Implications of
climate change for Africa
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Climate change is a potentially catastrophic global externality and
one of the world’s greatest collective action problems. Causes and
effects of climate change are distributed highly unevenly across
countries, with advanced countries accounting for most of the
current stock of greenhouse gas emissions resulting from the burning
of fossil fuels, and emerging and developing countries driving
growth of emissions and expected to be hit earlier and harder by
climate change. Estimates of future damages that may result from
climate change are highly uncertain, but may be catastrophic if
global warming is unchecked. The costs of abating climate change are
also uncertain. They are contingent on a gamut of factors, including
the rate at which individual countries and the global economy as a
whole grow over the long term and the pace at which clean
technologies emerge and diffuse across the world.
Climate change poses particularly serious macroeconomic, fiscal, and
financial challenges for low-income countries. These countries are
more vulnerable to climate change because most of them are located
in already hot tropical regions and are more heavily reliant on
climate-sensitive sectors, such as agriculture, forestry, and
tourism. They also have a more limited capacity to adapt to climate
change, given their lower income levels and weaker institutional
frameworks. Africa is the continent that is most vulnerable to
climate change. In the coming years, many African countries are
likely to experience more severe droughts and declines in water
supply, which would further aggravate food shortages on the
continent, where 95 percent of population depend on agriculture for
their livelihood. Health and water systems of African countries may
also come under increased stress in the coming decades from more
intense and possibly more frequent natural disasters. Coasts may be
flooded, and populations may seek to migrate, raising the risk of
social conflicts. According to some estimates, almost one billion
people in Africa and Asia could experience shortages of water by
2080, more than nine million could fall victim to coastal floods,
and many could face increased hunger.
Among the potential problems with global warming, the risks to world
agriculture and therefore food supply stand out as one of the most
important. Above a certain range of temperatures, warming tends to
reduce yields. Recent estimates suggest the effects will be greater
in countries located closer to the equator, with potentially large
losses in Africa. In some of the poorest countries, the damage—when
measured as a reduction in agricultural productivity—could reach
devastating levels of greater than 50 percent.
Countries’ efforts to adapt to climate change must fit in with their
broad development agendas. Economic and social development is one of
the most powerful ways to increase the capacity to adapt to climate
change. Rising income levels can create the fiscal space needed to
meet additional demands on public spending, both on climate-related
public goods (such as weather forecasting and sea defenses) and to
protect programs affected by climate change (including such major
areas of public spending as transport, water and health systems).
There may be opportunities for spending that is “pro-development”
and that helps adapt to climate change at the same time—for example,
on improved malaria control and prevention. Nonetheless, it is
important to guard against the possibility that efforts to adapt to
climate change would detract from wider developmental objectives.
These issues have been discussed in a recent IMF research paper on
the fiscal implications of climate change.
To enhance economic growth and improve capacity to deal with climate
change, developing countries must remove impediments to domestic
agricultural production. This is also important in light of the
current food crisis. This means improving infrastructure and
distribution and storage systems, increasing competition, expanding
irrigation systems, and removing barriers to trade. At the same
time, countries should avoid direct price and export controls, not
least because they will likely discourage food production, running
counter to the long-term goals countries should be pursuing.
Increased financial and capacity-building assistance is needed to
support adaptation to climate change, particularly in the least
developed and most climate-exposed countries. Funds have been
created to this end, but remain modest. Progress on scaling up
flows, for example, under the UN adaptation fund as part of the Bali
Action Plan% is therefore welcome. One of the challenges in this
area is the considerable uncertainty surrounding estimates of
adaptation costs for developing countries. While cost estimates are
rudimentary and subject to uncertainty in the cases of individual
countries, current collective estimates stand at several tens of
billions of dollars per year. One World Bank study puts the costs of
protecting existing investments from climate changes in developing
countries at $10-40 billion per year, with perhaps a third of these
costs expected to fall broadly on the public accounts.
On the mitigation of climate change, serious global efforts to
reduce emissions of greenhouse gases that drive climate change could
also have wide-ranging macroeconomic consequences. Reducing
emissions of greenhouse gases requires putting a price on these
emissions that reflects the global damage they cause. This would
raise the costs of producing and consuming emission-intensive
products. The IMF’s April 2008 World Economic Outlook examines the
macroeconomic effects of mitigation policies, including on
productivity, saving and investment, capital flows, and exchange
rates, illustrating some lessons for minimizing their costs. It
finds that policies should be credible and result in appropriate
pricing of emissions (whether through emissions taxes or
cap-and-trade of emissions permits). Emissions taxes could provide
an additional source of budget revenues, helping offset rising
spending pressures on adaptation. The policies should also avoid
excessive volatility in those prices, and provide incentives for
broad participation, without putting undue burden on countries least
able to bear it. Africa is not among the world’s major emitters, of
course, so that the main burden of emissions reduction must come
from others. Nevertheless, the collective mitigation effort
highlights again the need in many African countries to eliminate
remaining fuel subsidies, something that is in any event desirable
on both fiscal and distributional grounds.
Low-income countries, including in Africa, should be ready to engage
in global efforts to mitigate climate change, which would provide
new opportunities for them to put development on a more sustainable
basis. The scope for mitigation in Africa itself is small relative
to global emissions, but any post-Kyoto framework for mitigating
climate change that may emerge in the course of international
negotiations is likely to include mechanisms, similar to the current
Clean Development Mechanism, which would allow advanced countries to
gain credits for investment in low-carbon technologies and other
forms of emission reductions in developing countries. Such
mechanisms could help promote development by adding to the capital
stock in these countries, while reducing local pollution. Taking
full advantage of these opportunities would require renewed steps to
strengthen business environments, including regulatory and
institutional frameworks. If managed effectively, the engagement of
low-income countries in global mitigation efforts could result in
sizable financial transfers toward these countries in compensation
for their undertaking emission reductions. Although there is
considerable uncertainty about the magnitude of potential transfers,
IMF staff analysis suggest that, under some scenarios, transfers
could reach around 10 percent of GDP for African countries. If
foreign exchange inflows prove to be large, recipient countries
would need to consider how best to accommodate them in their
macroeconomic frameworks, with a view to avoiding the potential
pitfall of losing competitiveness through Dutch disease.
The Fund is committed to continue to contribute to understanding and
dealing with the macroeconomic, fiscal and financial challenges from
climate change, including in Africa. Drawing on the environmental
and sectoral expertise of the World Bank and others, the Fund
advises members on macroeconomically relevant aspects of climate
change, where these are significant, through its bilateral
surveillance and technical assistance work, including through
regional TA centers. We have three of these centers in Africa (AFRITACs),
and we are working to establish two additional centers. The Fund
aims also to increase understanding of the difficult issues of
fiscal policy cooperation and design, which are likely to arise in
negotiating a successor agreement to the Kyoto Protocol. Such
activities are likely to be mainly demand-driven, focused on
countries where the impact of climate change on their domestic and
external stability is significant, and facilitate the exchange of
country experiences.
The IMF stands ready to provide financial assistance to member
countries in response to a range of macroeconomic disturbances,
including natural disasters, for example, through the exogenous
shock facility (ESF) that provides policy support and financial
assistance to low-income countries. The Fund staff are currently
reviewing the ESF facility to be able to respond more flexibly to
the needs of our members, including in response to the recent rapid
increases in energy and food prices. We recognize that climate
change is a long-term process, and while the incidence and severity
of weather-related macroeconomic shocks is likely to increase as a
result of climate change, much uncertainty remains. As events unfold
in the years ahead, the Fund itself will have to adapt how it helps
member countries respond to challenges such as global warming.
In sum, the IMF is committed to playing its part to help deepen our
understanding and deal with the complex challenges posed by climate
change, in close cooperation with its members and other
international organizations.
Kato, is the Deputy Managing Director of the International Monetary
Fund. It is a speech delivered at the Fourth Tokyo International
Conference on African Development (TICAD IV) Yokohama, Japan, May
29, 2008.
Source: IMF. |
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