The Economics of Climate Change in Southeast Asia: A Regional Review

  • Southeast Asia is highly vulnerable to climate change.
    Climate change is happening now in Southeast Asia, and the worst is yet to come. If not addressed
    adequately, it could seriously hinder the region’s sustainable development and poverty eradication
    efforts—there is no time for delay.
    The review identifies a number of factors that explain why the region is particularly vulnerable.
    Southeast Asia’s 563 million people are concentrated along coastlines measuring 173,251 kilometers
    long, leaving them exposed to rising sea levels.
    At the same time, the region’s heavy reliance on agriculture for livelihoods—the sector
    accounted for 43% of total employment in 2004 and contributed about 11% of gross domestic product
    (GDP) in 2006—make it vulnerable to droughts, floods, and tropical cyclones associated with warming. Its
    high economic dependence on natural resources and forestry—as one of the world’s biggest providers of
    forest products—also puts it at risk. And increase in extreme weather events and forest fires arising from
    climate change jeopardizes vital export industries.
    Rapid economic growth and structural transformation in Southeast Asia helped lift millions out of
    extreme poverty in recent decades. But poverty incidence remains high—as of 2005, about 93 million
    (18.8%) Southeast Asians still lived below the $1.25-a-day poverty line—and the poor are the most
    vulnerable to climate change.
    The review has also assessed a wide range of evidence of climate change and its impact in Southeast
    Asia to date. It tells a clear story—mean temperature increased at 0.1–0.3°C per decade between 1951
    and 2000; rainfall trended downward during 1960–2000; and sea levels have risen 1–3 millimeters
    per year.
    Heat waves, droughts, floods, and tropical cyclones have become more intense and frequent,
    causing extensive damage to property, assets, and human life. The number of recorded floods/storms
    has risen dramatically, particularly in the Philippines where the number rose from just under 20 during
    1960–1969 to nearly 120 by 2000–2008.
    This report has also reviewed the existing studies that attempt to predict climate change impact in the
    region, all suggesting that it will intensify, with dire consequences. Modeling work undertaken under this
    review covering Indonesia, Philippines, Thailand, and Viet Nam confirms many of these findings. Indeed, it
    suggests that on average the region is likely to suffer more from climate change than the rest of the world,
    if no action is taken.
    Annual mean temperature is projected to rise 4.8°C on average by 2100 from the 1990 level. Mean
    sea level is projected to rise by 70 cm during the same period, following the global trend. Indonesia,
    Thailand, and Viet Nam are expected to experience increasingly drier weather conditions in the next 2–3
    decades, although this trend is likely to reverse by the middle of this century.
    Global warming is likely to cause rice yield potential to decline by up to 50% on average by 2100
    compared to 1990 in the four countries; and a large part of the dominant forest/woodland could be
    replaced by tropical savanna and shrub with low or no carbon sequestration potential.
    For the four countries covered in the modeling work, the potential economic cost of inaction is huge—if
    the world continues the “business-as-usual” emission trends—considering market and non-market impacts
    and catastrophic risks of rising temperatures—the cost to these countries each year could be equivalent to
    a loss of 6.7% of their combined GDP by 2100, more than twice the world average.
    Southeast Asia is among the regions with the greatest need for adaptation, which is critical to reducing
    the impact of changes already locked into the climate system.
    The review demonstrates that a wide range of adaptation measures are already being applied. But much
    more needs to be done. Adaptation requires building adaptive capacity and taking technical and nontechnical
    measures in climate-sensitive sectors.
    Further strengthening adaptive capacity in Southeast Asia requires mainstreaming climate change
    adaptation in development planning, that is, making it an integral part of sustainable development, poverty
    reduction and disaster risk management strategies. Some of the immediate priorities are:
    Stepping up efforts to raise public awareness of climate change and its impact;
    Undertaking more research to better understand climate change, its impact, and solutions,
    especially at local levels;
    Enhancing policy and planning coordination across ministries and different levels of government
    for climate change adaptation;
    Adopting a more holistic approach to building the adaptive capacity of vulnerable groups and
    localities and their resilience to shocks; and
    Developing and adopting more proactive, systematic, and integrated approaches to adaptation in
    key sectors that are cost-effective and that offer durable and long-term solutions.
    The review notes that many sectors have adaptation needs, but water, agriculture, forestry, coastal
    and marine resources, and health require particular attention. While many countries have made significant
    efforts, the review identifies the following priorities for further action:
    Water resources. Scale up water conservation and management, and widen the use of integrated
    water management, including flood control and prevention schemes, flood early warning system,
    irrigation improvement, and demand-side management.
    Agriculture. Strengthen local adaptive capacity through better climate information, research
    and development on heat-resistant crop varieties, early warning systems, and efficient irrigation
    systems; and explore innovative risk-sharing instruments such as index-based insurance
    Forestry. Enhance early warning systems and awareness-raising programs to prepare for more
    frequent forest fires; and implement aggressive public-private partnerships for reforestation and
    Coastal and marine resources. Implement integrated coastal zone management plans, including
    mangrove conservation and planting.
    Health. Expand or establish early warning systems for disease outbreaks, health surveillance,
    awareness-raising campaigns, and infectious disease control programs.
    Infrastructure. Introduce “climate proofing” in transport-related investments and infrastructure,
    starting with public buildings.
    Southeast Asia also has great mitigation potential.
    In 2000, the region contributed 12% of the world’s GHG emissions, amounting to 5,187 MtCO2-eq, up
    27% from 1990. The land use change and forestry sector was the biggest source, contributing 75% of
    the region’s total, the energy sector 15%, and the agriculture sector 8%. There is considerable scope for
    mitigation measures that can contribute to a global solution to climate change and bring significant cobenefits
    to Southeast Asia.
    As the largest contributor to the region’s emissions, the forestry sector is the most critical. Major
    mitigation measures include reducing emissions from deforestation and degradation (REDD), afforestation
    and reforestation, and improving forest management.
    The region’s energy sector—as the fastest growing contributor to emissions—also holds vast,
    untapped potential for mitigation. Although Southeast Asian countries together contributed about 3.0% of
    global energy-related CO2 emissions in 2000, this share is expected to rise significantly in the future given
    relatively higher economic and population growth compared to the rest of the world, if no action is taken.
    Win-win options that would allow GHG emission reductions at a relatively low or even negative net cost
    could include, on the supply side, efficiency improvements in power generation, fuel switching from coal to
    natural gas, and use of renewable energy (including biomass, solar, wind, hydro and geothermal resources);
    and on the demand side, energy efficiency improvements and conservation in buildings (efficient lighting
    and electrical appliances, energy conservation, better insulation), industry sector (efficient equipment,
    heat/power recovery, recycling), and the transport sector (cleaner fuels, energy-efficient vehicles, hybrid/
    electric transport, rail/public transport).
    In the case of the four countries covered in the modeling work, such win-win options could mitigate up
    to 40% of their combined energy-related CO2 emissions per year by 2020. Another 40% could potentially
    be mitigated by using positive-cost options such as fuel switching from coal to gas and renewable energy
    in power generation, at a total cost below 1% of GDP.
    In the agriculture sector, the region is estimated to have the highest technical potential to sequester
    carbon. Major mitigation options in agriculture include better land and farm management. These will help
    reduce non-CO2 emissions, reverse emissions from land use change, and increase sequestration of carbon
    in the agro-ecosystem.
    Climate change mitigation is a global public good, and requires a global solution built on common but
    differentiated responsibility.
    Addressing climate change requires all nations, developed and developing, to work together toward a
    global solution.
    However, there is significant variation among countries in capacity and affordability when undertaking
    adaptation and mitigation, and climate change and its impact to date are largely the result of past emissions
    from developed countries. These raise the important issue of equitable division of responsibilities.
    An essential component of an effective global solution would, therefore, involve adequate transfers
    of financial resources and technological know-how from developed to developing countries. Yet, emerging
    estimates of the additional investment needed for mitigation and adaptation in developing countries
    suggest that hundreds of billions of dollars per year are needed for several decades to come, far greater
    than the resources currently committed globally. This is a cause for serious concern.
    Global climate change cannot be tackled without the participation of developing countries. In the
    coming decades, their GHG emissions will grow faster than those of the developed countries, and the
    developing countries hold significant potential for cost-effective emissions reductions.
    As a highly vulnerable region with considerable need for adaptation and great potential for mitigation,
    Southeast Asia should play an important part in a global solution.
    The region has in recent years taken encouraging actions to adapt to climate change impact and to
    mitigate GHG emissions. Each country in Southeast Asia has developed its own national plan or strategy,
    established a ministry or agency as the focal point, and implemented many programs supporting adaptation
    and mitigation. Going forward, the review identifies a number of policy priorities.
    Adaptation. The priority is to enhance climate change resilience by building adaptive capacity
    and taking technical and non-technical adaptation measures in climate-sensitive sectors. While at a
    fundamental level, a country’s adaptive capacity depends on its level of development, more effort in
    raising public awareness, more research to fill knowledge gaps, better coordination across sectors and
    levels of government, and more financial resources will go a long way toward enhanced adaptive capacity.
    In the key climate-sensitive sectors, including water resources, agriculture, coastal and marine resources,
    and forestry, the priority is to scale up action by adopting a more proactive approach and integrating
    adaptation in development planning.
    Mitigation. While adaptation is hugely important, the region should also make greater mitigation
    efforts. Low-carbon growth brings significant co-benefits, and the costs of inaction far outweigh the costs
    of action. Implementation of mitigation measures requires the development of comprehensive policy
    frameworks, development and availability of low-carbon technology, incentives for private sector action,
    elimination of market distortions, and significant flows of finance, among other things. Some specific
    policy recommendations are:
    Forestry sector. There is a need for strengthening the region’s technical and institutional capacities
    to undertake forest carbon inventories and implement appropriate policies and measures to
    benefit from future global funding mechanisms for reducing emissions from deforestation and
    degradation. Countries should also step up efforts to avoid deforestation, to encourage reforestation
    and afforestation, and to enhance national and local governance systems for sustainable forest
    management, including monitoring and controlling illegal logging. Since forests are also home to
    many indigenous communities, policies must be designed to fully recognize and respect their rights
    and priorities, and ensure their participation in the design and implementation of the REDD policies.
    Energy sector. To promote the adoption of win-win mitigation options in Southeast Asia, the priority
    is to identify and relax the binding constraints to the adoption of these options. These could include
    information, knowledge, and technology gaps; market and price distortions; policy, regulatory, and
    behavioral barriers; lack of necessary finance for upfront investment; and other hidden transaction
    costs. A prominent market distortion in the energy sector in many Southeast Asian countries involves
    general subsidies for the use of fossil fuels. Governments should work to gradually eliminate such
    subsidies and provide targeted transfers only for the poor and vulnerable.
    Agriculture sector. The priority is to reduce emissions through better land and farm management,
    supported by a combination of market-based programs (taxes on the use of nitrogen fertilizers,
    and reform of agricultural support policies), regulatory measures (such as guidelines on the use
    of nitrogen fertilizers and cross-compliance of agricultural support to environmental objectives),
    voluntary agreements (such as better farm management practices and labeling of green products),
    and international programs that support technology transfer in agriculture.
    Funding and technology transfer. International funding and technology transfers are essential for the
    success of adaptation and mitigation efforts in Southeast Asia. The region should enhance institutional
    capacity to make better use of existing and potential international funding resources. Existing funding
    sources, albeit inadequate in view of the vast task at hand, provide initial support and can be used as a
    catalyst for raising cofinancing. Southeast Asia has not yet made full use of these funding sources, and
    its representation in the global carbon market is still limited. Governments need to facilitate access to
    these current and potentially available sources through better information dissemination and technical
    assistance. There is a need to increase the region’s presence in making use of clean development
    mechanisms (CDM), REDD-related, and other financing mechanisms.
    Regional cooperation. Because most countries in the region experience similar climate hazards,
    regional strategies are likely to be more cost-effective than national and subnational actions in dealing
    with many transboundary issues. These include integrated river basin and water resources management,
    forest fires, extreme weather events, threatened and shared coastal and marine ecosystems, climate
    change-induced migration and refugees, as well as regional outbreaks of vector-borne diseases, such as
    dengue and malaria. Regional cooperation is also effective in pursuing some mitigation measures, for
    example—promoting power trade; using different peak times among neighboring countries to minimize
    the need for building new generation capacity in each country; developing renewable energy sources;
    promoting clean energy and technology transfer; and regional benchmarking of clean energy practices and
    performance. In the longer term, a regional voluntary emissions trading system could also be considered.
    Policy coordination. Given that climate change is an issue that cuts across all parts of government,
    there is a need for involving not only environment ministries and related offices, but also respective
    economic and finance ministries, and for strong inter-governmental agency policy coordination. There
    is also a need for putting in place or enhancing central government–local authority coordination
    mechanisms (such for planning and funding) to encourage local and autonomous adaptation actions,
    and to strengthen local capacity in planning and implementing initiatives addressing climate change. For
    effective coordination, there is a strong case for the government agency responsible for formulating and
    implementing the development plan and strategy to take the lead. Addressing climate change requires
    leadership at the highest level of government.
    Research. More research is required to better understand climate change challenges and costeffective
    solutions at the local level and to fill knowledge gaps. Despite the emergence of more and more
    regional and country-specific studies on climate change in Southeast Asia in recent years, knowledge gaps
    remain huge.
    The current economic crisis provides an opportunity.
    The world is experiencing its worst economic turbulence since the Great Depression of the 1930s, a fact
    which could make the task of combating climate change more difficult. This is not necessarily the case.
    Leaders of the G20 at the 2009 London Summit agreed to make the best possible use of
    investment funded by fiscal stimulus programs toward the goal of building a resilient, sustainable, and
    green recovery, and to make the transition toward clean, innovative, resource-efficient, low-carbon
    technologies and infrastructure.
    In Southeast Asia, too, the present crisis offers an opportunity to start the transition toward
    a climate-resilient and low-carbon economy. Indonesia, Philippines, Singapore, and Thailand are using
    fiscal stimulus to support domestic demand through tax cuts, investment in infrastructure, and to
    increase spending on social programs. There may also be scope for building “green investment” programs
    into such stimulus packages that combine adaptation and mitigation measures with efforts to shore up
    the economy, create jobs, and reduce poverty.

  • Asian Development Bank

  • Book

  • 2009-04-00

  • 978-971-561-787-1