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Climate Change and Development

The consequences of global climate change—including rise in sea level and increased storm hazards, increased variability in precipitation that disrupts water supplies, and degradation of ecosystems—have direct adverse implications for developing countries. Climate variability already affects the livelihoods of a large number of people, notably in fragile lands where resources are already scarce. Global climate change will increase stress on fragile systems even further. This will have strong implications for a wide range of investment and policy decisions that are being made now, such as the development of agricultural strategies and water management systems in arid regions, or the location and scale of infrastructure, notably in coastal areas and along major rivers.  Support to developing countries from the Bank and other partners to incorporate resilience to climate change into their development agendas is

At the same time, climate change is a global threat requiring global responses.  At present, developing countries do not have binding commitments to quantitative reductions in CO2 and the other greenhouse gases (GHGs) that cause climate change.  Nevertheless, developing countries already produce more than 40 percent of the world’s emissions of GHGs, and their share of total emissions is expected to top 50 percent in the not so distant future.  In light of this, developing countries are identifying opportunities for improved energy efficiency and other reductions in the GHG-intensity of their development

Bank technical assistance and lending, as well as financing from the private sector and other development partners, plays a very important catalytic role in moves toward “decarbonization.”  The Bank also is increasing its technical support for adaptation planning and incorporating climate resilience into Country Strategies for development. 

To support the Bank’s operational and policy work on climate change, the Development Economics Vice-Presidency has significantly expanded its program of research on development issues related to climate change.  Financing from the KCP, among other sources, has played a critical role in this ramping-up. The program focuses on both GHG mitigation adaptation to increase the climate-resilience of development.


Other Ongoing Research
Future directions

Michael A. Toman 

Tel: (202) 458-0277



The growth in global and developing country emissions creates opportunities but also carries risks.  To offset their own emissions growth, developed countries can invest in various projects to limit GHGs in developing countries where costs of abating GHG emissions often are lower than those of industrial countries.  Developing countries could gain tens of billions of dollars per year over time, given growth in this international “carbon market.” Developing countries can  use the proceeds of these carbon market transactions to undertake new investments in energy efficiency and lower-carbon energy that aim to reduce greenhouse gas emissions while also providing economic development benefits.

Beyond a certain point, however, developing countries will face trade-offs between large-scale mitigation of their own emissions, and the costs of these efforts.  In addition, the international community continues to negotiate over longer-term international agreements for limiting and ultimately sharply reducing GHG emissions.  Because developing countries are engaged in these negotiations, the implications of alternative strategies for global mitigation is a high-priority concern for them.

One line of research has examined policies for addressing both environmental (including GHG emissions) and congestion problems in urban transportation.  Case studies in México City, Sao Paolo, and Beijing provided new insights as to how fuel taxes, road use policies, and (in particular for Beijing) land use policies can complement each other to reduce GHGs, local pollution damages, and congestion – even though it is unlikely that policy can be set in a theoretically “optimal” way.  For example, higher fuel taxes also can significantly reduce congestion, and over the long run they can encourage denser settlement patterns with reduced commuting distances.  However, such movements will drive up housing costs, pushing some to remain in further-out areas.  Increased availability of mass transit can mitigate these effects.

Another project sought to identify the potential for growth in various sources of decentralized renewable electricity in Africa, taking into account both potential declines in the costs of these technologies and the costs of extending electricity service through the grid.  The project used Geographical Information Systems methods to account for spatial distributions of both electricity demand and supply:  urban versus rural populations on the one hand, and locations of both grid and off-grid supplies.  Pilot applications to Kenya, Ethiopia, and Ghana suggest that grid electricity is likely overall to remain more cost-effective than decentralized sources in more densely settled metropolitan areas – a finding of particular importance given the rapid acceleration of urbanization in Africa.  A byproduct of the project is that the model provides a valuable means for doing sector-wide strategic planning in the Bank’s operational work. 

Several KCP-supported empirical studies of the types and locations of projects entering the CDM show that while investments in this mechanism have grown faster than expected, advances have been uneven across sectors and potential gains are not being realized.  These findings point to ways in which international negotiations can improve the CDM.  The geographic dispersion of investment is uneven and important opportunities for abatement remain untapped in some sectors.  Participation incentives are increased by a country’s prior experience with project-based offset mechanisms and the amount of cumulative prior CDM experience by all countries, factors which tend to encourage new projects with established partners rather than geographic diversification.  and approach of the Kyoto commitment period. 

Other research has examined the economic, social and environmental impacts of the large-scale expansion of biofuels, and investigates the impacts of various policy instruments on biofuels penetration. The study is the first by the Bank to thoroughly analyze biofuels from different angles, including economic growth and poverty, land-use change and food security, energy supply and climate change mitigation; and to examine crucial economic and policy influences on biofuels, such as oil price changes and the introduction of a carbon tax.  Among the key findings emerging from the work is that while there are some long-term tradeoffs between biofuels production and food prices, another significant impact of expanding biofuels is the risk of increased deforestation.  In addition to its damage to ecosystems, increased deforestation also will cause carbon stored in the soil and vegetation to be released, significantly reducing the net reduction in GHGs available through increased biofuels supply.  This global research is being followed up by a number of country case studies in East Asia, Latin America, and Africa.  A byproduct of the research is the development of a multi-sector numerical “general equilibrium” economic model with detailed representations of land-use and fuel sectors that can be used for future research. 

Efforts to negotiate effective and lasting international agreements to limit greenhouse gases with broad participation confront complex tradeoffs.  Economists generally have favored agreements on national emission targets that countries can implement as they see fit, along with an international carbon market.  (Some also have advocated internationally coordinated GHG emission taxes.)  The rationale is these policies are likely to be the most cost-effective options available.  However, analysis of incentives for international cooperation reveals that this approach is likely to encounter substantial “political economy” obstacles among participating countries, as well as domestically within the participating countries.  The research points to the potential benefits of a broader range of possible dorms of international agreement, notably a “portfolio” of sector-based and technology performance-based agreements (for example, cooperation in reducing the carbon intensity of power production and stronger energy efficiency standards).  Such agreements may be easier to negotiate and sustain, even though they are less cost-effective.  One important reason is that agreements of these types can be more readily linked to broader cooperation on economic development, including technology upgrading; and they do not depend so strongly on large direct transfers of funds from developed  to developing countries.


One line of this research has assessed the potential impacts that uncertain future climate change could have on the function and stability of international water resource sharing agreements, and the associated impacts on hydro-electric uses of the water. How might climate change affect the future availability of water flows in shared basins?  How might changes in flows from climate change stress resource-sharing agreements, and what factors might mitigate those stresses?  Political economy analysis highlighted that in addition to strong diplomatic and trade relations to support trans-boundary cooperation, high levels of governance quality in riparian states supports treaty cooperation, while uneven economic power between riparian states inhibits cooperation.  The research drew in part on a systematic comparison of existing water allocation mechanisms with currently available river flow modeling techniques, both based on traditional hydrological data and remote sensed data as well as a unique data set on runoffs.  This methodology holds great promise for further work in this area.

Two significant bodies of adaptation research funded by other donors than KCP have addressed coastal vulnerabilities to climate change, and impacts on agriculture.  The work on coastal areas has examined future threats of both sea level rise, and increased risk of cyclones and other extreme weather events.  The latter work has focused in particular on threats in Bangladesh, including risks to life, property damage, and contamination of soils and water supplies.   The research has examined the cost and potential effectiveness of changes in preparedness and design of storm shelters, as well as traditional large-scale public works for flood protection.  The former often can provide high levels of protection in a very cost-effective way.  Research on the impacts of climate change on agriculture explored the potential opportunities for longer-term adaptation by individual farmers and herders through changes in crops and the mix between crop cultivation and animal husbandry.  This work focused especially on sub-Saharan Africa.  Using detailed information on current agricultural productivity, temperatures, and precipitation by agro-ecological zones, and potential changes in temperature and rainfall under climate change, the research highlighted areas of greater and lesser vulnerability, as well as the potential contribution of different types of adaptation to reducing adverse effects.  A key finding was that while significant climate change will have significant adverse impacts in Africa, those effects can be dampened significantly by farm-level adaptation.  This points to the necessity of strengthening national adaptation strategies by incorporating efforts to lower barriers to individual adaptation.

Other research tied to the Bank’s work on disaster risk reduction has addressed how countries might collectively prepare to confront the threat of future global catastrophes from climate change – impacts with very low probability but extremely large damages.  The study examined the potential effectiveness, cost, flexibility, and robustness of drastic global GHG reductions. Very aggressive global measures to reduce future threats to people and ecosystem, and “geo-engineering” approaches that seek to lower the effects of GHG accumulation in the atmosphere.  Of these, the first is likely to have very high near-to-medium costs if reductions are to be effective, though it provides benefits by mitigating climate change even if catastrophe risks turn out not to be that large.  The second also would be costly if carried out aggressively enough to be effective, and could engender considerable ex post regret if catastrophe risks are less than anticipated.  The third probably would have relatively affordable direct costs of implementation, but its effectiveness is very uncertain, side effects could be severe, and it would be extremely inflexible once implemented.          

Other Ongoing Research

Water management. A KCP-supported project is examining the history of integrated river basin management along a number of rivers in Africa, seeking to identify why some of these efforts have been so much more effective than others and how the general effectiveness of this approach can be increased.  Work also continues on “macro-micro” research on water management, which can bring in economy-wide considerations that lie outside the scope of more micro-scale analyses of water resource allocation. Based on work already done for Morocco, South Africa, and Turkey, a more policy-oriented synthesis is under preparation to identify how macro-level and sector-level policy changes can be complementary. 

Another ongoing KCP-supported project is examining the potential challenges in coordinating policies to liberalize and improve the economic efficiency of electricity markets, and policies to reduce GHG emissions in that sector.  Two other projects examine the opportunities for moving toward economy-wide lower-carbon “green growth.”  One line of that work is examining what combinations of technical advance and cost reduction in energy efficiency and renewable energy are compatible with different economy-wide growth targets, and then examining the prospects for different rates of lower-carbon technical advance (notably an increased uptake of energy efficiency measures).  Another research direction looks at how green growth may (or may not) be effectively realized in practice, including opportunities derived from industrial modernization and strategic policies for innovation.

A great number of other topics related to climate change also are being investigated.  These include the implications for developing countries’ international trade competitiveness if they receive large international transfers for GHG mitigation; additional work on international carbon markets; the political economy of energy subsidy reform; the impacts of uncertainty on investment in lower-carbon technology; development of insurance and other financial mechanisms to mitigate climate-related risks; the macro-economic impacts of natural disasters; energy access for the rural poor; options for international management of payments for curbing deforestation (“REDD”); accounting for the effects of potential damages from climate change in national income accounts; and issues of equity in the context of international negotiations for GHG mitigation.

Resources permitting, the Bank could expand its research on development and climate change mitigation, adaptation, and sequestration, to gain a better understanding of the synergies and trade-offs between these policies for developing countries. New research could be initiated on, inter alia, the impact of mitigation on energy and other international markets, new instruments to transfer resources from North to South to support sectorwide mitigation and adaptation activities, or methodologies for assessing the national and global spillovers from local impacts of climate change. 

Future Directions

Resources permitting, the Bank has opportunities to broaden and deepen its research on development and climate change.  The latter includes considerably more work on the economics of renewable energy, energy efficiency, and other options for lower-carbon growth, along with extension of recently initiated research on green growth, and more research on infrastructure investment and international carbon markets under uncertainty.  Opportunities for broadening include a significantly wider range of work on adaptation, and more extensive connections of climate change research to other topics in development including poverty reduction policies, the financial sector, health, and human migration.



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