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ECONOMIC ANALYSIS OF ADAPTATION STRATEGIES TO CLIMATE CHANGE: A COST BENEFIT ANALYSISBy

Relebohile Letele

Outline

� Introduction

� Methodology

� Analysis and results

� Conclusion

Climate change: Agriculture as a victim…

� Food production is very sensitive to weather and climate change.

� Raise in temperature affects production.

� Changes in rainfall

� Extreme events

� Increased soil erosion

Climate change adaptation

� Negative implication for GDP

� Weak government

� Weak markets

Economic analysis of adaptation

� Adaptation: adjustment of a common practice to moderate the impacts of climate change.

� Efficient adaptations

� Getting local conditions and timing is crucial

� Uncertainties of climate change: influence adaptation costs and benefits

� Economic valuation of alternative adaptation measures entails a CBA

Statement of the problem cont’

� Consensus on central estimate of adaptation costs has not yet emerged

� Global level: World Bank (2009), de Bruin et.al (2009), Hope (2009), Carraro et.al (2009) and UNEP (2007)

� National Level: ADB (2009), Sei (2009) and Galido (2009)

� Studies only provide speculative numbers.

� Few studies of CBA of adaptation measures at local level

� Many knowledge gaps in assessment of cost of adaptation to Cc in the agricultural sector

Objectives

� Quantify the costs and benefits of implementing adaptation strategies

� To compare the costs and benefits for different adaptation options in crop production

Justification

� Lesotho does not have influence on mitigation policies

� Only pursue adaptation policies

� Select worthwhile policies

� This entails a thorough CBA

� Inform policy on optimal adaptation options

Methodology-Area

� Area: Maphutseng in Mohales’ Hoek district

� Located in summer rainfall (average rainfall-714mm), max temp(22.7), min (8.4).

� Composed of smallholder farmers

Data I

� UCT: Climate data and crop simulation data

� Growing Nations- Conservation Agriculture

� Food and Agriculture organisation (FAO): Cost of farmers supported

� Sample of 350 farmers

Crop yield simulation

� Modelling of various scenarios using DSSAT crop model driven by projections of climate, downscaled from 9 GCM models

� DSSAT has a flexible management interface which allows for the assessment of various management strategies

� Adaptation strategies: fertilizer use and change in planting date

� Management strategies were simulated in combinations as EP with RF; EP with CF; LP with RF; LP with CF

Main methods of economic analysis

� NPV: Discounted net benefit

� If NPV is greater than zero, benefits exceeds the costs

� The higher the NPV, the greater the financial argument for initiating the adaptation strategy

Main methods of economic analysis cont’

� BCR: Ratio of discounted benefits relative to its costs expressed in monetary terms

� Summarize the overall value for money

� The higher the BCR, the higher the investment

Main methods of economic analysis cont’

� IRR: Interest rate at which NPV of costs of an investment equals the net benefits of an investment

� The higher the IRR, the more desirable it is to undertake the project or invest in the adaptation strategy.

Analysis and Results

� The impact of climate change on maize was assessed through simulation of changes in maize yield production between a baseline period (1961-2000) and a future period (2046-2065)

Baseline mean yield (kg/ha)

EP with RF LP with RF EP with CF LP with CF

Mean 1094.5 1592 1199 1232

Climate scenarios between baseline and future scenarios

� Different GCM were used to assess mean maize yield between baseline and future scenarios

� CSIRO- Pessimistic climate change scenario

� GISS- Optimistic climate change scenario

Mean maize yield between baseline and future scenarios

EP with RF LP with RF EP with CF LP with CF

Average 1114 2082 1428 1788

The impact of climate change on the adaptation strategies

EP with RF LP with RF EP with CF LP with CF

15093 16307 2862 3226

NPV, BCR and IRR for farmers who are adapting

EP with RF LP with RF

NPV 8929.57 11913.91

BCR 5.26 6

IRR 9000 12000

NPV, BCR and IRR for farmers who are not adapting

EP with CF LP with CF

NPV 0 0

BCR 1 1

IRR 2862 3226

Conclusions and Recommendations

� LP with RF should be adapted

� Encourage Conservation agriculture

� Combination is better than isolation

� Adaptation is, therefore, more effective when it is composed by a portfolio of actions rather than one single action

� Extension services are, again, very important in determining the implementation of adaptation strategies

Conclusions and Recommendations

� Provide education on choosing the best combination

of strategies that can deliver the highest revenues.

� THANK YOU