Transcript - adaptation

Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Cost Benefit Analysis
of an Agricultural Adaptation
Presentation
(Irrigation)
to ClimateTitle
Change
Agha Akram
Yale University
The views expressed are those of the presenter and should not be
attributed to either UNDP or USAID. Furthermore, it is strongly
recommended that both the PowerPoint slides and the videos of the
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order that statements appearing in the PowerPoint slides are not
interpreted out of context.
“The prices of staple foods are at near historic
lows, and stockpiles are adequate. This is a
situation that would be inconceivable without
the last half-century's investments in irrigation.”
“Irrigation is the largest recipient of public
agricultural investment in the developing world.”
(World Bank (1995)
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Irrigation as an Adaptation to Climate Change
Climate change affects temperature and
precipitation among other climate phenomena.
Changes in the hydrological cycle will be some of
the most obvious changes that will affect
agriculture.
Irrigation systems are a way to adapt to changes
in the hydrologic cycle (especially changes in the
quantity and timing of precipitation).
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Cost Benefit Analysis
Determine the cost of implementing a project and the benefits it
accrues.
Often, benefits (and sometimes costs) arrive over a period of
time (“stream of benefits”).
Difficult but useful to consider externalities – we must account
for the complete set of costs and benefits including costs not in
the budget and impacts not paid for in the market.
- this can be difficult; might require non-market valuation
techniques.
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Senegal Irrigation Project
Nianga Irrigation Pilot Project (NIPP).
Life-span of about 30 years.
One of the analyses of this project provided a very clear
schedule of costs and benefits.
Measured in thousands of 1975 CFA Francs (Senegalese
currency)
* Weiler, Edward M. and Wallace E. Tyner (1981). Social Cost-Benefit Analysis of the Nianga
Irrigation Pilot Project, Senegal. The Journal of Developing Areas , Vol. 15, No. 4 (Jul., 1981),
pp. 655-670.
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Cost and Benefit Stream of NIPP
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Should we go ahead with this project?
We need to determine if the total benefits exceed
the total costs.
If benefits > costs then the project is worth doing.
However, need to think through a small but
important issue: discounting.
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Discounting the Future
We need to convert future values into a present value.
To do this we discount the future back to the present.
Why? Because: money today is worth more than money
tomorrow.
The discount rate is a product of society’s time value of
money (composed of the pure rate of time preference and
the goods
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Present Value
Use this formula to convert all future values to
present values:
PV = FVt/(1 + r)t
Where PV is present value, FV is future value, r is
the discount rate and t is time.
Using this we see the following stream of benefits
and costs for NIPP…
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Result
Total
Agricultural
Year Period Benefits Total Cost
Benefits
without
Project
Net
Discount
Benefits
Rate
PV(TB) 5%
PV(TC) 5%
BC
Ratio
1973
0
0.0
31,320.7
7,248.0 -38,568.7
0.05
0.0
31320.7
.
1974
1
0.0 354,174.0
7,248.0 -361,422.0
0.05
0.0
337308.571
.
1975
2
PV of7,248.0
TB: 2,746,329.56
43,781.3 512,089.9
-475,556.6
0.05
39710.9
464480.635
.
1976
3
PV of7,248.0
TC: 2,490,685.93
157,552.7 124,573.8
25,730.9
0.05
136099.9
107611.532
.
1977
4
BC Ratio:
164,809.6 144,853.9
7,248.01.10
12,707.7
135589.3
119171.662
.
…
…
…
….
…
….
0.05
…
…
…
…
1998
25
215,364.2 113,642.0
7,248.0
94,474.2
0.05
63597.6
33558.7976
.
1999
26
215,364.2 113,642.0
7,248.0
94,474.2
0.05
60569.2
31960.7596
.
2000
27
215,364.2 113,642.0
7,248.0
94,474.2
0.05
57684.9
30438.8187
.
2001
28
215,364.2 113,642.0
7,248.0
94,474.2
0.05
54938.0
28989.3511
.
2002
29
215,364.2 113,642.0
7,248.0
94,474.2
0.05
52321.9
27608.9058
.
Sum: 2,746,329.56 2,490,685.93 1.10
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Graph over Time: No Discounting and Discounting
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Agricultural Productivity and Climate Change
Benefits in NIPP are those of agricultural output (rice and tomatoes)
What if future climate change reduces the possible output?
This will require careful study – farmers may adapt their crop and input choice to
a changed climate.
For the moment, let’s make some simple assumptions:
50% chance that climate change induces a 25% decline in agricultural revenues
per year.
50% chance that climate change induces a 25% increase in agricultural revenues
per year.
This change comes about in the 15th year of the project.
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Graph over Time: High, Low and Expected
Benefits with Climate Damages
Result: E(B)/C = 1.10264
But,
BH/C = 1.226883
BL/C = 0.978396
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Scenario: High Benefits with Climate
Damages
Result: BH/C = 1.35
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action