Economics of Climate Change Adaptation in India

Given the possibility of moderate or catastrophic climate change in developing countries and the failure of the climate summit in Copenhagen in December 2009 to achieve any consensus on greenhouse gas mitigation plans, adaptation as a policy option requires careful attention. This is a report on a recent workshop that examined India’s need to adapt to climate change.

The inputs provided by Indira Devi and Chandra Sekhar Bahinipati in the preparation of this note are gratefully acknowledged. A version of this report also appears at: http://blogs.dfid.gov.uk/wp-content/ uploads/2010/03/adaptation-workshopMSE-policy-note-March2010.pdf

K S Kavi Kumar (kavi@mse.ac.in) is at the Madras School of Economics, Chennai. Priya Shyamsundar is at the South Asian Network for Development and Environmental Economics, Kathmandu. A Arivudai Nambi is at the M S Swaminathan Research Foundation, Chennai.

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Climate change impact assessment and adaptation studies require predictions from climate models. To plan for adaptation, some important changes are r equired in the inputs provided by current climate models. Ɣ First, climate predictions are needed at finer spatial resolutions than are currently available from the global climate models. This is beginning to happen. For example, the Indian Institute of Tropical Meteo rology has developed high resolution (50 square kilometres) regional climate change scenarios for India using the Hadley Centre regional climate model PREdicting Climate for Impact Studies (PRE-CIS). Similar exercises are underway to develop a suite of high resolution future climate scenarios for India by running a range of regional climate models, and using lateral boundary conditions from a variety of Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5) coupled models (Krishna Kumar 2010). Ɣ Second, future scenarios of climate need to go beyond predictions on temperature and precipitation. Along with these primary variables, impact and a daptation experts would benefit from

As locally downscaled climate information becomes available, advances in policy responses and examination of climate implications will become more feasible.

Adaptation as a Development ‘Continuum’

Any discussion on climate change adaptation must recognise two sometimes contrasting perspectives on the nature of adaptation: (1) climate change imposes a distinct and additional burden on society;

(2) climate adaptation is one response among many to a host of socio-economic and environmental pressures, and cannot necessarily be isolated from regular development activities.

Under some circumstances, the additional vulnerability of economic agents to climate change and specific measures to reduce this vulnerability can be clearly identified. For example, if climate change is expected to increase precipitation and flooding in certain areas, the additional economic damages from these floods and “adaptive” investments required to reduce these damages can be established. Thus, in these circumstances, it may be possible to identify clearly the additional burden of climate change and adaptation.

However, climate adaptation may be rendered ineffective if policies are not designed in the context of other development concerns. For instance, a comprehensive strategy that seeks to improve food security in the context of climate change may include a set of coordinated measures related to agricultural extension, crop diversification, integrated w ater and pest management, and agricultural information services. Some of these measures may have to do with climatic changes and others with economic development. Thus, in the broader development context, building adaptive capacity is much more than developing c limate-related adaptation strategies. It is thus useful to examine climate adaptation, whether it is spontaneous or

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p olicy driven, in tandem with other economic development options.

Costs of Adaptation

The origins of research on adaptation costs can be traced to climate change impact studies, where the objective was not to assess adaptation costs per se, but to refine impact estimates with proper accounting of adaptation to climate change. In this strand of literature, adaptation costs are defined as the expected value of avoided climate damages in the future, conditional upon some future state of socio-economic vulnerability. In a recent survey of such studies, Agrawala and Fankhauser (2008) argue that with the exception of coastal protection, knowledge on adaptation costs and benefits is fairly limited. Other studies e xamine “welfare” in future scenarios with and without climate change, estimate the costs of adapting to climate change and examine the “benefits” in terms of reduced vulnerability (improved welfare) to climate change ( Nelson et al 2009).

Even though consensus on a central estimate of adaptation cost has not emerged, a relatively narrow range of estimates has emerged from various studies following a variety of methodologies (see for example, United Nations Framework Convention on Climate Change 2007, Parry et al 2009, Economics of Adaptation to Climate Change Study 2009, N elson et al 2009). With a view to supplement existing know ledge on adaptation cost estimates, Basque Centre for Climate Change (BC3) and The Energy and Resources Institute (TERI) have attempted to estimate costs of adaptation for India. This collaborative effort identifies many methodological challenges and data needs (Mishra and Markandya 2010). In another ongoing effort, the World Bank, Japan International Cooperation Agency (JICA) and Asian Development Bank (ADB) are assessing damage costs from climate-induced flooding and required adaptation “investment costs” in four major cities of the developing world, including Kolkata in India. Future research in this context should focus more on finetuning methodologies and understanding a range of estimates and trade-offs, and less on arriving at specific cost estimates. Research should also focus on integrating climate change concerns with other existing and emerging concerns.

Climate Adaptation in Agriculture

It is well established that climate change will have significantly adverse impacts on agriculture, especially in developing countries like India. Given the large proportion of the population dependent on agriculture – directly and indirectly – adverse effects on agriculture could easily translate into an escalation of poverty.

Increase in carbon dioxide concentration to 550 parts per million (ppm) could increase yields of rice, wheat, legumes and oilseeds by 10-20%. However, a one degree increase in temperature may reduce yields of wheat, soyabean, mustard, groundnut, and potato by 3-7% (Aggarwal 2009). The yield losses are likely to be much higher at higher temperatures. Studies assessing the economic impacts of climate change on agriculture have focused mostly on impacts on cereal crops like rice and wheat. New research findings from crop models on non-cereal and commercial crops have not been integrated yet into economic models.

Kumar and Parikh (2001) and Sanghi and Mendelsohn (2008) have estimated that under moderate climate change scenarios, there could be about 9% decline in farm-level net revenues in India. More adverse impacts are predicted in highvalue agricultural regions such as Punjab, Haryana and Uttar Pradesh and dry regions such as Gujarat and Rajasthan. On the other hand, the eastern states of Bihar and West Bengal could benefit marginally.

Nelson et al (2009) have estimated that the daily per capita calorie availability in south Asia will decline by about 8 per centage points in 2050 due to climate change impacts on cereal crop yields compared to levels in 2000. In terms of the distributional effects of climate change impacts on agriculture, available preliminary evidence suggests that changes in poverty rates are not highly localised even though the adverse impacts are con centrated in the northern parts of the country – for example, Punjab is proportionately harder hit due to climate change but is a richer region to start with (Jacoby et al 2009).

Citing the presence of strong spatial autocorrelation in the agricultural output data in India, Kumar (2009) argues in favour of controlling for spatial effects in climate change impact estimation. Among other things, strong flow of information amongst farmers may contribute to farmers being better able to adapt to climate change. Research priorities in this context include exploring the factors that facilitate information diffusion in agriculture.

Based on field-level work carried out in Andhra Pradesh and Rajasthan, MSSRF (2008) suggests that there are effective ways to make farmers more adaptive to climate changes. They recommend specific changes in traditional water management practices such as harren in Rajasthan, estab lishing smart farmer networks that enable farmers to share knowledge on farm management practices, utilising weather data from simple agro-meteorological stations operated by the farmers and use of some new rice farming techniques such as systems of rice intensification. While many such options appear rational at a case study level, the next step is to demonstrate through rigorous research their effectiveness when appropriately scaled-up.

Water and Coastal Sectors

Water and coastal resources are two other important sectors that could face significant adverse impacts in India due to climate change. Like agriculture, these sectors also face considerable non-climatic pressures. Hence, the challenge is to integrate responses to non-climatic stresses with those that can minimise potential climate change impacts.

For India’s National Communications (NATCOM) to the United Nations Framework Convention on Climate Change (UNFCCC), river-basin specific impacts of various climate change scenarios and vulnerability to drought and floods has been estimated at the catchment, subcatchment and watershed levels, as well for administrative units such as districts.2 While such exercises are useful, given the multiple pressures that act on water resources, integrated watershed modelling might be more appropriate. Following such a strategy, Badiger (2010) has studied the Malaprabha catchment area of the Krishna basin in detail and argues that

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Jacoby, H, E Skoufias and M Rabassa (2009): “On the Distributional Implications of Climate Change: A Methodological Framework and Application to Rural India”, World Bank, Washington DC. Accessed on 14 March 2010: http://go.worldbank. org/XDJN920PA0

Janakarajan, S (2010): “Understanding the Impacts of Climate Change in the Context of Coastal Tamil Nadu”, presentation at the workshop on “Economics of Climate Change Adaptation”, MSE, Chennai, 12-13 February.

Krishna Kumar, K (2010): “Climate Models: What Is Known and What Is Needed for Adaptation Assessment?” presentation at the workshop “Economics of Climate Change Adaptation”, MSE, Chennai, 12-13 February.

Kumar, K S Kavi (2009): “Climate Sensitivity of Indian Agriculture: Do Spatial Effects Matter?”, SANDEE Working Paper 45-09, Kathmandu.

Kumar, K S Kavi and Jyoti Parikh (2001): “Indian Agriculture and Climate Sensitivity”, Global Environmental Change, 11(2): 147-54.

Mishra, A and A Markandya (2010): “Costing Adaptation: Preparing for Climate Change in India”, presentation at the workshop “Economics of Climate Change Adaptation”, MSE, Chennai, 12-13 February.

MSSRF (2008): A Road Map for Policy Development: Community Level Adaptation to Climate Change and Its Relevance to National Action Plan (Chennai: MSSRF).

Nelson, G C, M Rosegrant, J Koo, R Robertson, T Sulser, T Zhu, S Msangi, C Ringler, S Msangi, A Palazzo, M Batka, M Magalhaes, R Valmonte-Santos, M Ewing and D Lee (2009): “Climate Change: Impact on Agriculture and Costs of Adaptation”, International Food Policy Research Institute, Washington DC.

Parry, M, N Arnell, P Berry, D Dodman, S Fankhauser, C Hope, S Kovats, R Nicholls, D Satterthwaite, R Tiffin and T Wheeler (2009): Assessing the Costs of Adaptation to Climate Change – A Review of UNFCCC and Other Recent Studies (London: International Institute for E nvironment and Development and Grantham Institute for Climate Change, Imperial College London).

Patwardhan, A (2010): “Towards an Integrated Agenda for Adaptation Research”, presentation at the workshop “Economics of Climate Change Adaptation”, MSE, Chennai, 12-13 February.

Ramaswami, B (2010): “Insurance Mechanisms”, presentation at the workshop “Economics of Climate Change Adaptation”, MSE, Chennai, 12-13 February.

Sanghi, A and R Mendelsohn (2008): “The Impacts of Global Warming on Farmers in Brazil and I ndia”, Global Environmental Change, 18(4): 655-665.

SEI (2008): “Effective Use of Climate Science to Improve Adaptation in Africa”, Policy brief, SEI, Stockholm.

UNFCCC (2007): “Climate Change: Impacts, Vulnerability, Adaptation in Developing Countries”, UNFCCC, Bonn.

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