Operations for Climate Change Adaptation and Mitigation

Transcription

1 ASIAN DEVELOPMENT FUND (ADF) ADF XI REPLENISHMENT MEETING 89 September 2011 Manila, Philippines Operations for Climate Change Adaptation and Mitigation August 2011

2 ADB ADF CCF CIF CPS CTF DMC ESCAP GCF GEF GHG GMS Lao PDR MDG NCCAS OECD PRC PPCR REDD SCCF SLR SPCR TA UNDP UNEP UNFCCC ABBREVIATIONS Asian Development Bank Asian Development Fund Climate Change Fund Climate Investment Fund country partnership strategy Clean Technology Fund developing member country Economic and Social Commission for Asia and the Pacific Green Climate Fund Global Environment Facility greenhouse gas Greater Mekong Subregion Lao People s Democratic Republic Millennium Development Goal National Climate Change Adaptation Strategy Organisation for Economic Co-operation and Development People s Republic of China Pilot Program for Climate Resilience Reducing Emissions from Deforestation and Forest Degradation Special Climate Change Fund sea-level rise Strategic Program for Climate Resilience technical assistance United Nations Development Programme United Nations Environment Programme United Nations Framework Convention on Climate Change NOTE In this report, $ refers to US dollars. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 CONTENTS Page EXECUTIVE SUMMARY i I. INTRODUCTION 1 II. CLIMATE CHANGE IN ASIA AND THE PACIFIC: CHALLENGES FACING ASIAN DEVELOPMENT FUND COUNTRIES 1 III. ADB S STRATEGIC PRIORITIES ON CLIMATE CHANGE 2 IV. ASIAN DEVELOPMENT FUND PROGRESS ON CLIMATE CHANGE 3 V. LOOKING AHEAD 11 APPENDIXES 1. Examples of Integration of Climate Change in Asian Development Fund Countries 25 Country Partnership Strategies 2. Examples of ADB s Experience in Climate-Proofing Projects 27

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5 EXECUTIVE SUMMARY Asian Development Fund (ADF) countries are among the most vulnerable globally to the projected impacts of climate change, although they bear little responsibility for its causes. They face the additional challenge of establishing low carbon development trajectories that meet their development needs, without contributing further to the underlying causes of climate change. In Strategy 2020, the Asian Development Bank (ADB) identified climate change as a substantial risk to environmentally sustainable and inclusive development within the region. Correspondingly, ADB has identified five strategic priorities on climate change: scaling up clean energy; promoting sustainable transport and urban development; managing land use and forests for carbon sequestration; building the climate resilience of developing member countries and the region; and strengthening related policies, governance, and institutions. ADB has made significant progress in mainstreaming climate change adaptation and mitigation in its operations, with grants and loan financing to ADF countries for both mitigation and adaptation increasing markedly each exceeding $1 billion in New initiatives have been implemented in low carbon and renewable energy, sustainable transport and urban development, and forest and land use management. ADB has expanded activities to build resilience in ADF countries, including climate-proofing a wide range of projects. ADB has expanded its role in implementing multilateral climate funds, including the Global Environment Facility, the Adaptation Fund, and Climate Investment Funds; and is fully engaged in the design of the Green Climate Fund. Progress notwithstanding, critical deficits remain. Looking forward, ADB faces three critical challenges to deliver a climate-compatible ADF XI development agenda: (i) (ii) (iii) Ensuring the Asian Development Fund investment portfolio is not adversely affected by the impacts of climate change. This will involve embedding climate risk management within the investment project cycle and enhancing the capacity and experience of ADB staff and partners. Building resilience within Asian Development Fund countries. This will require investments in both physical and social infrastructure to ensure that ADF development objectives can be achieved over a wide range of potential climatic conditions, and adaptation activities are fully aligned with efforts to eliminate poverty in ADF countries. Ensuring Asian Development Fund countries pursue low carbon growth strategies. This is necessary to contribute to reduction in global emissions; to lock in a growth trajectory that is more sustainable, more competitive, less susceptible to external shocks (rising global energy prices in particular), and more conducive to equitable, inclusive growth. The provision of additional financing is central to addressing these challenges. Multilateral adaptation funds are designed to address the incremental costs associated with climate change, and are in principle not available to support interventions or investment to enhance the underlying resilience of communities to current climate variability and extreme weather events, as this is perceived as a development issue. Nevertheless, the capacities of vulnerable communities and economic sectors to cope with contemporary climate variability are prerequisites to establishing resilience to long-term and uncertain climate change. Additional resources are required to reduce or remove the adaptation deficit. Correspondingly, ADB s role in facilitating, monitoring, and targeting climate funds will become increasingly essential; and ADF resources will provide important complementary baseline financing, which can be blended with incremental dedicated climate-related financing.

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7 I. INTRODUCTION 1. The Asian Development Bank (ADB) and Asian Development Fund (ADF) donors have identified climate change as a priority topic for discussion toward the preparation for the ADF XI. This paper provides an overview of ADB climate change activities to date and outlines some directions for moving forward. II. CLIMATE CHANGE IN ASIA AND THE PACIFIC: CHALLENGES FACING ASIAN DEVELOPMENT FUND COUNTRIES 2. Climate change is a global phenomenon, although the geographic distribution of both greenhouse gas (GHG) emissions and the specific impacts of climate change are highly uneven. While the developed world is overwhelmingly responsible for accumulated emissions to date, 1 the developing nations of Asia and the Pacific are among the most vulnerable to potentially adverse impacts of climate change. In addition, while seeking to build resilience to climate change, ADF countries face the challenge of establishing a low carbon climate-compatible development trajectory that meets development objectives in a manner that does not contribute further to the underlying causes of climate change. 3. The Intergovernmental Panel on Climate Change defines vulnerability to climate change as a function of exposure to climate-related hazards, sensitivity to the resulting impacts, and adaptive capacity, which strongly reflects development status. The recently updated Climate Change Vulnerability Index ranks six ADF countries among the 16 globally at extreme risk, with Bangladesh assigned the highest risk. 2 The vulnerability of specific ADF countries to climate change on the basis of exposure, sensitivity, and adaptive capacity is emphasized in Table Exposure. ADF countries encompass many of the climate change hot spots, including low-lying coastal areas (e.g., Pacific Islands); mega-deltas (GangesBrahmaputra; Mekong); and areas likely to be severely affected by retreating Himalayan glaciers (e.g., Nepal, Tajikistan). Increases in the frequency and severity of climate-related disasters will be among the earliest and most likely impacts of a changing climate, and Asian countries are particularly exposed to the impacts of such disasters, and have long experienced a disproportionate share of global flood events, fatalities, and economic damage. In 2009, the United Nations International Strategy for Disaster Reduction placed ADF countries Afghanistan, Bangladesh, Cambodia, Pakistan, and Viet Nam among the 10 countries with the highest estimated mortality risk from flooding; and Bangladesh and Vanuatu among the 10 countries with highest mortality risk from tropical cyclones. 3 In Pakistan, the August 2010 floods caused about 1,700 deaths and $9.7 billion in damage to infrastructure, farms, and homes, as well as other direct and indirect losses Sensitivity. The high sensitivity of ADF countries to climate change impacts reflects, among other things, an extensive reliance on natural resources for livelihoods, including agriculture and fishing, and the resulting competition for water and land resources exposes 1 Many rapidly developing Asian nations, including the People s Republic of China and India, are now among the largest emitters of GHGs. 2 Maplecroft. News. 21 October ADF countries assessed as at extreme risk (ranking) include Bangladesh (1), Nepal (4), Afghanistan (8), Cambodia (12), Viet Nam (13) and Pakistan (16). 3 United Nations International Strategy for Disaster Reduction Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: United Nations. 4 ADB and the World Bank Pakistan Floods 2010: Preliminary Damage and Needs Assessment. Islamabad, Pakistan.

8 2 them to significant risks from increased climatic variability and change, in particular floods and droughts. Higher temperature will expose crops in the region to temperature stress, with each 1 o C increase in temperature likely to decrease wheat, rice, and corn yields by 10%. A recent ADB and International Food Policy Research Institute study examining the likely impacts of climate change on agriculture and food security in Asia and the Pacific projected declines by 2050 in irrigated rice yields of 14%20% and irrigated wheat yields of 32%44% relative to a no-climate change scenario. 5 The study also projects a decrease in cultivable areas of most staple crops, leading to large decreases in production when combined with yield impacts. Loss of highly productive rice cultivation areas to sea-level rise (SLR) is among the greatest risks, with Bangladesh and Viet Nam among countries most extensively affected. 6. Adaptive capacity. ADF countries lack institutional capacity to adapt to climate change. Low adaptive capacity is strongly associated with low income and limited savings; and with low levels of education, health care, and inadequate or absent critical infrastructure, particularly water supply and sanitation. In 2010, ADF countries represented about 70%, or 16 of the 23 developing member countries (DMCs) that are not likely to meet the Millennium Development Goal (MDG) targets for access to safe drinking water and 19 of the 26 DMCs that are not likely to meet the targets for access to basic sanitation. 6 Moreover, ADF countries are vulnerable to likely increases in the prices of energy and other imported commodities which would be exacerbated by weak export earnings, among other factors. 7. Costs. The costs of adaptation in ADF countries are likely to be significant. Very preliminary estimates of adaptation costs in the region, suggest that ADF countries may require resources of around $10 billion annually. Costs of climate mitigation will also be considerable. The likely magnitude of the financial requirements for ADF countries to address climate change also highlights the need for enhanced capacity to mobilize and utilize climate resources effectively once they become available. III. ADB S STRATEGIC PRIORITIES ON CLIMATE CHANGE 8. ADB s long-term strategic framework, (Strategy 2020) 7 identifies environmentally sustainable growth as a strategic agenda for ADB; and the environment, including climate change, as one of the core areas of operations. Addressing climate change is also critical in promoting inclusive growth (another strategic agenda under Strategy 2020), as the adverse impacts are predicted to affect the poor and women disproportionately. Strategy 2020 recognizes that a timely and effective response to climate change requires ADB to make climate change mitigation and adaptation integral parts of development work in multiple sectors, activities, and themes. It foresees a need for ADB to assist DMCs to invest in sound environmental and natural resources management, to help move their economies onto low carbon growth paths, to reduce the carbon footprint of Asia s cities, and to adapt to the unavoidable impacts of climate change. 9. In May 2010, ADB Management approved a paper entitled Addressing Climate Change in Asia and the Pacific: Priorities for Action, 8 which elaborates on the climate agenda laid out in Strategy 2020 and builds on ADB s ongoing efforts on climate change. It adopts an integrated 5 International Food Policy Research Institute and ADB Building Climate Resilience in the Agriculture and Food Sector of Asia and the Pacific. Manila. 6 ADB staff estimates based on data compiled by the Economic and Social Commission for Asia and the Pacific (ESCAP) on behalf of the joint ADBESCAPUNDP regional partnership on the MDGs. 7 ADB Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, Manila. 8 ADB Addressing Climate Change in Asia and the Pacific: Priorities for Action. Manila.

9 3 approach, addressing both climate change mitigation and adaptation, and identifies five strategic priorities, reflecting the main challenges facing the region, ADB s comparative advantage in addressing these challenges, opportunities for generating cost-effective results, and the diversity of DMC needs and capabilities. The priorities comprise (i) scaling up clean energy; (ii) promoting sustainable transport and urban development; (iii) managing land use and forests for carbon sequestration; (iv) building the climate resilience of DMCs and the region; and (v) strengthening related policies, governance, and institutions. The paper also identifies three modalities for facilitating climate responses financing, knowledge, and partnerships. These priorities continue to guide ADF operations. IV. ASIAN DEVELOPMENT FUND PROGRESS ON CLIMATE CHANGE 10. The ADF X midterm review paper ADB s Strategic Directions of ADF Operations for Promoting Climate Change Mitigation and Adaptation 9 described ADB s efforts to address climate change across the region, with emphasis on ADF countries. Since then, ADB has continued to expand efforts to mainstream climate change in its operations and make progress in implementing its strategic priorities (paras. 89). A. Mainstreaming Climate Change in ADB operations 11. Climate change implementation plans formulated by each regional department in 2009 provided a foundation for mainstreaming climate change in the country partnership strategies (CPSs). Linking to the climate change implementation plans, all ADF countries that have prepared CPSs from 2009 to date have emphasized climate change as a development issue, although to varying degrees (Appendix 1). 10 As indicated in Table 2, ADB s climate changerelated assistance to ADF countries has been increasing. From 2005 to 2010, ADF loans, grants, and technical assistance (TA) for projects marked as relevant to climate change adaptation or deemed to have climate change adaptation components have grown from $49.5 million to more than $1.2 billion. Similarly, ADB loans, grants, and technical assistance (TA) for mitigation and low carbon development projects in ADF countries have increased since 2005, approaching $1.4 billion in While low carbon development is a priority for ADF countries, more resources will be required for climate change adaptation given the urgency of building climate resilience. 12. ADB is also strengthening its internal capacity to mainstream climate change into its operations. ADB is creating and re-designating staff positions, initiating in-house training programs and evolving institutional arrangements such as the establishment of a Climate Change Program Coordination Unit. To date, 19 climate change-oriented staff positions have been created and 15 of these have been filled. The President s High Level Advisory Group on Climate Change and Sustainable Development continues to advise Management on issues facing the region. During its 4th meeting in April 2011 in Manila, the Group focused on forwardlooking implications of the Cancun Agreements for ADB s work, and policy options for ADB to consider in its climate change-related assistance to DMCs, including the linked issues of food, water, and energy. The Communities of Practice on the environment, transport, energy, and water are working to create and to share knowledge on the integration of low carbon growth and climate change adaptation in ADB s programs and projects. 9 ADB ADB s Strategic Directions of ADF Operations for Promoting Climate Change Mitigation and Adaptation. Manila. 10 These ADF countries are Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People s Democratic Republic (Lao PDR), Nepal, Pakistan, Palau, Papua New Guinea, Solomon Islands, Tajikistan, Vanuatu, and Viet Nam.

10 4 B. Progress in Priority Areas 13. Scaling up clean energy. Under the Clean Energy Program (CEP), ADB continues to assist ADF countries in reducing emissions while meeting growing energy needs. In 2010, ADB clean energy loan investments to ADF countries reached $631.5 million and TA to ADF countries amounted to $17.4 million (Tables 3 and 4). ADB invested more than $1.85 billion in access to energy from 2008 and 2010, connecting nearly 2.3 million households to electricity or modern fuels under its Energy for All Initiative (Box 1); $1 billion of this was invested in ADF countries, of which $433 million was financed through the ADF. Significant efforts are being made to increase clean energy access in remote island communities of the Pacific and in Southeast Asia under the CEP. The Climate Investment Fund (CIF) Scaling Up Renewable Energy in Low Income Countries program is also supporting the CEP; the Maldives and Nepal are initial pilot countries. Financing of $25 million$30 million can be granted to each country via the program. Box 1: Energy for All Initiative: Providing access to clean energy while reducing poverty ADB s Energy for All Initiative develops and mainstreams approaches for scaling up access to affordable, modern and clean energy among the region s poor. This includes household access to electricity from renewable energy technologies such as micro-hydro, solar, biomass, and small wind power, as well as access to clean cooking fuel, such as LPG or biogas from livestock manure. Under the Initiative, a Japan Fund for Poverty Reduction grant of $3 million will be used to increase income and livelihood opportunities for women in three ADB-financed clean energy projects in Bhutan, Nepal and Sri Lanka. It will fund the training of female technicians to support solar power systems in Bhutan, help strengthen community management of rural electrification in Nepal, and improve service delivery and women's access to electricity in Eastern Province in Sri Lanka. Source: ADB Energy for All Newsletter, May. 14. The Asia Solar Energy Initiative was established in May 2010 with a target to develop 3,000 megawatts of solar power projects by mid Expanding solar energy capacity will catalyze private sector participation in innovation and research, induce economies of scale, and further reduce the price of technology. ADF countries currently reliant on imported energy will find solar energy competitive in the near future, improving energy supply sustainability. ADB also launched the Quantum Leap in Wind on June 2010 to develop country-specific road maps for large-scale deployment of wind power in priority countries within 5 years, including Mongolia, Sri Lanka, and Viet Nam. The Small Wind Initiative was created through TA 11 in 2009 to utilize indigenous renewable energy resources to supply electricity to remote communities, improving living standards. Pilot activities have begun in Nepal. 15. Encouraging sustainable transport and urban development. ADB is promoting investments in low carbon, safe, accessible, and affordable transport systems through its Sustainable Transport Initiative (STI). The STI Operational Plan (July 2010) builds on the strengths of ADB s existing transport operations to introduce effective models of support for new and emerging fields of sustainable transport. STI activities to date have enhanced existing urban transport in ADF countries, including systems in Dhaka, Hanoi, Ho Chi Minh City, Kathmandu, Tbilisi, Ulaanbaatar, and Vientiane. Case studies in Colombo, Dhaka, Kathmandu, and Vientiane identified important constraints and elements required for sustainable urban transport; and refined project selection criteria to improve sustainability. ADB is currently 11 ADB Regional Technical Assistance on Effective Deployment of Distributed Small Wind Power Systems in Asian Rural Areas. Manila.

11 5 developing the Asia Sustainable Transport and Urban Development Program for financing by the Global Environment Facility (GEF), ADB, and others. The program aims to support Asian cities in reducing GHG emissions and in generating local co-benefits through the integration of low carbon and climate resilient transit infrastructure and services with low carbon urban development. Participating ADF countries include Armenia, Bangladesh, Georgia, Mongolia, Sri Lanka, and Viet Nam. 16. The Cities Development Initiative for Asia was established in 2007 by ADB and partners to provide assistance to medium-sized Asian cities in linking broad development plans and specific infrastructure investments, emphasizing environmental sustainability, pro-poor development, good governance, and climate change mitigation and/or adaptation. The initiative has established partnerships with several city governments in ADF countries, including Battambang, Can Tho, Danang, Faisalabad, Kathmandu, Khulna, Pakse, Thanh Hoa, and Ulaanbaatar. It is also working with selected national organizations in Nepal, Pakistan, Sri Lanka, and Viet Nam to promote the toolkit on City Infrastructure Investment Programming and Prioritization. 17. Managing land use and forest for carbon sequestration. Seven out of 10 countries in the region with both high to moderate forest cover and high deforestation rates are ADF countries. 12 ADB is supporting activities at regional, national, sub-national, and local levels to build partnerships, exchange knowledge, and tap new financing opportunities and incentives for reducing GHG emissions from the forest sector. The Biodiversity Conservation Corridors Initiative in the Greater Mekong Subregion and the Heart of Borneo Initiative aim to reduce deforestation and support the livelihoods of indigenous peoples and other forest communities. Both are expected to serve as platforms for further Reducing Emissions from Deforestation and Forest Degradation (REDD+) support financed through the CIF Forest Investment Program, for which Indonesia and the Lao People s Democratic Republic (Lao PDR) are pilot countries. 18. Financial support for REDD activities includes $6 million in funding from ADB s Climate Change Fund (CCF) as well as contributions from the GEF. Each of the pilot activities is meant to develop new approaches for using REDD and land use management to mitigate greenhouse gas emissions while conserving biodiversity and supporting the livelihoods of forest-based communities, in ADF countries such as the Cambodia, Lao PDR, Solomon Islands, and Viet Nam. 19. Promoting climate resilient development. ADB has been increasing activities to enhance resilience in vulnerable DMCs through mainstreaming of adaptation and disaster risk reduction into CPS and national planning frameworks; and by helping build the climate resilience of vulnerable sectors such as agriculture, water, energy, transport, and health, including preparation of climate resilient sector road maps. In Central and West Asia, for example, ADB assessed the impacts of accelerated glacial melt to seven ADF investment projects four in Pakistan and three in Afghanistan. Climate change road maps have been developed for Armenia, Kazakhstan, Pakistan, and Uzbekistan to identify entry points for effective adaptation actions. ADB is also promoting integrated disaster risk management, which combines disaster risk reduction, climate change adaptation, and disaster risk financing to guide DMCs in strengthening their capacities for effective disaster risk management. 20. ADB is mobilizing additional concessional and innovative finance to support DMCs adaptation efforts, including the climate proofing of projects. A range of climate-proofing activities has been designed and implemented for several ADB projects in ADF countries. No- 12 ADB National REDD+ Strategies in Asia and the Pacific: Progress and Challenges. Manila.

12 6 or low-regret climate-proofing investments, including green planting of embankments to protect roadways from rainfall erosion, were designed for the Cambodia Rural Roads Improvement Project. 13 The Avatiu Port Development Project 14 in the Cook Islands has received co-funding from ADB s CCF to ensure that the design of the port can accommodate future SLR (adaptation readiness): pilings will be strengthened to accommodate the additional load associated with raising the wharf level by up to 0.5 meters (m) when required. The Padma Multipurpose Bridge Project 15 in Bangladesh was climate-proofed by raising the bridge deck by 0.63 m to factor in impacts of both SLR and projected increases in flooding caused by increased basin rainfall. Appendix 2 provides examples of ADB s experience in climate-proofing projects. 21. ADB is also stepping up its policy research, knowledge management, and capacity building, focusing on (i) climate risk screening, impact and vulnerability assessments; (ii) adaptation tools and methods (including technical guidance on climate-proofing projects by sector); (iii) complementary adaptation approaches, including ecosystem-based adaptation (e.g., coastal protection via mangroves) and community-based adaptation; (iv) economic analyses of climate impacts and adaptation options; and (v) documentation and dissemination of DMCs adaptation knowledge and experience in partnership with the Asia Pacific Adaptation Network. 22. Strengthening policies, governance, and capacities. While most ADF countries have prepared national action plans and strategies on climate change, they need additional and ongoing support for policy, governance, and institutional work to mainstream these plans into the development process and translate them into action. Several recent TA projects are enabling strengthened policies and enhanced capacities (Box 2). In 2009, ADB, in collaboration with Japan, the Republic of Korea (Ministry of Foreign Affairs and Trade), and the United Nations Development Programme (UNDP), established the Capacity Development for Development Effectiveness Facility to help countries of Asia and the Pacific to improve the management of aid partnerships. Based on the experiences of Bangladesh, Cambodia, Indonesia, the Lao PDR, Nepal, the Philippines, and Viet Nam, the facility has begun work with the Organisation for Economic Co-operation and Development (OECD), Swedish International Development Cooperation Agency, and others to assess whether funding for climate change is being managed in the most effective manner. Under the Governance and Capacity Development Initiative TA, 16 the program on Development Effectiveness of Public Finances for Climate Change is currently being implemented. This initiative expands and deepens countryled analysis and dialogue on the development effectiveness of climate change-related programming. 13 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan Kingdom of Cambodia: Rural Roads Improvement Project. Manila. 14 ADB Report and Recommendation of the President to the Board of Directors: Proposed Supplementary Loan and Administration of Grant for Cook Islands: Avatiu Port Development Project. Manila. 15 ADB Bangladesh: Padma Multi-purpose Bridge Project. Environmental Impact Assessment Report. Manila. 16 ADB Regional Technical Assistance to Governance and Capacity Development Initiative (Phase 2). Manila.

13 7 Box 2: Promoting Climate Change Adaptation in Sri Lanka Through technical assistance for Strengthening the Capacity for Climate Change Adaptation, Sri Lanka prepared its National Climate Change Adaptation Strategy (NCCAS), which outlines a comprehensive road map for climate change adaptation and provides a new framework to assist the country in coping with climate change impacts. The NCCAS lays out a prioritized strategy for action and investment for , supporting Sri Lanka s national development agenda as articulated in the Mahinda Chintana (Mahinda Vision). Thematic priorities identified in the NCCAS include (i) strengthening national level climate adaptation planning and implementation capacity; (ii) ensuring that future investments and economic plans are climate resilient; (iii) systematically researching climate change adaptation options and disseminating knowledge; (iv) increasing financing for climate change adaptation; and (v) informing and mobilizing stakeholders at multiple levels in support of climate adaptation impacts. Source: ADB National Climate Change Adaptation Strategy for Sri Lanka (Final Draft). C. Progress on Modalities to Deliver Results 23. Mobilizing and innovating to meet financing needs. ADB continues to expand its efforts to mobilize grant finance to support DMCs efforts to address climate change via its access to multilateral and bilateral funds including the Adaptation Fund, CIF, GEF, and Nordic Development Fund; and via ADB s internal funds including the recently replenished CCF and TA programs. As examples, ADB in partnership with UNDP is implementing the Climate Resilient Infrastructure Development in the Northern Mountain Provinces of Viet Nam using $3.4 million in grant finance from the GEF Special Climate Change Fund. In January 2011, ADB approved $800,000 in CCF grant financing to climate-proof the Avatiu Port Development Project in the Cook Islands. 24. ADB, the World Bank, and partners have been providing extensive financial and technical support to Bangladesh, Cambodia, Nepal, Tajikistan, and the Pacific region through the CIF Pilot Program for Climate Resilience (PPCR), designed to provide incentives for scaledup action and transformational change by integrating climate resilience in national development planning and investment programs. Strategic Programs for Climate Resilience (SPCRs) for Bangladesh, Cambodia, Nepal, Tajikistan, and Samoa have been approved and project preparations for SPCR investments are under way. Investment projects proposed under the SPCR involve the blending of PPCR and ADB resources to integrate climate risk and resilience considerations during their design and implementation (Box 3). 25. The Clean Energy Financing Partnership Facility and ADB s CCF promote low carbon knowledge products and projects in all DMCs. From 2008 to 2010, ADF countries received $15 million in grant finance for various innovative projects aimed at lowering carbon emissions. The ADB Carbon Market Program, launched in 2006, is an innovative financing scheme that supports the development of GHG mitigation projects in developing countries in Asia and the Pacific through the Asia Pacific Carbon Fund, the Future Carbon Fund, and the Technical Support Facility. The Carbon Market Program has assisted 23 projects in various stages of the Clean Development Mechanism cycle across 13 ADF countries. The cumulative certified emissions reductions to be generated from these projects for a 10-year crediting period are estimated at 4 million certified emissions reductions, potentially generating carbon revenues of $40 million. Through the CIF Clean Technology Fund (CTF), ADB is helping Viet Nam promote low carbon technologies. The country s investment plan targets a reduction in national energy

14 8 consumption of 5%8% by 2015 relative to business as usual, via $250 million support under the CTF. CTF investments are expected to mobilize financing of about $3.2 billion from government, multilateral financiers, carbon finance, and the private sector. Box 3: Blending Pilot Program for Climate Resilience and ADB Financing Bangladesh and Cambodia, in their Strategic Programs for Climate Resilience, have embarked on a program of blending Pilot Program for Climate Resilience (PPCR) funding with programmed investments in climate resilient infrastructure in the most vulnerable locations. In Bangladesh, $71 million in PPCR funding will be integrated with $215 million of ADB funding for Coastal Climate Resilient Water Supply, Sanitation, and Infrastructure Improvement projects. Cambodia has requested $105 million to provide cofinancing to enhance the climate resilience of ADB-funded projects, leveraging about $300 million in ADB funding. The blended projects include (i) the Water Resources Management Sector Development Program, (ii) the Greater Mekong Subregion (GMS) Flood and Drought Management Project, (iii) the GMS Biodiversity Conservation Corridors Project, (iv) the Agriculture Commercialization and Resource Conservation Project, (v) the Provincial Roads Improvement Project, (vi) the GMS Corridor Towns Development Project, and (vii) the Sustainable Urban Development in the Tonle Sap Basin Project. Source: Bangladesh: Strategic Program for Climate Resilience, and Cambodia: Strategic Program for Climate Resilience SPCR Increasing engagement of the private sector is needed on clean energy in ADF countries and this is reflected in the pipeline for 2011 and 2012 (Table 5). In May 2011, the GEF Council and Special Climate Change Fund (SCCF) Council approved the ADBUnited Nations Environment Programme (UNEP) concept proposal for a Pilot Asia-Pacific Climate Technology Network and Finance Center with a $10 million allocation from the GEF Trust Fund and $2 million from the SCCF. Practical experience acquired through this project will inform United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties discussions on technology transfer and finance, and provide valuable opportunities for south south collaboration. 27. To nurture new climate technologies that promote clean energy and sustainable technologies, ADB is investing up to $60 million to establish three venture capital funds. They are expected to leverage an additional $600 million$700 million in private sector investment. The funds will invest in early-stage technology companies innovating in climate change mitigation and adaptation or environmental protection. In 2010, two private sector loans for clean energy were approved for ADF countries: the Sungas Liquefied Petroleum Gas Distribution Development Project in Afghanistan and the Zorlu Enerji Power Project in Pakistan (Box 4).

15 9 Box 4: Pakistan s First Privately-Owned Wind Farm In February 2011, ADB approved a loan in the amount of $36.8 million for the Zorlu Enerji Power Project in Pakistan. It is the first privately owned and financed wind farm in Pakistan with a total capacity of 56.4 megawatts.the project will be constructed in Southern Sindh, about 100 kilometers northeast of Karachi, by Zorlu Enerji Electrik Uretim. The output from the plant will provide muchneeded additional power for Pakistan, improve the country s energy security, and lower reliance on fossil fuels. This project should provide a bankable basis for future privately funded wind projects, and send a signal that Pakistan s wind sector is attractive for private sector investment and financing. Source: ADB Report and Recommendation of the President to the Board of Directors: Zorlu EnerjiPower Project (Pakistan). Manila. 28. Generating and disseminating knowledge. ADB has produced flagship studies examining the impacts of climate change on agriculture and food security, energy, and migration. Most recently, it produced a report on Accounting for Health Impacts of Climate Change, to improve understanding of the health dimensions of climate change and to guide other sectors in accounting explicitly for the health impacts of their projects and interventions. Countries involved include Nepal, the Philippines, and Tajikistan. A joint ADB and Asian Development Bank Institute study on climate change and green growth examines how emerging economies of Asia can operate amid changing demands for low carbon development. Studies of the regional economics of climate change are also being prepared for Central and West Asia, South Asia, Northeast Asia, and the Pacific; and a second phase is being prepared for Southeast Asia. Table 6 lists the key knowledge products on climate change published by ADB. 29. Cultivating and fostering partnerships. ADB has intensified collaboration with development partners to mobilize further resources and knowledge. In addition to longstanding partners such as the GEF, recently established finance partnerships include the CIFs (including the PPCR) administered by the World Bank and implemented jointly with ADB and other regional development banks. ADB is continuing to work closely with other international and bilateral partners, government, the private sector, and civil society to expand its capacities and outreach in achieving its climate change objectives. For example, ADB, UNEP, and other partners established the Asia Pacific Adaptation Network, through which the first Asia Pacific Adaptation Forum was held on 2122 October 2010 in Bangkok. The forum, which was attended by over 550 participants, provides a venue for sharing knowledge and experience on mainstreaming adaptation into development planning in the region. D. Emerging Lessons 30. Poverty reduction and climate resilience. There is growing recognition that the promotion of inclusive growth and poverty reduction is a necessary and effective way to build resilience and help people adapt to changes brought about by climate change. For example, investments that strengthen education, health, and gender equity for the poor will strengthen the resilience of poor people to deal with climate impacts. Social protection policies can also address the multiple risk and vulnerabilities faced by the poor effectively. ADF operations in poverty reduction, health, and education will increasingly be recognized as a critical part of the climate response. 31. Climate change adaptation and disaster risk management. Recent experience has demonstrated that the most visible link between existing conditions and a future altered by climate change is via climate-related disasters. Many recent events (including the devastating floods in Pakistan and the People s Republic of China in 2010) have focused the attention of the

16 10 public and of policy makers on the need to act decisively on climate change. Disaster risk management activities can be made responsive to the risks associated with climate change by (i) developing suitable models of risk that are robust to bounded levels of uncertainty regarding future climate; (ii) improving the accuracy and coverage of disaster early warning systems; and (iii) strengthening local capacity to prepare for and manage such disasters. In addition, the extensive resources now allocated for post-disaster relief and reconstruction can be better used to reduce and to manage risks in advance by building resilience in ADF countries. 32. Food security, water security, energy, and climate change. Since climate impacts in Asia are largely associated with water as the principal medium, special attention will be needed to improve ADF countries capacities to address water security and to promote climate resilient water management in urban, rural, and river basin settings, and water and energy issues through policy dialogue, investments, and TA. There is also a need to understand and respond to long-term food security risks from climate change threats to agricultural production and food prices, potentially including support for more resilient cropping systems and climate-related agriculture research efforts. ADB s existing programs can play important roles in the context of integrated water resources management, energy, and food security. 33. Closing knowledge gaps. Effective adaptation will depend critically on informed decision making, and in particular an understanding of the specific nature of the hazards and risks posed by climate change. The absence of scientifically credible projections of future climatic and hydrologic conditions at suitable levels of resolution, and clear guidelines for their interpretation and use, have been identified as active impediments to climate risk assessments, and the design and implementation of effective adaptation and/or development projects. Improved climate projections, including characterizations of climate-related hazards such as floods, droughts, and tropical cyclones, are urgently needed to guide adaptation activities within ADF countries. 34. Capacity development for policy and planning. Many ADF countries have requested ADB assistance in refining their climate change strategies, developing the relevant capacities, and identifying project and program interventions. Special attention is needed to develop adaptive capacity at various levels, including among communities exposed to climate risks, and in particular women, children, and the poor. It will also be necessary to address the issue of absorptive capacity for additional climate financing, particularly given expectations for the Green Climate Fund (GCF). 35. Technology. Technology development and transfer is clearly essential for low carbon growth. In addition, new technologies are needed to assist ADF countries in adapting to the adverse impacts of climate change, including expanded water treatment and supply technology options, improved crop varieties and agricultural water management technologies, architectural design standards, flood protection, and disaster early warning systems. The public sectors of ADF countries have limited capacity to provide many of these technologies at affordable costs, and will need assistance. 36. Adaptation financing needs. Adaptation costs to developing Asia have been estimated to be about $40 billion per year over , with about $10 billion incurred in ADF countries under various scenarios. While these estimates are indicative, it is clear that the financial resources needed to ensure that development in ADF countries is climate resilient greatly exceed resources currently available. While new financing opportunities are arising that will assist ADF countries to address climate change including the CIF, GEF, Adaptation Fund, and prospectively, the GCF the need to assist DMCs to access such climate funds effectively has increased correspondingly. ADB s role in facilitating, monitoring, and targeting climate funds

17 11 will become increasingly essential. Furthermore, ADF resources are likely to provide important complementary baseline financing, which can be blended with incremental dedicated climaterelated financing. V. LOOKING AHEAD A. Keeping Inclusive, Sustainable, and Climate-Compatible Development on Track 37. ADB will continue to implement its strategic priorities on climate change and harness partnerships, knowledge, and finance as outlined above. Against this backdrop, ADB faces three critical challenges in pursuing a climate-compatible ADF development agenda. 17 The first is to ensure that the ADF investment portfolio is not adversely affected by the impacts of climate change. This will entail the embedding (mainstreaming) of climate risk management within the project cycle (applicable for all ADB investments), which in turn will require the development of specialized tools, knowledge, and financial resources; and enhancements in the capacity and experience of ADB staff and partners to understand and respond to the novel risks posed by climate change. 38. The second and broader challenge is to build resilience within ADF countries, where resilience is understood as the ability of a social or ecological system to absorb disturbances while retaining the same basic structure and ways of functioning, the capacity for selforganization, and the capacity to adapt to stress and change. 18 Climate change involves, above all, an increase in the inherent uncertainty around future conditions, and targeted responses to each climate change-related risk may not be possible to identify in advance. By helping to build the overall resilience of societies, ADB can help ensure that the ADF development objectives can be achieved over a wide range of potential climatic conditions, and adaptation activities are fully aligned with efforts to eliminate poverty in ADF countries. This will require investments in both hard (water supply, sanitation, flood protection) and soft (education, health, nutrition, governance) sectors. As well as support for building institutional capacity and mainstreaming climate resilience across development sectors. 39. The third challenge is to ensure that the pursuit of ADF development follows a low carbon trajectory that development objectives are achieved in a manner that does not contribute further to the underlying causes of climate change. By following growth paths that emphasize clean energy, sustainable transport, and urban development; and land use and management that support a range of environmental services (including carbon sequestration), ADF countries will simultaneously contribute to global efforts to reduce GHG emissions, manage future risks to security in energy and other critical resources, build skilled and competitive workforces, and create opportunities to reduce poverty. B. Managing Climate Risks to Asian Development Fund Investments Projects 40. ADB must ensure that the investments of its ADF clients are not compromised by climate change. Climate-related disasters of enhanced intensity present particular risks to built infrastructure. During the ADF XI, ADB will need to continue to ensure that climate considerations are properly addressed in regional and country partnership strategies. It will 17 Climate Compatible Development has been defined informally as development that successfully combines mitigation (low carbon growth), adaptation (climate resilient development), and economic development objectives. 18 IPCC Fourth Assessment Report Working Group II (Impacts), Appendix I: Glossary. Resilience encompasses adaptive capacity, and in addition, capacity to rebound from crises and disturbances, including those associated with the present climate variability; and the ability to anticipate, plan for, and potentially benefit from change.

18 12 need to manage climate-related risks to all ADF projects, especially infrastructure and other vulnerable investments. In this regard, ADB is actively developing technical resource services an adaptation toolkit to support and facilitate each stage of the project climate risk management process. All ADF projects will be screened for climate risks, and if significant risks are identified, climate impact, vulnerability, and adaptation assessments will be conducted. If warranted, adaptation interventions and monitoring and evaluation will be established. The nature and extent of climate risks is highly context-specific, and no single risk management approach is likely to be optimal in all settings. A wide range of tools and technologies will be required, including sectoral response models and relevant methods of costbenefit analysis. 41. Indicative costs of managing climate-related risks to infrastructure can be estimated on the basis of pilot climate-proofing activities to date by ADB and other multilateral development entities. The incremental costs needed to maintain an investment s net benefits at design levels without climate change (climate-proofing coefficient) have been found to range from under 1% to over 20% of baseline investment costs. Using a range of climate-proofing coefficients of 6% 10%, 19 the estimated costs of climate-proofing investment projects in ADF countries would amount to about $300 million$500 million per year over the period C. Building Resilience within Asian Development Fund Countries 42. Adaptation to climate change and development are closely linked. Key adaptation challenges, including managing the risks of climate-related disasters and ensuring food security, are well established development objectives, although climate change has both introduced novel risks outside of human experience (e.g., SLR and glacial retreat) and increased the urgency with which adaptive actions are required. At the same time, the new international institutions created to address climate change risks and the principles that govern the allocation of adaptation resources (e.g., additionality) have sometimes contributed to a divergence between the adaptation and development agendas. However, adaptation cannot succeed in the absence of development since resilience (adaptive capacity) is strongly affected by development status. 43. The factors that confer societal resilience to climate variability and natural disasters are closely associated with the MDGs, and include fundamental development objectives such as food security and sound nutrition, education, health, and freedom from poverty. Recent studies provide evidence that the impacts of current climate extremes and disasters are more severe on poor people and poor countries than on the middle income and wealthy. Targeted investments in soft resilience-building sectors (including education, health, nutrition, and governance) will generate a wide range of immediate benefits, while improving resilience. ADB and partners will need to explore options for the use of dedicated adaptation finance streams and other sources, including ADF finance, to support and enhance the building of societal resilience. Two promising areas for attention include disaster risk reduction and food security. 44. ADB must also help address the regional deficit in critical infrastructure, which would enhance overall resilience to climate change. Such infrastructure encompasses water supply and sanitation (critical to public health), irrigation and related rural water infrastructure (food security), flood protection measures (including disaster-resilient architecture), and clean energy. A recent study by ADB and the Asian Development Bank Institute estimates the region s 19 Following a review of ADB's portfolio at risk, it was determined that approximately 90% of the total value of loans was categorized as being at medium to high risk. IDA (2007) estimated that the increase in IDA credits that would be required to maintain the net level of benefits to IDA clients at their without climate change level for each of the Stern climate damage scenarios range from 6%21% of total FY06 IDA credits. A conservative range of 6%10% is used here.