementinKenya(SEI,2009)aswellasEthiopia(WorldBank,2010)andinthewatersectorinMorocco(Mohamed,2013).

• Foragriculture,theapplicationtoagriculturaladaptationinGambia(AIACC,2006),adaptationcost-benefitcurvesinMali,Moptionclimateshifts(ECA,2009),benefitcostanalysisforagricultureinMalawi(Brancaetal,2012)andagriculturalCBAinUganda(IIED,2012),aswellaneconomicanalysisofadaptation(usingstakeholderCBA)intheLakeChilwaCatchmentinMalawi(Lundukaetal,2013)andonclimatesmartagriculture(McCarthyetal.,2011),aswellasseveralRicardianstudies(Kurukulasuriyaetal.,2007;2008;2011)andtheEACCcropsmodelsandIFFassessments.ThereisalsotheTanzaniaagriculturalsectoradaptationplan(GovernmentofTanzania,2014

• Adaptationcoststudiesonroadinfrastructureindevelopingcountries,includinginEthiopiaandGhana(WorldBank,2010).

• AnalysisofhealthadaptationinTanzaniaforwaterrelateddisease(ECA,2009)andKenyaformalaria(SEI,2009).

Mostoftheseestimatesarefromthegreyliterature.Moreover,mostoftheevidenceisbasedonclassicscenario-basedimpactassessmentmethods.Thismeansthemajorityofthestudiesaretheoretical,focusontechnicaladaptation,andignoreuncertainty.TheseearlierstudiesshowadaptationhasveryhighBCRsandpotentiallylowcosts,thoughmorerecentstudiesindicatetheyareprobablyover-optimistic.Intermsofadaptationdecisionmakingunderuncertainty,thereareonlyalimitednumberofstudiesfoundforAfrica,discussedinthenextsection.

Studies on Long-term Adaptation Decision Making Thisisagrowingevidencebaseandexamplesontheuseofdecisionsupportapproachesforadaptationappraisal,thoughasshownabove,thenumberofsuchstudiesinAfricaissmall.Thesetoolsareakeycomponentoftheconsiderationofadaptationinmediumtolong-termclimatedecisions.Theyincludeconventionaldecisionsupportmethods,notablycost-benefitanalysis,cost-effectivenessanalysisandmulti-criteriaanalysis.Italsoincludesasetofapproachesthatallowforconsiderationofuncertainty,notablyrealoptionsanalysis,robustdecisionmaking,portfolioanalysisanditerativeriskmanagement.Adetaileddescriptionandreviewofthesemethodsandtheirapplicationtoadaptation,hasbeenundertakenaspartoftheMEDIATIONandIMPACT2Cprojects(seealsoWatkissetal,2014:Rangeretal,2010:Frontier,2013).Theyaresummarisedbelow.

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DecisionSupportToolsforAdaptationSource:ECONADAPT,2015,updatingWatkissetal.,2014.Whilstthesetoolshaveprimarilybeendevelopedinthecontextofproject-levelappraisal,inprincipletheycanbeusedtoprioritisepolicyinitiativesatthenationalandsectoralscale(thoughprincipallyasanorganisingframework,withsemi-quantitativeversionsduetodataavailability).Attheprojectlevel,wheredataisavailable,theycanbeappliedmorequantitatively.Examplesaregivenbelow.

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ExamplesofAppraisalMethodsintheAdaptationContext

Tool PublishedExampleApplications

Cost-Benefit

Analysis

AIACC(2006).ThisSouthAfricanstudyexaminedthebenefitsandcostsofavoidingclimatechangedamagesthroughstructuralandinstitutionaloptionsforincreasingwatersupplyintheBergRiverBasinintheWesternCapeProvince.TheUBA(2012)projectappliedcost-benefitanalysistoconsider28adaptationoptionsforGermany.

Cost-

Effectiveness

Analysis

Boydetal(2006)undertookadetailedapplicationofcost-effectivenessforwaterresourcezonesandtheadaptationresponsetoaddresshouseholdwaterdeficitsintheUK.Tainioetal.(2013)investigatedthecost-effectivenessofadaptationoptionsthatcouldmaintainthebiodiversityofFinnishsemi-naturalgrasslandsunderachangingclimate.

Multi-

criteria

analysis

VanIerlandetal.(2007)(DeBruinetal.(2009)appliedMCAtoassessadaptationoptionsfortheNetherlandsaspartoftheRouteplannernationalstudy.ThisusedaqualitativeMCA,whichincludedvariousadaptationcriteria.AquantitativeMCAwasusedintheThamesEstuary2100project(EA,2009:2011)aspartofabroaderstudylookingatfuturecoastalflooddefencesforLondon.TheMCAwasusedtoincludequalitativecriteria(environment,heritage,etc.)alongsideformaleconomiccost-benefitanalysis.

RealOptions

Analysis

JeulandandWhittington(2013)appliedrealoptionanalysisforawaterresourceplanningcasestudy(largewaterstorageprojects)inEthiopiaalongtheBlueNile.VanderPol,etal(2013)lookedatoptimaldikeinvestmentsunderuncertaintywithlearningaboutincreasingwaterlevels.LinquitiandVonortas(2012)analysedcoastalprotectioninvestmentsandfoundusingrealoptionsledtobetteruseofresourcesinDhakaandDar-es-Salaam.Scandizzo(2011)appliedROAtoassessthevalueofhardinfrastructure,restorationofmangrovesandcoastalzonemanagementoptionsinMexico.Kontogiannietal(2013)usedROAtoassessthevalueofmaintainingflexibility(e.g.scalingupordown,deferral,accelerationorabandonment)toengineeredstructuresinGreece.Gersoniusetal,2013appliedtowaterandfloodriskinfrastructureinanurbansiteintheUK,Dobes,2010appliedtohousingdesignforfloodinginMekongDeltaVietnamandWorldBank2009appliedtoagriculturalirrigationinMexico.

Robust

Decision

Making

Acomprehensive,formalapplicationofRDMwasundertakenbyLempertandGroves(2010)forSouthernCalifornia’sRiversideCountyInlandEmpireUtilitiesAgency(IEUA).ThereisanapplicationofrobustdecisionmakingforplanningcoastalresilienceforLouisiana(GrovesandSharon,2013),anapplicationtowaterscarcityintheColoradoRiverBasin(Grovesetal,2013)andtofloodriskmanagementinHoChiMinhCityinVietnam(Lempertetal,2013).DessaiandHulme(2007)presentanexampleoftheapplicationforRDMtolookatclimateuncertaintyforwatersupplymanagementintheUK.Nassopoulosetal(2013)appliedtodamdimensioningforasmallcatchmentinGreece.DyszynskiandTakama(2010)appliedRDMtomicro-insuranceinEthiopia.

Portfolio

Analysis

CroweandParker(2008)provideanapplicationoftheapproachforforests,toinvestigategeneticmaterialthatcouldbeusedfortherestorationorregenerationofforestsunderclimatechange.Hunt(2009)appliedportfolioanalysistoacaseoffloodmanagementatthelocalgeographicalscale,forriverfloodrisksintheUK,lookingatportfoliosofhardandsoftoptions

IterativeRisk

Assessment

TheThamesEstuary2100project(EA,2009:2011:ReederandRanger,2011)developedatidalflood-riskmanagementadaptationplanforLondonusinganiterativeplanningapproachandadaptationpathways,withadetailedmonitoringandevaluationstrategy.IntheNetherlandstheDeltaprogrammehasincludedconsiderationofriverflooding(DeltaProgramme,2008:2011:2014)movedtodynamicadaptationpathways.AniterativeapproachforportdevelopmentcomparingupgradeableversusoneoffinvestmentswasundertakenbytheIFC(2011)ontheportofCartagena,Colombia.Watkissetal(2013)appliedaniterativeapproachtothedevelopmentoftheClimateResilienceStrategyforAgricultureinEthiopia.Darchetal.(2011)assessedtheeffectsoflongtermclimateuncertaintyonwaterinvestmentplanninginLondonandlooktoidentifyrobustoptionsforsupplyanddemandanddevelopdecisionpathways

Source:ECONADAPT,2015.

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Arecentreview(ECONADAPT,2015)hasfoundthatthenumberofeconomicapplicationsofthenewtoolsremainslow,thoughthereareexamplesinseveralsectors.

Economicapplicationofnewdecisionsupporttoolsforadaptation.

Source:ECONADAPT,2015.AsmallnumberofthenewdecisionsupporttoolshavebeenappliedinAfrica.

• ThereisastudythatusesrealoptionsanalysisfortheBlueNileinEthiopia(JeulandandWhittington,2013)forwaterinvestmenttoidentifyflexibilityindesignandoperatingdecisionsforaseriesoflargedams.Theirresultsdonotidentifyasingle‘best’investmentplan,buthighlightconfigurationsrobusttopooroutcomesbutflexibleenoughtocaptureupsidebenefitsoffavourablefutureclimates.

• LinquitiandVonortas(2012)analysedcoastalprotectioninvestmentsandfoundusingrealoptionsledtobetteruseofresourcesinDhakaandDar-es-Salaam.

• DyszynskiandTakama(2010)appliedRDMtomicro-insuranceinEthiopia.

• ThereisEthiopianClimateResilienceStrategy(Watkissetal.,2013;FRDE,2014)whichusedaniterativemanagementapproach.Theapproachhighlightedthatunderconditionsofhighfuturechange(e.g.highwarmingscenariosorearlynegativeimpactsoncrops),costspost2020wouldrisemorequickly,asportfoliooptionswouldneedtobebroughtonstreamquicker.Importantly,theanalysisidentifiedsomeareasoflong-termriskthatwarrantedearlyaction(i.e.now),notablyforcoffee,duetothelongercropcyclesandthelongtime-scaleforchangesincultivarorareas.

• Thereisastudythatconsiders(andcosts)agriculturaloptionsusingiterativeadaptivemanagementplanninginMalawi(Matiyaetal.,2011).

Ananalysisofthesebroaderlistofstudiesrevealthatmosteconomicapplicationsarehypotheticalstudies,oftenfocusedontechnicaladaptation,withlessapplicationsindirectprojectorpolicyappraisals(e.g.forrealschemesorsectors).ThemoreappliedstudiesincludetheapplicationofiterativeriskmanagementinnationalpolicyappraisalintheNetherlands(iterativemanagementfortheDeltaProgramme,2014)andEthiopia(intheNationalClimateResilienceStrategy:FDRE,2014),andalsoattheprojectlevelwiththeapplicationtotheLondonThamesEstuary2100project(EA2009:2011).Italsoincludesapplicationsofrobust-decisionmakingtowatermanagementintheColoradoriver(Grovesetal,2013),floodriskmanagement

54

inHoChiMinhCityinVietnam(Lempertetal,2013)andplanningcoastalresilienceforLouisiana(GrovesandSharon,2013).Whilereal-optionsanalysishasbeenappliedinpracticeinthemitigationdomain,theapplicationtoadaptationremainstheoretical,asisportfoliotheory:ROAhasalsofocusedonsealevelrise,whichiseasiertoassessduetoitsslow-onsetnature,andknowndirectionofchange.Therehasalsobeenworkonthepotentialapplicabilityoftheseapproaches,aspartofdecisionsupport.Rangeretal.(2010)presentedaframeworkfordecisionmaking.

Selectionofquantitativemethodsfordecision-makingunderuncertainty

Source:Rangeretal.,2010.AsimilarframeworkwasadvancedbyFrontierEconomics(2013).

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Frameworkforgatheringdataandselectingappraisalmethodology

Source:FrontierEconomics,2013.Amorerecentanalysis(Watkissetal.,2014:ECONADAPT,2015)consideredtheapplicability.Thisfoundthattheseapplicationsshowtherearenohard-or-fastrulesonwhichtooltousewhen.Itisclear,however,thatcertaintoolslendthemselvesmoretospecificcontextsorsectors.Thetypeofadaptationproblem(andobjective)willthereforeshapethechoice.Importantly,noneofthesetoolsisuniversallyapplicabletoalladaptationproblemsandtheyeachhaveparticularstrengthsforcertaintypesofdecisionsand/orapplications.Policy-levelassessmentsaremorelikelytomakeuseoftheestablishedtoolsthatprovideaframeworkformoreaggregatedanalysis,althoughiterativeriskframeworksandrobustdecisionmakingalsohavehighpotentialforprogramme/sectoranalysis(thoughtheyaremoreprovenattheprojectlevel).Attheprojectscale,toolselectionwillbeinfluencedbydataavailabilityandthelevelofuncertainty.Severalofmoreeconomicfocusedapproaches(realoptionsandportfoliotheory)requireprobabilisticinputs,whichischallengingforfutureclimateprojections,andtheyalsorequirequantitativeinputs.Theapplicationoradaptationproblemalsodeterminesthesuitabilityofthedecisiontool.Forexample,foranalysisthatisfocusedoncurrentclimatevariability(theadaptationdeficit),existingdecisionsupporttoolscanbeused,includingCBA.Fortheanalysisofshort-termdecisionswithlonglife-timesandlonger-termchallenges,agreaterfocusonnewdecisionsupporttoolsiswarranted.RDMhasbroadapplicationforcurrentandfuturetimeperiods.Wheninvestmentsarenearerterm(especiallyhighupfrontcapitalirreversibleinvestments),andwherethereisanexistingadaptationdeficit,ROAisapotentiallyusefultool,whereasforlong-termapplicationsinconditionsofalowcurrentadaptationdeficit,IRMmaybemoreapplicable.Importantlywhilethetoolsarepresentedindividually,theyarenotmutuallyexclusive.

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AttributesandApplicationofDecisionSupportMethodsforAdaptation

Decision-

SupportToolStrengths Challenges Applicability Potentialuse

Cost-Benefit

Analysis

Wellknownandwidelyapplied.

Valuationofnon-marketsectors/non-technicaloptions.Uncertaintylimitedtoprobabilisticrisks/sensitivitytesting.

Mostusefulwhenclimateriskprobabilitiesknownandsensitivitysmall.

Toidentifylowandnoregretoptions(short-term)inmarketsectors.AsadecisionsupporttoolwithinICRM

Cost-

Effectiveness

Analysis

Analysisofbenefitsinnon-monetaryterms.

Singleheadlinemetricdifficulttoidentifyandlesssuitableforcomplexorcross-sectoralrisks.Lowconsiderationofuncertainty

Asabove,butfornon-monetarysectors(e.g.ecosystems)andwheresocialobjective(e.g.acceptablerisksofflooding).

Asabove,butformarketandnon-marketsectors.

Multi-

Criteria

Analysis

Analysisofcostsandbenefitsinnon-monetaryterms.

Reliesonexpertjudgementorstakeholders,andisoftensubjective,includinganalysisofuncertainty.

Wheremixofquantitativeandqualitativedata.Canincludeuncertaintyperformanceasacriteria

Asabove,butalsouseforscopingoptions(policylevel).Cancomplementothertoolsandcapturequalitativeaspects.

IterativeRisk

Assessment

Frameworks

Iterativeanalysis,monitoring,evaluationandlearning.

Challengingwhenmultiplerisksactingtogetherandthresholdsarenotalwayseasytoidentify.

Usefulwherelong-termanduncertainchallenges,especiallywhenclearriskthresholds.

Forappraisalovermedium-long-term.Alsoapplicableasaframeworkatpolicylevel.

RealOptions

Analysis

Valueofflexibility,information.

Requireseconomicvaluation(seeCBA),probabilitiesandcleardecisionpoints..

Largeirreversibledecisions,whereinformationonclimateriskprobabilities.

Economicanalysisofmajorcapitalinvestmentdecisions.Analysisofflexibilitywithinmajorprojects.

Robust

Decision

Making

Robustnessratherthanoptimisation.

Highcomputationalanalysis(formal)andlargenumberofruns.

Whenlargeuncertainty.Canuseamixofquantitativeandqualitativeinformation.

Identifyinglowandnoregretoptionsandrobustdecisionsforinvestmentswithlonglife-times.

Portfolio

Analysis

Analysisofportfoliosratherthanindividualoptions

Requireseconomicdataandprobabilities.Issuesofinter-dependence.

Whennumberofcomplementaryadaptationactionsandgoodinformation.

Projectbasedanalysisoffuturecombinations.Designingportfoliomixesaspartofiterativepathways.

Source:ECONADAPT,2015.Itisworthnotingthatthedifferencesbetweenthetoolsarenotlimitedtodataandcapacityconstraintsbutmayhaveamaterialimpactontheorderofprioritisationofadaptationoptions.Klijnet.al.(2014)demonstratesthatapplyingRDMresultsinadifferentorderfromCBA,andCBAproducesadifferentorderfromCEA.However,akeyfindingisthatallthenewmethodsareresourceintensiveandtechnicallycomplex.Indeed,thisconstrainstheirformalapplicationtolargeinvestmentdecisionsormajorrisks,i.e.priorityprojectsforadaptationorspecificadaptationprojects,ratherthanmainstreaming.Theseissuesarelikelytolimitfutureapplicationinthemainstreamingcontext.Theseissuesarelikelytolimitfutureapplicationinthemainstreamingcontext,especiallyinAfrica(thoughexperiencehasalsofoundthisisdifficultintheUK,asshownbyearly

57

implementationexperienceofrealoptionsanalysisguidance(HMT,2008;Mullan,personalcommunication).Todatetheyhavebeenusedtosupportnon-mainstreamedadaptationactivities/projects,butthetranslationintosectoralcontexts,withanalystswho–forexample-maynothaveextensiveknowledgeofclimateprojectionsanduncertaintyislikelytobedifficult.Acriticalquestionisthereforewhethertheconceptsinthesedetailedtoolscanbeusedin‘light-touch’approachesthatcapturetheirconceptualaspects,whilemaintainingadegreeofeconomicrigour,bothatpolicyandprojectlevel.Thiswouldallowawiderapplicationinqualitativeorsemi-quantitativeanalysis.ThiscouldincludethebroaduseofdecisiontreestructuresfromROA,theconceptsofrobustnesstestingfromRDM,theshifttowardsportfoliosofoptionsfromPA,andthefocusonevaluationandlearningfromIRMforlong-termstrategies.Therehasbeensomeearlyprogressadvancingthesetypesoflight-touchapplications,e.g.Hallegatteetal.(2012);Rangeretal(2013).However,asyet,thereisnothingthatseemssuitableinbalancingthetrade-offbetweenquantitativeanalysisandpragmaticapplicationandthisremainsapriorityfordevelopment.

Discussion WhilethereisagrowingliteratureontheeconomicsofadaptationinAfrica,muchoftheavailableevidenceisnotsorelevantforthisstudy,eitherbecauseitfocusesonaddressingearlyadaptationdeficits,oritappliesascience-firstimpact-assessmentframework.Thereare,however,awidesetofstudiesthatdemonstratetheconsiderationofuncertaintyinadaptationdecisionsupportwhicharerelevant,andthesedoincludesomeexamplesforAfrica.However,thesearecomplextoapply,andrequirecapacity,timeandresource,whichislikelytolimittheirapplication.Afocusforthestudyisthereforetoinvestigate‘light-touch’approachesthatcapturetheirconceptualaspects,whilemaintainingadegreeofeconomicrigour,bothatpolicyandprojectlevel.

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TASK 3: BARRIERS TO LONG-TERM DECISIONS

Theaimofthistaskistoconsidertheacademicandgreyliteratureonthebarrierstolong-termdecisionmaking,includingbehaviouralsciences,politicaleconomyandriskperception.Threeactivitieshavebeenundertaken.First,thestudyhasundertakenareviewoftheliteratureonthebarrierstoadaptation.Second,amoredetailedreviewhasbeenadvancedinrelationtobehaviouraleconomics.Finally,thestudyhasdrawnupaninitialtableofhowthebarriersmightaffectthemediumtolong-termadaptationdecisionsidentifiedinprevioussections.

Literature Review on the Barriers to adaptation TheIPCC(2001a)definesadaptationas“theprocessofadjustmentinnaturalorhumansystemsinresponsetoactualorexpectedclimatestimuliortheireffects,whichmoderatesharmorexploitsbeneficialopportunities”.Thisdefinitionimplicitlyassumeseffectiveness.Bycontrast,UNDPdefinesadaptationas“aprocessbywhichindividuals,communitiesandcountriesseektocopewiththeconsequencesofclimatechange”(UNDP,2005);andMoserandEkstrom(2010)explicitlyhighlightthatadaptationmayormaynotsucceedinmoderatingharmorexploitingbeneficialopportunities.In2007,theAR4SummaryforPolicymakersofWorkingGroupIIconcludedthatindeedthereare“formidableenvironmental,economic,informational,social,attitudinalandbehaviouralbarrierstotheimplementationofadaptation”(IPCC,2007a,p.19).Barrierscanlimittherangeofavailableadaptationoptionsandcreatethepotentialforresidualdamagesforactors,species,orecosystems.Thisliteraturereviewwillfocusonthebarriersthatconstrainhumanandnaturalsystems’adaptation.Itwillstartbyprovidingsomeconceptualclarifications,thenitwillsummarisethemainfindingsofthreestrandsofliteratureonadaptationbarriersusingthreedifferentanalyticallenses:economic,socialandinstitutional.Withthelattertwostrandsofliteratureweincludeaparticularfocusoninsightsfrom(1)behaviouraleconomicsand(2)politicaleconomy.Barrierstoclimatechangeadaptation–conceptualclarificationsAdaptationbarriersorconstraints(thetermsarefrequentlyusedassynonyms)refertofactorsthatmakeithardertoplanandimplementadaptationactions.OberlackandEisenack(2012)presentfivewaysinwhichbarriersmayimpedetheadaptationprocess:

1. byconstrainingtheavailablemeansforadaptation;2. byhamperingtheuseofavailablemeans;3. byincreasingthecostofadaptation,includingtransactioncosts;4. byreducingtheincentivesforadaptation;5. byincreasingtheincentivesformaladaptation.

Adgeretal.(2009)emphasisethatsomebarriersareneitherabsolutenorinsurmountable,butrathersociallyconstructed,subjectiveandmutable,astheydependontheunderlyinggoalsandvaluesofdifferentdecision-makersacrossdifferentscalesandagencies(e.g.nationalvs.localdecision-makers).Goalsdifferwithinasector,asociety,betweennationstates,andbetweendifferentgenerations;andthechoicebetweenco-existinggoalsistakenbyinstitutionsofcollectiveresponsebasedontheunderlyingvaluesofsociety.

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Barrierstoadaptationalsovarydependingonthetimehorizon.FactorsthatmightrepresentbarriersorlimitshereandnowmaybeovercomeinthefuturethankstoR&D,changesinriskattitude,changesinrulesorfundingarrangements,communicationandawarenessraising,etc.(seeParketal.,2012;Adgeretal.,2013).Thefocusofthisreviewisonbarrierstobothplannedandautonomousadaptation.Carteretal.(1994)defineautonomousadaptationas”naturalorspontaneousadjustmentsinthefaceofachangingclimate”.Fromtheperspectiveofpublicpolicy,thistendstoincludeadaptationactionstakenbyprivateagentswithoutpolicystimulus,forexamplefarmersswitchingcrops.Plannedadaptationisseenmostgenerallyastheresultofadeliberatedecision,basedontheawarenessthatconditionsmightchangeorhavechangedandthatactionisrequiredtoachieveadesiredstate.FankhauserFromtheperspectiveofpublicpolicy,plannedadaptationtendstobesynonymouswithgovernmentintervention.Plannedadaptationcanbeeitherreactiveoranticipatory.Anticipatoryandreactiveadaptationfacedifferentbarrierssincetheyaregenerallyundertakenunderdifferentcircumstancesandusingadifferentsetofinformation.Forexample,forpublicauthorities,barrierstoanticipatoryadaptation(e.g.uncertaintyandbudgetaryconstraints)maybesetaside/overcomeintheeventofanextremeclimaticshock(e.g.floods),followingwhichclimaticimpactsbecomevisibleandquantifiable(uncertaintyispartlyunfolded)andthoseaffectedexertpressureonthegovernmenttointervene.Moreover,reactivemeasuressuchasemergencyreliefcanbedeliberatelyusedtoboostgovernments’chancesofbeingre-elected(Gaweletal,2012).Intheadaptationliterature,‘good’,‘successful’or‘appropriate’adaptationhasoftenbeendefinedinthecontextofwelfareeconomictheoryanditsunderlyingnormativeprinciples.Accordingtothisframework,barrierstoefficientadaptationbroadlycorrespondtomarketfailures,orthosefactorsthatpreventtheprivatesectorfromdeliveringsociallyefficientadaptation,andthereforejustifygovernmentintervention.Successfuladaptationactionsarethosethatminimisethecombinedtotalofresidualdamagesandcostsofadaptation(seeFankhauseretal.1999;CimatoandMullan,2010),withsuitableadjustmentwhereappropriatefordistributionalweightingacrosstimeandspace,andbarriersarethosefactorsthathampercostminimisation.However,ithasbeenarguedthatthenormativeframeworkunderpinningstandardwelfareeconomictheory,centredasitisonthemarket-governmentdichotomyandonassumptionsofrational,efficientandfairdecisionmaking,maynotdescribereal-worlddecision-makingandoverlookawiderrangeoffactorsaffectingadaptation.Manyanalyticallenseshavebeenusedintheliteraturetodescribebarrierstogoodorsuccessfuladaptation.Thisliteraturereviewwilldescribethemaincontributionsofthedifferentstrandsoftheliteratureonadaptationbarriers.Inthefollowingsection,wewillgothroughthemainbarrierstoclimatechangeadaptation.Theyaregroupedintothefollowingcategories:deepuncertainty;barrierstoeconomicefficiency;social,behaviouralandbiologicalbarriers,and;institutionalbarriers.Thesecategorieshelpdescribetheadaptationbehaviouroftherelevantdecision-makers:individuals,businesses,governmentinstitutions,andtheenvironment.

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Uncertainty–acommonbarriertoalldecision-makersOnecommonchallengetoalldecision-makersthatrepresentsabarriertosuccessfuladaptationisuncertaintyaroundfutureclimatescenariosandtheirimpacts.Thefutureclimatewilldependpartlyonthefutureemissionstrajectory,butotheraspectsoftheclimatesystemwillalsoinfluenceit.Uncertaintiescanarisefromlimitationsinknowledge(e.g.,cloudphysics),fromrandomness(e.g.,duetothechaoticnatureoftheclimatesystem),andalsofromhumanactions(e.g.,futuregreenhousegasemissions,population,economicgrowthanddevelopment).Theexistenceoftippingpoints,feedbackmechanismsandlimitationsofexistingmodelsmeansthatthereisawiderangeofpossiblefutureclimaticscenarios.Therehasbeenconsiderableprogressinourunderstandingoftheclimatesystem,buttherewillalwaysbeaninherentelementofuncertaintyaboutanyclimatescenario,aboutitsimpactonsocietyandtheenvironmentandthelikelihoodthatitwilloccur.“Deepuncertainty”isdefinedas“theconditioninwhichanalystsdonotknoworthepartiestoadecisioncannotagreeupon(1)theappropriatemodelstodescribeinteractionsamongasystem’svariables,(2)theprobabilitydistributionstorepresentuncertaintyaboutkeyparametersinthemodels,and/or(3)howtovaluethedesirabilityofalternativeoutcomes”(Walkeretal.,2013;Lempertetal.,2003).Thisimpliesthatonecan(incompletely)enumeratemultiplepossibilitiesforthesystemmodel,theprobabilitydistributions,andsetsofvalues,withoutbeingableorwillingtorankorderthepossibilitiesintermsofhowlikelyorplausibletheyarejudgedtobe(Kwakkeletal.,2010).Deepuncertaintycanrepresentabarriertodecisionmakinginadaptationinsofarasitmakesadaptationplanningmoredifficult.Ultimately,itmightpreventagentsfromtakingdecisions,ormakethemchoosetopostponeadaptation.Itmayalsomakethemoptforineffectiveadaptation,ormaladaptation(Halletal.,2007).Deepuncertaintyrequireagentstousecomplexclimaticdataandmakeassumptionsregardingcostsandbenefitsestimation,thechoiceofdiscountrate,riskpreferences,anddealwithissuesofscaleandaggregation.Severalmodelsfordecisionmakingunderdeepuncertaintyhavebeendeveloped,eachwithitsadvantagesandlimitations.Thecomplexityofthesemodelsmayitselfrepresentabarriertoadaptationdecisions.Barrierstoeconomicefficiency:thewelfareeconomicframeworkTheanalyticalframeworkofwelfareeconomictheoryrestsontheassumptionthatdecision-makersareabletotakedecisionsthatmaximisetheirwelfareorutility;andthat,undercertainconditions,themarketisabletoleadtoanefficientprovisionofgoodsandservices.Thereareseveralfactorsthatpreventthemarketfromautonomouslyprovidingandcoordinatingtheappropriatelevelofadaptationandthatthereforeleadtoaninefficientallocationofresources.FankhauserThefollowingmarketfailuresrepresentabarriertoadaptation:Imperfectinformationaboutclimateimpactsreferstothelackofinformationonfutureclimatescenarios,butalsoontheadaptationoptionsavailabletodecision-makersandtheircostsandbenefits.

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Thereareatleasttwowaysinwhichimperfectinformationcanleadthemarketforclimateadaptationtofail.Thefirstisthatinformationaboutfutureclimatechangeisoftenapublicgood,whichwillbeunderprovidedbyprivateactorsthatcannotcapturethefullsocialbenefitofgeneratingtheinformationthrough,forexample,computermodellingoffutureclimate.Thesecondisthat,ifdifferentagentsintheeconomyholddifferentamountsofinformation(i.e.ifthereisaninformationasymmetry),theninefficienciescanarise,suchasadverseselectionandmoralhazard.Bothofthesearewellknownphenomenaintheinsuranceindustry:underadverseselection,theinsurer’sinabilitytodifferentiatebetween‘good’risksand‘bad’risksmakesitvulnerabletobeingadverselyselectedagainstbybadrisks,inotherwordscustomerswhoseprobabilityofmakingaclaimisrelativelyhigh.Undermoralhazard,takingoutinsurancemakespeoplelesslikelytotakeactionstoinsureorprotectthemselvesthantheyotherwisewouldbe(seeBurbyetal.,1991;Laffont,1995;CimatoandMullan,2010).ExternalitiesandPublicGoods.Actingrationallyintheirowninterest,individualswillbasetheiradaptationdecisionsonprivatecostsandbenefits.However,someadaptiveactionsmighthavethenatureofpublicorquasi-publicgoods(local,nationalorlocal),soindividualactionwillbesociallyinefficient(CimatoandMullan,2010).Thisisthecasewithtransboundarywaters,whenincreasedirrigationinonecountrycreateswaterscarcitydownstream(Gouldenetal.,2009).Examplesofadaptationinvestmentswiththecharacteristicsofpublicgoods3includeinvestmentincertainkindsofinfrastructure(e.g.,flooddefences),R&Dprogrammes(wherethesegeneratespilloversthatcannotbefullyreapedbyprivateagents),monitoringandwarningsystems,andprotectionofecosystems(aswellasclimateforecasts,asmentionedabove).Misalignedincentivesandmissingmarkets.Inthemanagementofphysicalassets,atypicalexampleofthisbarrieristheunevensplitofadaptationcostsandbenefitsbetweenpropertyownersandtenants,whichresultsinlittleornoincentivetoinvesttomakethepropertymoreresilient(CimatoandMullan,2010).Marketstructure.Themarketstructuresinwhichbusinessesoperate(monopoly,oligopolyorperfectcompetition)shapetheincentivesandaffecttheinvestmentdecisionsonclimatechangeadaptation.Leeetal.(2010)describethe‘competitioneffect’andhowdifferentmarketconditionscanaffecttheincentivesforbusinessestoadapt:amonopolistislikelytoputinthehighesteffortstoadapt,sinceitdirectlyrecoversitsprofitlossunderclimatechange;whereasinanoligopoly,competitionandstrategicinteractionmayloweradditionalprofitpotentialforbusinesses,whichtranslatesintolessincentivetoadapt.Economicsectorsvulnerabletoclimatechangesuchasenergyandwaterareoftenpopulatedbystate-ownedmonopoliesorbyregulatednaturalmonopoliesandoligopolies.Marketdistortions.Thiscanbeaneconomicbarrier,aswellasapolicybarrier,anddescribeshowexistingmarketdistortions–oftenpursuedforgoodreasonsbygovernments,suchasrevenueraisingortoachievedistributionalfairness–affectincentivestoadapt.AsdescribedbyFankhauseretal.(1999),whenmarketsignalsaredistorted,peoplemayunder-orover-adapt.Forexample,if,duetomarketdistortions(e.g.priceorincomesubsidies),cropyieldchangesdonottranslateintoincomechanges,farmersmaynotadjusttoachangingclimatebyvaryingthe

3Purepublicgoodsarecharacterizedbynon-excludability, that is, ifapublicgood ismadeavailable tooneconsumer then it is effectively made available to everyone; and non-rivalry in consumption, that is, theconsumptionofthegoodbyonepersondoesnotpreventsomeoneelsefromusingorconsumingthatgood.

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varietiesofcropstheyplant.Fixedallocationsofwaterresourcesmayleadtoasimilarlackofincentivestoadapt(Fankhauseretal.,1999).Similarly,Leeetal.(2010)showthatiflanduseisinflexible,inaperfectlycompetitivemarketfarmerswillbelesslikelytoadaptduetotheirinabilitytoexpandbusinessalongwiththeiradaptationinvestmentandlittlepotentialtoreapadditionalprofit.Finally,financialbarriersconstrainwhatindividuals,themarketandgovernmentscanefficientlyachieve.Thisisnotamarketfailureperse,butratherlimitswhatisfeasible.AccordingtotheIPCC5thAssessmentReport,existingglobalestimatesofthecostsofadaptationindevelopingcountriesrangefromUS$70billiontoUS$100billionayeargloballyby2050.UNEP(2014)suggestthatthesevaluesarelikelytobeasignificantunderestimate,particularlyintheperiodafter2030;andthatthecostsofadaptationarelikelytwo-to-threetimeshigherthantheestimatesreportedthusfar,andplausiblymuchhigherthanthistowards2050.However,itisreportedthattheamountofpublicfinancecommittedtoactivitieswithexplicitadaptationobjectivesrangedfromUS$23billiontoUS$26billionin2012–2013,ofwhich90percentwasinvestedindevelopingcountries(UNEP,2014)4.Individualswilladaptwithintheircapacitiesasdefinedbytheirinformational,budgetary,institutional,technologicalandotherconstraintsandopportunities(OberlackandNeumarker,2011;Stern,2006;Kuch/Gigli,2007;Osberghausetal.,2010;Hallegatteetal.,2011).Empiricalevidenceshowsthatlackofcredit,andlackofinformationandknowledge,representamajorbarriertoclimateadaptationforfarmersinAfrica(IFPRI,2007;De-GraftAcquaandOnumah,2011;Debalke,2011);andthathouseholds’wealthincreasesthelikelihoodofclimatechangeawarenessandadaptation(Yesufetal.,2008).Deressa(2008)observedthattheageofthehouseholdhead,wealth,socialcapitalandagro-ecologicalsettingshaveasignificantimpactonfarmersperceptionofclimatechange.Social,biophysicalandbehaviouralbarriersEmpiricalevidenceshowsthatindividualsandinstitutionssuchasfirmsdonotalwaysrespectthesimpleaxiomsofrationalchoice.Alongwithmarketfailures,otherbarrierstoadaptationemergefromabroaderconsiderationofhowsocialandbehaviouralfactorsaffectdecision-making,andofbiophysicalconstraintstoadaptationinthenaturalworld.Socialvaluesframehowsocietiesdeveloprulesandinstitutionstogovernrisk,andtomanagesocialchangeandtheallocationofscarceresources(Ostrom2005),andthereforecanhamperorsupportadaptation.Adgeretal.(2009)describebarriersthatareendogenousandemergefrom‘inside’society.Withinasociety/sector/firm,divergentgoalsforadaptationemerge,inpart,fromdifferentattitudestorisk(risk-takersversustherisk-averse),disposition(aprogressiveversusconservativeethos)anddifferentexpectationsoftheadaptivecapacityoffuturegenerations(optimisticversuspessimistic).Berkhoutetal.(2006)showedhowdifferentfirmsoperatinginthesamesector(houseconstruction)adopteddifferentadaptationstrategiestodealwiththesameriskofincreasingriverflooding.

4 These estimates are a combination of Official Development Assistance (ODA) and non-ODA finance bygovernments; Climate Funds earmarked for adaptation; and commitments by Development FinanceInstitutions.ThelattercontributedUS$22billion,or88percent,ofthetotal;bilateraladaptation-relatedaidcommitments by government members of the Organization for Economic Co-operation and Development(OECD)provided9percent;theremaining2percentcamefromadaptationdedicatedClimateFunds(UNDP,2004).

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Socialandculturalfactorsinfluenceperceptionsofrisk,whatadaptationoptionsareconsideredusefulandbywhom,aswellasthedistributionofvulnerabilityandadaptivecapacityamongdifferentelementsofsociety(GrothmannandPatt,2005;Weber,2006;PattandSchröter,2008;Adgeretal.,2009;Kuruppu,2009;O’Brien,2009;NielsenandReenberg,2010;WolfandMoser,2011;Wolfetal.,2013).Ethical,cultural,riskandknowledgeconsiderationsshapeindividuals’andsocieties’riskperception,theimportancetheyplaceonscientificfindingsasopposedtoindigenousknowledge,andthevaluetheygivetoplacesandtraditions(seeAdgeret.al,2009).Alltheseelementsinfluencehowtheyrespondtoclimatechange.Maddison(2007),forexample,highlightstheimportanceofperceptionandexperienceintriggeringadaptationplanningbyfarmersinAfrica,andhowtransitionalcostsmightindeedarisefrommis-perceptionofclimaticchanges.Thepsychologicalliteratureshowsthatindividualstendtorespondmosttoissues,risksorconcernstheyconsiderasimmediatelyandpersonallyrelevant(MoserandDilling2004;Patonetal.2001),theso-called‘availabilityheuristic’.Peoplerespondnotjusttotheriskitself,butalsotootherpeople’sresponsestorisk(Kaspersonet.al,2003).Dawnayetal.(2005)arguethatpeopletendtoobservethebehaviourofothersand,ifsuccessful,imitateit,especiallyunderambiguity,incrises,andwhenothersareseenasexperts.InAfricafarmersaremoreinclinedtoadaptwhentheyareabletoobserveneighbouringvillages’behaviour,butlessinclinedtolearnfrompeoplebelongingtodifferentethnicgroups(Maddison,2007).Stronglyheldbeliefsandculturalpracticescangreatlyinfluencethewaypeopleperceiveclimatechangeandtherebytheirsubsequentadaptationstrategies(JonesandBoyd,2011;Stafford-Smithetal.,2011;Adgeretal.,2012).Forexample,NielsenandReenberg(2010)reportthatinnorthernBurkinaFasoculturalpracticespreventedoneethnicgroup—theFulbe—fromembracinglivelihood-diversificationstrategiessuchasdevelopmentwork,labourmigrationandgardeningtoreducetheirvulnerabilitytodroughts;whereasanothergroup—theRimaiibe—haveusedsuchstrategies.Similarly,Rademacheretal.(2012)observedthatsocialandculturalnormsconstrainfemalemigrationcomparedtomalemigrationintheNadowlidistrictofGhana,showingthatgendermayindeedrepresentabarrier.Indigenousknowledgemayalsoplayarolebysupportingorpreventinggoodadaptation.Culturalpreferencesfortraditionalversusmoreformal,scientificformsofknowledgeinfluencewhattypesofadaptationoptionsareconsideredlegitimate(JonesandBoyd,2011).CasestudiesfrommultipledevelopingcountriesreportthatsomeactorsviewnaturalphenomenaasbeingcontrolledbyGod,supernaturalforces,orancestralspirits,whicharenotamenabletohumanmanagement(Grothametal.,2013;Mustelinetal.,2010;KuruppuandLiverman,2011;ArturandHilhorst,2012).Socialbarriersalsoincludethesocialfactorsthataffecttheadaptivecapacityofindividualsandcommunities.Gender,age,education,accesstoinfrastructureandfinance,andaccesstomarketsareallelementthataffecttheadaptivecapacity(orlackofit)ofindividualsandsocialsystems.Biologicalandphysicalconstraintsrepresentbarrierstotheadaptationofhumanandnaturalspecies.Theyrefertotolerancelimitsofindividualsandthenaturalenvironmenttoclimatechangeandextremes.Theabilityofnaturalsystemstoadaptmaybehamperedbytherateof

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climatechangeexceedingthesystem’sabilitytorespond,butalsobytheexistenceofotherstresses,andtheeffectsofhumanactivity(Kleinetal.,2014;CimatoandMullan,2010).Furthermore,physicalconstraintssuchasthelackofcorridorsforspeciesmigrationorsoil/waterscarcitymightconstraintheabilityofthenaturalenvironmentandhumanstoadapttoo.Additionalresearchisneededtoclarifythecapacityofspeciesandcommunitiestomigrateinresponsetoachangingclimate(Kleinetal.,2014).Insightsfrombehaviouraleconomics/scienceThereisbynowahugeliteratureonbehaviouraleconomics,although,byitsverynature,itdoesnotofferaunifiedtheory.Therearetwoparticularlycommonideasprevalentinthisliterature:(a)individualsfacecognitivelimitationsthatcansometimesleadto‘irrational’decisions;and(b)preferencesareformedinasocialcontextwherenorms,perceptionsoffairnessandotherfactorsinfluencedecision-making.Asfaraslong-termdecisionsthataffectclimatevulnerabilityareconcerned,atahighlevelofabstraction,thefollowingkeyinsightsfrombehaviouraleconomicsarecentral.HyperbolicdiscountingHyperbolicdiscountingreferstotheideathatindividualsdonotdiscountthefutureataconstantrate,astypicallyassumedinneoclassicaleconomics,butratherdosoatadecliningratethatcanbeapproximatedby,forinstance,ahyperbolicfunction.Thismeansthatalargerdiscountrateisappliedwhencomparingimmediateconsumptionwithconsumptiondelayedbytperiods,relativetowhenthecomparisonisbetweenconsumptiondelayedbykperiodswithconsumptiondelayedbyk+tperiods.Forinstanceanindividualfacedwithachoicebetween£100todayor£110tomorrowmightwelltake£100today;butifoffered£100in30days’timeor£110in31days’timemightwelltake£110in31days’time.Empiricallytheremaybeaparticularlystriking‘immediacyeffect’,wherebythediscountrateappliedintheinitialmonthsoryearsisveryhigh(Prelec&Loewenstein,1991).Hyperbolicdiscountinghasrathercomplicatedimplications.Buttobeginwithitisimportantnottoconfusethisphenomenon,wherebyindividualsineffectapplyadecliningdiscountratetotheirownlifechoices,withtheacceptedargumentfordecliningdiscountratesinpublicpolicyandprojectappraisal(HMTreasury,2003),whichisbasedonconstantpreferences,butuncertaintyaboutfuturegrowthprospects(Gollier,2002;Weitzman,2001).Hyperbolicdiscountingsuggeststhatpeoplewillberelativelypatientwhenengagedinlong-termplanning–possiblymorepatientthantypicallyassumed–butcertainlylesspatientintheshortterm.Thisraisesthepossibilitythatpeoplearevulnerabletobeingtime-inconsistent:theymakeaplantoundertake,atsomepointinthefuture,someactivitythatwillhaveimmediatecosts(onceundertaken)inreturnforfuturebenefits(theyputthisoffuntiltheirper-perioddiscountratebecomeslowenough),but,whenthetimecomestodoso,theyrenegeontheirplanandpostponetheactivityagain,becausetheirper-perioddiscountrateisveryhigh.Thisislinkedwithideasof(alackof)self-controlandofcommitmentdevicestoovercomethis,whichiswheremanyofthepolicyimplicationsofhyperbolicdiscountingareidentified.Forexample,inhisreviewoftheimplicationsofbehaviouraleconomicsfordevelopment,

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Mullainathan(2005)pointsoutthatROSCAs5mightserveasacommitmentdeviceforsaversindevelopingcountries,whowouldotherwiselacktheself-controltosavemoneyunderimmediatepressuresforit.Healsosuggeststhatpeoplewithapparentlyhighdiscountratesmaysimplylacktheinstitutionstohelpthemexerciseself-control,whichmeansthattheirdiscountratesoughtnot,perhaps,tobetakenonfacevalue.Moregenerally,ifpeoplewouldliketoexerciseself-controlandmakedecisionswithlong-termpay-offs,butarepreventedfromdoingsobytheirownmyopictendencies,thentheremaybeajustificationforatleast‘nudging’behaviourincertainsituations(socalled‘libertarianpaternalism’;Thaler&Sunstein,2008).Yettheimplicationsofhyperbolicdiscountingforlong-termdecision-makingthataffectsclimatevulnerabilitydonotseemtohavebeenexploredandtheyareratherunclear.Ontheonehand,ifeveryoneexhibitsthesekindsoftimepreferences,thenitisofpotentiallyprofoundimportance,asalldecisionswithlong-termeffectswillbesubjecttothisformof‘bias’,displayedbythepeoplechargedwithmakingthem.Ontheotherhand,itcanberatherdifficulttorelatetheexperimentalcontextsinwhichinsightsonhyperbolicdiscountinghavebeengeneratedwiththetypicaldecisionsinfocusinthisproject.Inparticular,mostinsightsonhyperbolicdiscountinghavebeengeneratedinrelationtoindividuals’lifestyles(e.g.whypeoplefinditdifficulttogiveupsmoking)ratherthanlargeinfrastructureplanningdecisionsinvolvingpotentiallylargenumbersofindividualstaskedwiththinkingrationally.Itmaybethat,ininfrastructureplanning,theinstitutionaldiscountrate–thediscountrateeffectivelyappliedbytheinstitutiontaskedwithmakingdecisions(i.e.aninformalconcept)–isthereforeconstantandconsistentwithstandardtheory.TouseKahneman’s(2011)framework,hyperbolicdiscountingmightbeseenasamanifestationofsubconscious,‘system1thinking’,whileinfrastructureplanningforcesconscious,‘system2thinking’.Lastly,whilethereisplentyofevidencefromlaboratoryexperimentsfortheexistenceofhyperbolicdiscountingand,assuch,ithasbecomeaverywell-knownphenomenon,theevidenceacrossthefullgamutofrelevantexperimentalandfieldstudiesismoremixed(Cardenas&Carpenter,2008).Itisultimatelynotentirelyclearthatthesimplermodelofexponentialdiscountingshouldalwaysberejected.Referencedependence,lossaversionandstatusquobiasAnotherfamousinsightfrombehaviouraleconomicsisthatwhenpeoplemakechoices,eitherinriskyorrisklessenvironments,theircurrentendowmentofgoods–theirreferencepoint–matters.Inparticular,peopledislikelosinggoodsmorethantheylikegaininggoods,aphenomenonthatisoftenknownaslossaversion–particularlywhenitcomestoriskychoice–andispartofthebroaderProspectTheorypioneeredbyKahnemanandTversky(1979).Theeffectcanberepresentedgraphicallybyautilityfunctionwithrespecttothegoodinquestion,whichiskinkedatthereferencepoint(thecurrentendowmentofthatgood),withthefunctionsteeperinthedomainoflossesthaninthedomainofgains.

5 Rotating Savings and Credit Associations

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Thereareseveralhigh-levelimplicationsofreferencedependenceandlossaversionforlong-termdecision-makingthataffectsclimatevulnerability.Likehyperbolicdiscounting,someofthesearestillvague,however.First,itisworthnotinginthecontextoftimediscountingthatreferencedependenceandlossaversionhavebeenproposedasoneresolutiontothe‘equitypremiumpuzzle’.Thisrelatestotheinabilityofthestandardtheoriesintheeconomicsofrisk(withuniformriskaversion,broadlyspeaking)toexplainthelargedisparitybetweenthereturnsonrisk-freeassetsliketreasurybondsandriskyassetslikestocks.Ithasbeenproposedthatlossaversionmakesindividualslesswillingtotakerisksandhencerequirehigherreturnsonriskyassets(Benartzi&Thaler,1995).Inturn,thishasimplicationsfortheextenttowhichmarketreturnsonriskyassetsarerelevantforpublic-sectordiscountrates,includingforclimate-changeadaptation.Inparticular,itcontributestoargumentsthatquestiontherelevanceofhighratesofreturnonriskyinvestmentsforsettingpublic-sectordiscountrates,suggestingthatlowerratesofreturnonrisk-freeinvestmentsaremorerelevant.Second,itispossibletousetheconceptoflossaversiontomakeamuchbroaderpointaboutthepoliticaleconomyofdecisionsthatcreatewinnersandlosersinsociety.Lossaversionisoneinterpretationofwhyitcanbeespeciallydifficulttoimplementreformsandpolicychangesthatconstituteefficiencygainsoverall,butthattransferresourcesfromoneinterestedgrouptoanother,sincethelosseswillbevaluedevenmorethaninthestandardmodel(Mullainathan,2005).Thissuggestsitmaybebettertodesignreformsthatpreservetherentsofincumbents.Thispointlinkswiththefollowingsectionthatconsidersthemorestandardpolitical-economyliterature.Third,lossaversioncanbeusedtoexplainthephenomenonofstatusquobias(Samuelson&Zeckhauser,1988)asitprovidesanexplanationforwhythedisadvantagesofdeparturesfromthestatusquoloomlargerthantheadvantages(Kahneman,Knetsch,&Thaler,1991).Otherexplanationsofstatusquobiasalsoexist,however,includingtheroleofhabitsindecision-making.Statusquobiashasobvious,ifgeneral,implicationsfordecisionsaffectingclimate

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vulnerability,wherevulnerabilitywouldbereducedbydeviatingfromthestatusquo.Colloquially,statusquobiasisthoughttobeaparticularafflictionofcautiouspublicservants.Fourth,lossaversionwouldincreasethebenefitsofadaptationmeasuresthatreducevulnerabilitytofutureclimatechange(andcorrespondinglyincreasethecostsofrelateddecisionsthatincreasevulnerability),becausegreatervaluewouldbeplacedontheavoideddamages.Otherissuesofindirectrelevance:thepropensitytocooperateinsocialdilemmasAgeneralinsightfromtheliteratureonexperimentalpublicgoodsgamesisthatpeopleoftencooperatemorethanthestandardconceptionofrationalbehaviourwouldpredict.Inadeveloping-countrycontext,suchexperimentspointtonormsoftrustandreciprocityactingasasubstituteforformalinstitutionsinmanagingcollectivegoods,includingenvironmentalresources(Cardenas&Carpenter,2008).Thequestion,whichseemsrelevantinrelationtosocialprotectionschemesandinsurance,iswhetherthebuildingofnew,formalinstitutionscrowdsoutexistingsocialpreferencesthataidcooperation.Unfortunatelytheevidence,atleastfromexperimentsinbehaviouraleconomics,isunclear.InstitutionalbarriersThewelfare-economicrationaleforpolicyinterventionisbasedontheexistenceofmarketfailures,anddoesnotprecludedoingsoonthebasisofdistributionalinequities,butitimplicitlyassumesaneffective(andfair)governmentresponse.However,thisisnotagivenandvariousliteraturesexaminethepossibilitiesforinstitutionalbarriers.Thesenotablyincludeinstitutionalanalysisandtheeconomicliteratureonpoliticaleconomy.Policyfailuresorbarriersoccurwhenconflictingpolicyobjectivesco-existthatcanleadtomaladaptationorlackofclarity(FrontierEconomics,2013).Forexample,urbandevelopmentplansmaybeundertakenwithouttakingintoaccounttheimpactoncitizens’vulnerability.Thesebarriersoccurwhenthecurrentstructureofinstitutionsandregulatorypoliciesispoorlyalignedtoachieveadaptationobjectives(Craig,2010;Spies,2010;Stillwelletal.,2010;Stuart-HillandSchulze,2011;EisenackandStecker;2012;Huntjensetal.,2012;Herrfahrdt-Pähle,2013).Policyfailurecanalsoariseincasetheproductionofscientificandtechnicalinformationlackssalience,credibility,orlegitimacyintheeyesofcriticalplayersatdifferentlevels(Cashetal.,2003).Otherbarriersconstrainingthecapacityofinstitutionstoperformeffectivelyarethelackofinformationandorprofessionalskills,butalsothelackofaclearmandate(seeKleinetal.2014).Inadditiontopolicyfailures,governancefailuresorbarriersmightoccur.Ifoneoftherolesofgovernmentistoresolveconflictsbetweenagentstoengendercollectiveaction,thentheimportanceofgovernanceinadaptationdecisionsbecomesincreasinglyimportant(Cashetal.,2006).Thesebarriersrefertoineffectiveinstitutionaldecision-makingprocesses.Adaptationtypicallyrequiresmultipleactorsandinstitutionswithdifferentobjectives,jurisdictionalauthorityandlevelsofpowerandresources.Overlappingmandatesandresponsibilitiesofdifferentauthoritiesmayoccur.Barriersarisefromdiversityinresponsibilityandco-ordinationfailurewheresectorsarefragmentedandmanypartiesareinvolvedinadaptationactions

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(FrontierEconomics,2013),theyoperateinsilosand/orcompeteforresourcesandpolicycontrol(Lockwood,2006).Lehmannetal(2012)arguethathowwellaninstitutionalframeworkissuitedtopromoteadaptationplanningdependsonthehorizontalandverticalintegrationofdecision-making.Verticalintegrationoccursbetweenlocal,regionalandnationaldecisionlevels;whereashorizontalintegrationmayoccurwithinpublicadministrationandbeyond(throughparticipationofbusinesses,science,NGOsandcivilsocietyinthedecisionmakingprocess).Basedonanempiricalanalysis,Lehmanetal.(2012)reportonthebarriersfacedbylocalmunicipalitiesinfourcities,namelyLima,Santiago,BerlinandSangerhausen.Theresultsshowthat,aswellastheproblemofshort-termisminculcatedbyelectoralcyclesanddevelopedbelow,thelackofaclearmandateandresponsibility,ofcoordinationandresources,andlowlevelsofinter-organisationalcooperationallhindereffectiveadaptationplanning.Mainstreamingadaptationintoexistingadministrativetasksandactivitiesisexpectedtoincreasetheincentivesforadaptationplanningbyfacilitatingtheidentificationoflinkstoother(sectoral)policyobjectiveswithapossiblyhigherpoliticalpriorityandpotentialco-benefits(Meashametal.,2011;UNDP/UNEP,2011);andreducethecostsofadaptationplanning(seeFussel,2007;FusselandKlein,2004).However,effectivemainstreamingrequiresaleadorganisationtoensurecoordinationacrosssectors(HuntandWatkiss,2011).Setzetal.(2008)refertothelackofinstitutionalmemoryandinter-institutionalcoordinationasbarrierstoprojectdesign,approvalandevenaccesstointernationalfundsandaidforadaptation.Theauthorsaddthattheoverlappingmandatesofgovernmententitiestendtocreateconflictsandslowadaptiveresponses,forexampleincaseofextremeevents.Lengthybureaucraticprocessesandlackoftransparencyisanimpedimenttofiscalplanningandmayaccesstofinance,whichisparticularlyrelevantforAfricancountries.Finally,thelackofuniversallyapplicableindicatorsforadaptationbenefitsmeansthatmonitoringandevaluatingadaptationoutcomesmightbechallenging.Indicatorsaremeanttoinformdecision-makersabouttheeffectivenessofadaptationactions,contributetosociallearningaboutgoodpractices,holdingagentsaccountablefortheirdecisions,andcommunicatingoutcomes(Lamhaugeetal.,2012).Asassessmentsofadaptationeffectivenesstheycanbemeanttoinformtheprioritisationofadaptationfunds(Stadelmannetal.2011).Poorlydesignedindicatorsmaypreventfundingallocationbydonorsforexample.Inthisrespect,theycanhinderadaptation.InsightsfrompoliticaleconomyThepoliticaleconomyliteratureislargeandvaried.WecanfollowBesley’s(2006)authoritativeliteraturereview,whichseesitsvariousinsightscoalescingaroundthenotionofgovernmentfailure.AccordingtoBesley,governmentfailurecapturestheideathat“therearesystematicreasonswhygovernmentfailstodeliverthekindofservicetoitscitizensthatwouldbeideal”(p45).Butwhatconstitutestheidealservice?OnedefinitionofgovernmentfailureduetoBesleyandCoate(1997)drawsfromthetheoryofmarketfailure:agovernmentfailswhenitsactionspreventtheeconomyfromattainingParetoefficiency,i.e.itwouldintheorybepossibletoreallocateresourcessuchthatatleastonepersonisbetteroffwithoutanyonebeingworseoff.

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However,justlikethetheoryofmarketfailure,wecouldmaketheobservationthatParetoefficiencyisarelativelyundemandingcriterion,astherecouldbemanyParetoefficientallocations,whichareundesirablefromthepointofviewofdistributionalfairness,forinstancetheyconcentratetoomuchwealthamongtherichandpowerful.Thereforegovernmentsmightalsofailonfairnessgrounds.Twootherfeaturesthatmaybeidentifiedofthepoliticaleconomyliteratureasawholearethat(1)itismainlybasedontheassumptionofrationalindividualbehaviour,incontrasttobehaviouraleconomics,and(2)itisoftendevelopedinthecontextofrepresentativedemocracy(Persson&Tabellini,2000),whichmaybeparticularrelevantinadvancedeconomiesbuthavevaryingdegreesofpurchaseindevelopingeconomies.Theinsightsofthepoliticaleconomyliteratureapplytogovernmentinthebroadestsense,i.e.thelistofgovernmentfailuresenumeratedbelowappliesinprincipletomanyareasofpolicy-making.Thequestioniswhethertheyapplywithgreaterorlesserforcetoclimateadaptation.Thereissomereasontobelievethattheymayapplywithgreaterforce,sinceclimateadaptationinvolvesparticularlylargeuncertainties(ashortageofinformation),andcaninvolveverylong-runbenefitsthatraisequestionsofthepoliticalrepresentationoffuturegenerationsandgovernmentcommitmentproblems(timeinconsistency).Ontheotherhand,relativetootherpolicydecisions,somekindsofadaptationdecisionmayinvolvefewervestedinterests,andinsomecasesgovernmentfailureslikecorruptionmayactuallybiaspolicy-makinginfavouroflargeinfrastructureinvestmentsthatcouldberesilienttofutureclimate.Whatthenarethesourcesofgovernmentfailurethatcouldberelevanttodecisionsthataffectlong-termclimatevulnerability?ImperfectinformationAlongtraditioninpoliticaleconomy,includingnotablytheworkofHayek,arguesthatimperfectinformationontheconsequencesofgovernmentdecisionsputsalimitonthecapabilitiesofstateplanning.Thereisanobvioussenseinwhichmis-estimationofthecostsandbenefitsofdecisionswillleadtogovernmentfailures,relativetoasituationofperfectinformation.Thismaybeparticularlyprofoundinthecaseofclimate-changeadaptation,wherethelong-runcostsandbenefitsofdecisionsarehighlyuncertain.However,themostfundamentalpolitical-economyimplicationsofimperfectinformationtypicallyarisewhendifferentindividualsholddifferentamountsofinformation.Ruta(2014),forexample,looksatagencyproblemsinthegivingofadaptationfinancefromdevelopeddonorcountriestodevelopingrecipientcountries,whichariseinpartbecausethedonorlacksperfectinformationaboutwhattherecipientisdoingwiththemoney,itselfinpartbecauseofthedifficultiesofmeasuringthecostsandbenefitsofadaptationmeasuresinacontextinwhichtheyareintertwinedwithgeneraldevelopment.Moregenerallytherearelikelytobemanyagencyproblemsintheprovisionofinfrastructureindevelopingcountriesjustastherewouldbeindeedindevelopedcountries.Lobbying,corruptionandrent-seeking

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Anotherimportantinsightfrompoliticaleconomyisthatpublicofficialsdonot,or,atleast,donotonly,actinthepublicinterestlikeabenigndictator,rathertheyaimtoadvancetheirowninterests,sometimesdescribedas‘opportunism’(Persson&Tabellini,2000).GrossmanandHelpman’s(2001)modeloflobbyingportraysagovernmentthataffordssomeweighttothemaximisationofsocialwelfare,ontheonehand,andsomeweighttofinancialcontributionsfromlobbygroupsforthepurposesofresourcingpoliticalcampaigning,ontheotherhand.6Inthesecircumstances,outcomesareskewedawayfromwhatmaximisessocialwelfaretowardstheinterestsoforganisedandwell-resourcedlobbygroups.Whetherthisisinefficientdependsonthemodelofgovernmentfailure:itisnotParetoinefficientunlesstherearecoststolobbyingactivities(overandabovethetransfersthemselves,whicharejustthat),butitmightoftenbethoughtofasinequitable.Whichspecialinterestsprevaildependsinpartontheirabilitytoorganiseandactcollectively(Olson,1965).Whilethismodelismostimmediatelyapplicabletopoliticalsystemswherethereispoliticaldemocracyandwhereitislegitimatetomakefinancialcontributionstopoliticalparties,simplemodelsofcorruptionandbriberyworkinmuchthesameway,inthatgovernmentsauctionoffpolicies,projectsandhowprojectsaredeliveredtothehighestbidder.Indeed,thisinterpretationofeconomicmodelsofpoliticalinfluenceispotentiallythemostrelevantinmanydevelopingcountries.Inprinciple,corruptionandbriberycouldbeemployedtoencourageordiscourageinfrastructureinvestment,butinpracticeorganisedandwell-resourcedspecialinterestsareoftenlocatedamongstthebeneficiariesofinvestmentandthereforeitisclassicallyaningredientin‘whiteelephant’infrastructureprojectsormoregenerallyininfrastructureprojectsthatareinefficientlydesignedordelivered.Adifferenttraditionofpoliticaleconomymodelsthatalsoassessestheeffectsofinfluencefocusesonrent-seeking(Krueger,1974;Tullock,1967,1980).Inthesemodels,politiciansdonotreceivepaymentsfromspecialinterests,nonethelesstheseinterestshaveanincentivetotrytoinfluencepoliticaldecisionsanddoingsohasanopportunitycostintermsofproductivelabour.Politiciansinthesemodelsaretypicallyrent-seekingratherthanoffice-seeking.Again,whetherrent-seekingleadstogovernmentfailureiscomplicated.Inandofitselfitiscostly,buttheoutcomemightsometimesprovidebenefitsinexcessofcosts.Alsobelongingtothisbroadthemeisresearchontheincentivesofbureaucrats,asopposedtopoliticians.Niskanen(1971)proposedthebudget-maximisingmodelofbureaucraticbehaviour,whichsuggeststhatself-interestedbureaucratsaimtomaximisethebudgetsoftheiragenciesinordertoincreasetheirpowerandwealth,evenifthepoliticiansforwhomtheyactasagenthavethepublicinterestinmind.Thattheyenjoythispossibilityisduetothetypeofinformationalasymmetrymentionedabove:agenciesarepresumedtobetterknowtheircostsandbenefitsthanthepoliticianswhorelyonthem.Qualityofdecision-makingTheaforementionedmodelsdonottakeintoaccountaretheintrinsicqualitiesofpoliticalleadersandpolicy-makers,asidefromtheirtendencytobeself-interested.However,some

6 Other means of lobbying exist, such as information.

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policy-makersmayproduce‘betterprojects’thanothers,inageneralsense,orelsetheyarebetteratcarryingouttheircitizen’swishes.Thisisasimplesourceofgovernmentfailureinthesensethatimprovementscouldbeobtainedbyimprovingthequalityofpolicy-makers.Incontrasttomodelsofinfluence,corruptionandrent-seeking,thisargument,broadlyspeaking,relatestothehumancapitalattainmentofpolicy-makers.PoliticalfailuresindemocraciesAbasicsourceofpoliticalfailureindemocraciescanariseundersimplemajorityvotingandisbestunderstoodasfollows:simplemajorityvotingmerelycountsthenumberofvotersinfavourof,oragainst,aparticularpolicychangebutignorestheintensityofpeople’spreferences.If,forexample,amajorityofpeoplestandtogainasmallamountandyetaminorityofpeoplestandtoloseagreatdeal,thenmajorityvotingwillfavourtheformeroverthelatter,eventhoughaggregationofpreferencesinthestandardeconomicway(evenwithoutconsiderationsoflossaversion)wouldtendtoworkagainstthis.Notethiseffectstandsincontrasttowhatmightusuallybeexpectedtofollowfromspecial-interestcapture,discussedaboveunderpoint2.Anotherformofpoliticalfailurecanarisefromso-called‘log-rolling’,i.e.thetradingoffavoursbetweenpoliticiansinorderthateachgetsthepoliciespassedthats/hewants(thisissometimesspecificallycalled‘distributivelog-rolling’andtheoriginalideaisfromBuchanan&Tullock,1962).Suchsituationscan–attimes,i.e.notinevitably–leadtotoomanypublicprojectsbeingimplemented.Inthecontextoflong-termdecision-makingthataffectsclimatevulnerability,ifitcanbearguedthattoolittleweightisbeingplacedontheinterestsoffuturegenerationswholacktheabilitytovote–anotuncontroversialclaimthatisatthecentreofthediscountingdebate–thenthisisalsoapoliticalfailurethatcouldleadtoinsufficientadaptationtofutureclimatechange.Folkeetal.(1998)andYoung(2003)discussthebarrierstosustainableresourcemanagementstemmingfromtheconflictbetweenshortelectoralcyclesandlong-termplanningneeds.CommitmentandtimeinconsistencyTheworkofKydlandandPrescott(1977)focusedattentionongovernmentfailures,whichcanarisefromtheinabilityofapoliticianorpolicy-makertocommitaheadoftimetoaparticularcourseofaction.Thisisbecauseitcanberationalforapolicy-makertolaterchangecourse,evenonethatisbenevolentandisnotsubjecttotheneedtogetre-elected.Inasimplemodelofthiskindoftime-inconsistencyinpublicpolicy,agovernmentthatisbenevolentinthesenseoftryingtomaximisesocialwelfaremustchoosewhethertoimplementapolicytodayand/ortomorrow.Societyreceivesbenefitsandcostsfromthepolicy,aswellasbeingabletomakeprivateinvestmentstodaythatpayofftomorrow.Themodelcanbesetupinsuchawaythat,eventhoughitwouldbebestforsocietyifthegovernmentimplementedthepolicytomorrowandcitizensmadeprivateinvestmentstoday,thegovernmentwouldchoosenottoimplementthepolicytomorrowuponknowingthatcitizenshavemadetheinvestmenttoday.Withrationalexpectations,citizensdon’tthenmaketheinvestment.

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Inthissimpleexample,theonlythinglinkingtodayandtomorrowisinvestment,butotherpolitical-economymodelsintroducepolicyandpoliticallinkages.Theformertypeoflinkagemakesthesuccessofthepolicytomorrowdependentonwhetheritisimplementedtoday,whilethelattertypeoflinkageintroducespoliticalsurvivalfromtodaytotomorrowasaconsideration.Policylinkageshavebeenusedtoexplainwhypoliticiansmakestrategicchoicestoconstraintheactionsoftheirsuccessors.Thedesiretosurviveinpoliticaloffice,ontheotherhand,canleadpoliticianstopostponeorbringforwardpoliciesdependingonthesituationandthiscanleadtoadeviationfromwhatisefficientorequitable.

Mapping of Barriers to Decisions Thesectionsabovehighlightthepotentialbarrierstoadaptation.However,thisprovidesatheoreticalperspective.Akeyissueforthecurrentstudyistotranslatetheseissuesintoamorepracticalsetting,andthenlookatpotentialsolutions.Toadvancethisanalysis,thestudyhasmappedthepotentialbarriersidentifiedabovetothepriorityareaswehaveidentifiedformediumtolong-termadaptationdecisions.Thisisshownbelow.Thetablepresentsthemainbarrierstoclimatechangeadaptation–focusingonspatialplanning,serviceandinfrastructuredelivery-andproposessomepossiblesolutions.

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Reviewofbarrierstoadaptationplanninganddecision-makingDecisions Marketfailures PolicyFailures Governancefailures SocialandBehaviouralbarriers ExamplesofSolutionsEarlydecisionsthatcanlock-invulnerabilityUrbanandSpatialPlanning

InformationfailureExternalitiesClubgoodsMarketdistortions(e.g.priceofhousesonfloodproneareasdoesnotreflectrisk)Misalignedincentivesforpeoplelivinginurbanareas(e.g.tenantsvs.owners)

Regulatorybarriersstemmingfrommultipleframeworksapplyingtovarioussectors(landuse,housing,transportation,publicfacilitiesandservicesetc.)LimitedcoverageofornomandatoryactionwithinlegislationandregulationsConflictingpolicies/priorities(e.g.pressureforurbandevelopment/housingcounteractwithadaptationgoals/reducingvulnerability)LackofclearrolesandresponsibilitiesofactorsinvolvedinadaptationSpatial/UrbanplansarepoorlyenforcedLimitedadaptationforexistingbuildings/assets

Institutionswitharoletoplayinclimatechangeadaptationarepoorlyintegrated,bothbetweensectorsandacrossspatialscalesRangeofdecisionmakersinvolved(developers,buildingcompanies,insurancecompanies,propertyownersandoccupants)whobasetheirdecisionsondifferenttimescalesandgoalsLackofclarityandaccountabilitymechanismsforadaptationdecisionsSomeadaptationswiththecharacteristicsofclubgoodsrequiringhighcoordinationandjointactions.Highlybureaucraticprocessesmakedecisionmakinglengthy

Cognitivebiasesofpolicymakers-urbanplanners,aswellasurbancitizensLimitedadaptivecapacityofplanningauthorities(time,moneyandhumanresources)Limitedadaptivecapacityofurbaninhabitants(accesstofinance-includinginsurance,information)InertiaandprocrastinationofbothplannersandurbaninhabitantsDemographicandsocio-economicphenomena(e.g.migration,populationgrowth)Socialnorms(e.g.socialcapital)

ReviewandharmoniseregulatoryframeworksgoverningurbanplanningConsideracross-sectorstrategyformainstreamingadaptationactionsintoexistingurbanmanagementactivities,includinglanduseplanning,transportation,water,andenvironmentalpolicy.Thestrategyshoulddefinerisks,setpriorities,competences,andactionsfordifferentactorsConsiderestablishingaleadgovernmentdepartmentplayingacoordinatingroleImproveunderstandingofandinformationoncostsandbenefitsofadaptivemeasuresforthebuiltstockintheurbanenvironmentCapacitybuildingforplanners.Considerdevelopingguidance.AppropriatestaffingofplanningagenciesDesigninformationcampaignsthatusesocialnormsforbehaviourchangee.g.byinformingindividualsaboutdesirablebehaviourofothers,possiblybyemphasizingtherealstatisticalprobabilityofdifferentrisks

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Decisions Marketfailures PolicyFailures Governancefailures SocialandBehaviouralbarriers ExamplesofSolutionsIntegratedWaterResourcePlans

InformationfailureMarketdistortionsandexternalities(e.g.waterpricing)Differentopportunitycostofwatertodifferentusers

Conflictingpolicies/priorities(agriculture,energy,domesticwateruse,recreation)Lackofintegratedregulatoryframeworksapplyingtodifferentwateruses(agriculture,energy,urbanplanning)Lackofclearrolesandresponsibilitiesofactorsinvolvedinplanningandadaptation

Widerangeofstakeholdersinvolvedinwatermanagementanduse,plusmultipleuses(irrigation,energy,domesticconsumption)contributetocomplexdecision-makingprocess.Differentactors/agencieslikelytooperateinsilosCoordinationonvastspatialscalerequired(e.g.upstream/downstream)

Cognitivebiasesofpolicymakers,planners,aswellasurbancitizensLimitedadaptivecapacityofplanningauthorities(time,moneyandhumanresources)Limitedadaptivecapacityofwaterusers(e.g.accesstofinance,information)InertiaandprocrastinationofbothplannersandwaterusersSocial/customarybeliefsandwatermanagementpractices

ImproveunderstandingofandinformationoncostsandbenefitsofadaptivemeasuresReviewingofregulatoryframeworkstoensurepolicycoherenceConsideracross-sectorstrategyformainstreamingadaptationactionsintoexistingwatermanagementactivities,includinglanduseplanning,agriculture,energy,andenvironmentalpolicy.Thestrategyshoulddefinerisks,setpriorities,competences,andactionsfordifferentactorsConsiderestablishingaleaddepartmentplayingacoordinatingroleonIWRMCapacitybuildingforplanners.Considerdevelopingguidance.CommunicationandengagementplantochangeusersbehaviourIntroducedemand-drivensolutions:low-flowappliances;moreeffectiveuseofwaterinagriculturalandindustrialprocesses;smartmetersandintelligentpipeworktorestrictaccessandreduceleakage;andmeteringandpricingstrategies.

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Decisions Marketfailures PolicyFailures Governancefailures SocialandBehaviouralbarriers ExamplesofSolutionsCoastalManagementPlanning

InformationfailureMissingmarkets(ecosystemsservices)Clubgoods/publicgoods

Poorintegrationofcoastalplansandregulationsintolocal/regionalspatialplansandregulationsOverlappingmandatesofdifferentagenciesandgovernmentinstitutionsMultipleregulatoryframeworksapplying(e.g.infrastructure,buildings,habitatsandlivelihoods)andpoorlyintegratedConflictingpriorities(environmentalpreservationvseconomicdevelopmentandhousing)

Widerangeofstakeholdersanddecisionmakersinvolved(e.g.environmentprotectionagency,localgovernments,localcommunities,localbusinesses,insurancecompanies)PoorcoordinationbetweenagenciesresponsibleforadaptationHighlevelofcoordination/localfundingmechanismsrequiredforclubgoods(e.g.localseawalls)

Cognitivebiasesofpolicymakers,planners,aswellaslocalcommunitieslivingincoastalareasLimitedadaptivecapacityofplanningauthorities(time,moneyandhumanresources)Limitedadaptivecapacityofcommunities(lackofinfo,resources)InertiaandprocrastinationofbothplannersandcoastsinhabitantsLimitedadaptivecapacityofthenaturalenvironment

CoastalmanagementplanningintegratedinbroaderspatialmanagementplansHarmonisationofregulatoryframeworksapplyingtoadaptationincoastalareas(tourism,housing,environment,buildings,infrastructure)Clarityarounddifferentagencies’rolesandresponsibility.Considerselectaleadinstitution/agencywithclearmandateTargetedcommunicationandengagementstrategieswithlocalcommunities,usinglocalsocialnormstochangebehaviourCapacitybuildingandtrainingforplanners

Decisions Marketfailures PolicyFailures Governancefailures SocialandBehaviouralbarriers ExamplesofSolutionsLandUseandAgriculturalDevelopmentPlans

InformationfailureExternalitiesHightransaction/coordinationcostsMarketdistortions(e.g.subsidies)

Multipleregulatoryframeworks(watermanagement,agriculture,environmentalregulations,spatialplanning)Internationalregulationsandmarketsaffectingdomesticproductionandprices,i.e.incentivestoadapt

Largenumberofdecisionmakers(farmers)posecoordinationchallengesLackofcoordinationbetweenrelevantgovernmentagencies(e.g.Agriculture,Forestry)

CognitivebiasesofpolicymakersCognitivebiasesoffarmersLackofadaptivecapacityoffarmers(info,accesstotechnology,accesstofinance)CustomarylandtenureandlandmanagementpracticesHabitandtaste(e.g.switchingtomoreclimateresilientcropsandchangingdietmaybedifficult)

Clarityofmandates,rolesandresponsibilityofdifferentagenciesRemovalofmarketdistortions(e.g.subsidies)affectingadaptationdecisionsAlignmentandharmonisationofdifferentregulatoryframeworks(onwater,environment)Consideracross-sectorstrategyformainstreamingadaptationactionsintoexistinglandmanagementactivities,includinglanduseplanning,agriculture,andenvironmentalpolicy.Thestrategyshoulddefinerisks,setpriorities,competences,andactionsfordifferentactorsInformationcampaignedtailoredtofarmerstoimproveunderstandingofcostsandbenefitsofadaptationmeasures

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Decisions Marketfailures PolicyFailures Governancefailures SocialandBehaviouralbarriers ExamplesofSolutionsSocialProtectionPolicy

PublicGoodFiscalspace

Adaptation,DRRandsocialprotectionpoliciesandobjectivesnotaligned/sufficientlyintegratedTradeoffbetweenshortterm(DRR,povertyalleviation)andlongtermneeds(climatechangevulnerability)Conflictingpoliciesandregulatoryframeworks(e.g.economicandsocialpolicyobjectives)SPtargetpeoplewhoarecurrentlyvulnerable–lessfocusonpotentialvulnerablepeopleinthefutureVulnerabilitytoclimatechangenotexplicitlyconsideredinpolicies

CrosscuttingnatureofSocialProtectionpolicies(housing,services,directtransfers)andmultipledecisionmakersinvolvedOverlappingmandatesofdifferentagencies–lackofcoordinationandworkinginsilosPossiblecomplexityofsomemechanisms(index-basedinsuranceschemes)orriskofheavygovernancestructure(socialfundsforcommunitybasedadaptation)

CognitivebiasesofpolicymakersCognitivebiasesofbeneficiariesofsocialprotectionschemes–inertia,procrastination,short-sigheddecisionmakingLackofcapacityofresponsibleagencies(staff,time,resources)Lowadaptivecapacityofrecipientsofsocialprotectionmeasures(typicallythemostvulnerableinsociety)

Clarityoflinkbetweenadaptivecapacityandsocialprotectionschemes–ccvulnerabilityexplicitlyaddressedConsideracross-sectorstrategyformainstreamingadaptationactionsintoexistingsocialprotectionplansandactivities.Thestrategyshoulddefinerisks,setpriorities,competences,andactionsfordifferentactorsEnhancedemphasisonpreventivemeasurestoincreaseadaptivecapacityCommunicationstrategytargetedtothepoorandmostvulnerablearoundccrisks

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EarlyinvestmentthatexposedtofutureclimaterisksDecisions Marketfailures PolicyFailures Governancefailures SocialandBehaviouralbarriers ExamplesofSolutionsNewCriticalInfrastructure(e.g.publicwatersupply,hospitals,waste-watertreatment)

InformationfailurePublicgoodsgeneratingpositiveexternalities(e.g.health),naturalmonopolies(e.g.energydistribution),andmeritgoods(e.g.water)Marketdistortions(e.g.watertariffskeptinefficientlylow)Misalignedincentives(dependingonhowconcessioncontractsarebuilt)Limitedpublicfiscalspace

Overlappingpolicies/prioritiesandexistenceoftrade-offs(e.g.betweencontinuityofsupplyandaffordability;developmentandvulnerability)GovernmentagencieslackingaclearmandateonadaptationIncentivestoadaptnotbuiltintoPPPcontractsPoorlydefinedresponsibilities,orlackofcoordinationbetweenvariousoperators(particularlyrelevantduetointerconnectivitybetweentheinfrastructureassets)

Multipleandcomplexlevelsofdecisionmakinginvolved(designers,owners,operators,users)Lengthydecision-makingprocessRiskofpoliciesbeingdesignedandimplementedinsilobydifferentagencies/decisionmakersLackofleadagency,andlackofclearlineofaccountabilityforadaptationRiskofcorruption/misuseoffunds

Cognitivebiasesofdecisionmakersresponsiblefordecidingoninfrastructureinvestment(e.g.useofcomplexclimaticinfo,lackofclarityaroundcostsandbenefitsofoptions)Perceptivebiases(e.g.recentstress)Self-interestofdecisionmakers(e.g.elections)Lowadaptivecapacity(e.g.noaccesstotechnology,finance,information)ofdifferentagentsInertiaandprocrastinationpreventingpeoplefromusingpublicservicesandinfrastructuremoresustainably

ImproveunderstandingofclimaticthresholdsimpactingontheperformanceofdifferentinfrastructureReviewandharmoniseexistingregulatoryframeworksforinterconnectedinfrastructureassetsReviewregulationsanddesignstandardstoincorporateclimatechangeConsideracross-sectorstrategyformainstreamingadaptationintoinfrastructureplanningandactivities.Thestrategyshoulddefinerisks,setpriorities,competences,andactionsfordifferentactorsConsiderselectingaleadorganisation/agencyplayingacoordinatingandsupervisoryroleIntroduceperformancestandardsinprocurementwhichaccountforclimatechangerisksAllocateclimatechangerisksbetweenpublicandprivateactorsinamoretransparentwaye.g.inconcessionagreementcontractsIntegrationandclarificationofrolesandresponsibilitiesofdifferentjurisdictions(local,national,international)ConsiderintroducingperformancestandardsinprocurementwhichaccountforclimatechangerisksUnderstandindividuals’tolerancetorisksresultingfromthefailureofinfrastructure,andtheirwillingnesstopaytoreducethoserisks.Tariffsreviewcouldbemadeaccordingly.Designinformationcampaignsthatusesocialnormsforbehaviourchangee.g.byinformingindividualsaboutdesirablebehaviourofothers,possiblybyemphasizingtherealstatisticalprobabilityofdifferentrisksInformationcampaignsandpublic’sexpectationmanagementofinfrastructureperformanceunderclimaticstress

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Decisions Marketfailures PolicyFailures Governancefailures SocialandBehaviouralbarriers ExamplesofSolutionsNewhydroorlargedams

UncertaintyandmissinginformationonclimatevariabilityandimpactsonriverflowsHigheruncertaintyforassetswithlong-termlife,about100yearsNaturalmonopolygeneratingexternalities(irrigation,floodmanagement,recreation)Marketdistortions(e.g.tariffskeptinefficientlylow)Misalignedincentivesofvariousstakeholders(benefitsofadaptationreapedbydifferentstakeholdersatdifferenttimes)

Lackofinstitutionalframeworkand/orinvestmentstrategythatallowforclimatechangetobeincorporatedintoinvestmentdecisionsLackofintegrationorconfusionbetweenpolicies,prioritiesandtrade-offs(e.g.agriculture,irrigationandenergypolicies)Poorstandards(e.g.design)adsafeguards(e.g.environmental)and/orlackofenforcementPoorlydefinedresponsibilities,orlackofcoordinationbetweenthevariousagentsresponsiblefordesigning,operatingandmanaginghydroIncentivestoadaptnotbuiltintoPPPcontractsCross-boundaryregulations(e.g.forexportprojects)

Complexnetworkofstakeholdersandvestedpartiesinvolvedinthedecisionmakingprocess(plannersandregulators,designers,owners,financiersandlocalcommunities)allplayingaroleinsupporting/constrainingadaptationLengthydecisionmakingprocesspreventingtimelyresponse

Cognitivebiasesofdecisionmakersresponsiblefordecidingoninfrastructureinvestment(e.g.useofcomplexclimaticinfo,lackofclarityaroundcostsandbenefitsofoptions)LackofclarityaroundbenefitsfromadaptationleadingtoinertiaandprocrastinationLowaccesstotechnologyLowaccesstofinanceLowaccesstoinformationLackofhuman,timeandfinancialresourcesofinstitutionsCustomarylandmanagementactivities(e.g.somecropscultivatedinthereservoirareamayincreasesedimentationissues)

Improveunderstandingofclimatechangeimpactonriverbasins,andplants’runoffelasticitytoclimaticstressDevelopguidelinesfordevelopersonwhatclimaticinfoshouldbeusedforEIA,minimumenvironmentalflowsetc.ReviewregulationsanddesignstandardstoincorporateclimatechangeAllocateclimatechangerisksbetweenpublicandprivateactorsinamoretransparentway(e.g.inconcessionagreements)Improvemonitoringofclimate-triggeredevents(floods)Infocampaignsforlocalcommunitiesonwhattodoincaseofextremeevents(e.g.floods)Considerintroducingperformancestandardsinprocurementwhichaccountforclimatechangerisks

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Decisions Marketfailures PolicyFailures Governancefailures SocialandBehaviouralbarriers ExamplesofSolutionsNewcriticalnodes,e.g.bridges

InformationfailurePublicgoodsExternalitiesMisalignedincentives(dependingonhowconcessioncontractsarebuilt)Hightransactioncosts(communicationandsharinginfo)

Confusionbetweenpolicies/priorities,existenceoftradeoffs(e.g.continuityvsaffordabilityofservices)IncentivestoadaptnotbuiltintoPPPcontractsGovernmentagencieslackclearregulatorymandateonadaptationPoorlydefinedresponsibilities,orlackofcoordinationbetweenthevariousoperators(particularlyrelevantduetointerconnectivitybetweentheinfrastructureassets)Cross-boundaryregulationsmightapply(acrossdifferentjurisdictions)

Widerangeofactors(privateandpublic)involvedinthedecisionmakingthroughoutthelifeofaproject(financing,construction,maintenanceandoperation)Multiplevestedpartiesindifferentjurisdictionsmakecoordinationandcollaborationmorecomplex

Cognitivebiasesofdecisionmakersresponsiblefordecidingoninfrastructureinvestment(e.g.useofcomplexclimaticinfo,lackofclarityaroundcostsandbenefitsofoptions)Users’lowcapacitytoadaptduringemergencies/extremeevents

ReviewregulationsanddesignstandardstoincorporateclimatechangeConsiderintroducingperformancestandardsinprocurementwhichaccountforclimatechangerisksAllocateclimatechangerisksbetweenpublicandprivateactorsinamoretransparentway(e.g.inconcessionagreements)Integrationandclarificationofrolesandresponsibilitiesofdifferentjurisdictions(local,national,international)InformationsharingandcollaborationacrossjurisdictionsImprovepreparednessforemergenciesanddisastersContinuousmonitoringImproveunderstandingofpublic’swillingnesstopayforinfrastructureresilienceInformationcampaignsandpublic’sexpectationmanagementofinfrastructureperformanceunderclimaticstress

Forestrymanagement

PublicgoodExternalitiesMissingmarkets(e.g.forecosystemservices)Marketdistortions(distortedpriceshamperingthesustainableuseofnaturalresources)

Co-existenceofmultipleframeworksforlanduseandagriculture,coastalzonemanagementandwatermanagement,allregulatingthenaturalenvironmentConfusionbetweenrolesandresponsibilitiesofdifferentministries(e.g.ofenvironment,water,forestry)

UsuallycomplexnetworkofpartiesinvolvedinthedecisionmakingofpoliciesonforestryDifficult/expensivemonitoringIllegalactivities(e.g.illegallogging)

CognitivebiasesofdecisionmakersfacedwithgreatuncertaintyaroundclimateimpactsandadaptivecapacityofthenaturalenvironmentHumansystems’behaviouralpatternsexertadditionalpressureonthenaturalenvironment(e.g.nosustainableuseofresources,illegallogging)Socialnormsandcustomarypractices

ImproveinfooninterdependencybetweenmanmadeadaptationandthenaturalenvironmentImproveinfoandcommsonclimatechangeimpactsonecosystems’servicesClarifyrolesandresponsibilitiesofdifferentgovtdepartmentsConsidercommunitydrivenadaptationoptionsConsiderPESschemes

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Thedecisionsinthetableinvolvemultipleactorswhocancontributeorhamperadaptationatdifferenttimesinthedecision-makingprocesses.Plannersandregulators,theprivatesector,andthepublicallplayaroleinmakingtheurbanenvironment,servicesandinfrastructuremoreorlessresilienttoclimatechange.Barrierstoadaptationlimittheabilityofeachactortoincorporateclimatechangerisksintotheirdecisions,andthereforetoundertaketheappropriatelevelofadaptation.Foreachdecision-maker,barriersusuallyincludeacombinationofeconomic,institutional,socialandgovernance-relatedfactors,andthusrequireacombinationofinstrumentstoaddressthem.Urbanandspatialplanningisatechnicalandpoliticalprocessconcernedwiththeuseoflandanddesignoftheurbanenvironment,services,andtransportationanddistributionnetworks.Bydeterminingthespatiallocationandnumberofdevelopments,andbyaffectingthedemandforinfrastructureservices,decisionsonurbanplanningareabletoinfluencethevulnerabilityorresilienceofthebuiltenvironmentanditsinhabitants.Awiderangeofbarriersexiststhatpreventurbanplannersandinhabitantstoadapttoclimatechange:theseincludecomplexdependencies,assignmentofresponsibilitiesandtheexternalitiesinvolved,behavioralbarriersandinertia,andthepooralignmentofdifferentregulatoryframeworksthatarerelevanttourbanplanning.Incentivestoadapttoclimatechangecanbeincorporatedintobuildingregulationsandcodesinordertoreducetheexposureoftheurbanenvironmentanditscitizenstoclimatestressesandextremeevents(e.g.floods,heat-waves).Similarbarrierspreventadaptationinothersectorialplanningsuchascoastalmanagement,waterresourcesmanagementandagriculturalplanning,whicharegreatlyaffectedbythecurrentuncertaintyaroundtheimpactofclimatechangeonthenaturalenvironment(e.g.futureavailabilityandqualityofwater),theintegratednatureofsectorsandthemultipleregulatoryframeworksapplyingtothemanagementofnaturalresources(e.g.irrigation,energygenerationanddomesticconsumption),thelackofmarkets(e.g.forecosystemservices),andevenculturalnormsandpractices(e.g.customarylandtenuresystemsandwatermanagementapproaches).Inallcases,barrierscanbeaddressedthroughsupply-typesolutions(e.g.changeinregulation,codes,betterintegratedregulatoryframeworks,andclarityonrolesandresponsibilityofdifferentagencies)aswellasdemand-type(e.g.throughamoresustainableuseofresourcesandservices).Largeinfrastructureincludesassetswithlong-termlifespan,whoareexpectedtoperformundercurrentandfutureclimaticscenarios(newbuiltinfrastructure,dams,criticalnodes).Inthiscase,incentivestoadaptationcanbeincorporatedintocontractualagreements,suchaspublic-privatepartnership(PPP)agreements.Theseagreementsdeterminetherolesandresponsibilitiesofdifferentactorsindesigning,building,operatingandmaintainingtheassets,andcontainprovisionsonrisksharingbetweenthegovernmentandtheprivatesector.PPPagreementslieonthefundamentalprinciplethattheprivatesectorshouldassumethoserisksthatitisbestsuitedtomanage.ThereareawiderangeofPPPcontracts,includingforexamplebuild–own–operate–transfer(BOOT),aprojectfinancingarrangementwhereinaprivateentityreceivesaconcessionfromthepublicsectortofinance,design,construct,andoperateafacilitystatedintheconcessioncontract;ordesign–build–finance–operate(DBFO),whichisverysimilartoBOOTexceptthatthereisnoactualownershiptransfer.Theowneroftheprojectultimatelybearstheriskofmala-adaptation,whichinthecaseofBOOTistheprivatesectorforthedurationoftheconcessionagreement,andtheGovernmentafterthat.

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Regulatorybodiescansettechnicalstandardstoinfluencetheresilienceofnewly-constructedinfrastructure.However,privatecompaniesmaylackthenecessaryincentivestoretrofitexistingstructuresasthebenefitsmayoccuraftertheircontactshavecometoterm.Giventhehighinterconnectivityofvariouscriticalinfrastructureassets,adaptationshouldbeundertakentopromotesystemsresilience,ratherthansectorresilience,andaddresssystemfailurerisks.Importantly,somedamagemaynotbeavoided(ortoocostlytobeavoided),thusitisadvisedthatinfrastructureoperatorsgetabetterunderstandingofusers’willingtopayforserviceatagivenlevel.Collaboration,planningandsharingofinformationbetweensectorswouldalsoberequiredtoensuresystemsresilience.Inthecaseofcriticalinfrastructure,analysinginterdependenciesmaybechallengingasitrequiresadeepunderstandingoneachcomponentofthesystem,andofthelinksbetweensystemsonawiderscaleandacrossjurisdictions.Giventhelargenumberofdecisionmakersinvolved,governancebarrierscanbesignificant.

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