URU, Alm.del - 2009-10 - Bilag 82: Verdensbankens årsrapport World Development Report 2010

hirty years ago, half the developingworld lived in extreme poverty—today, a quarter.1Now, a muchsmaller share of children are mal-nourished and at risk of early death. Andaccess to modern infrastructure is muchmore widespread. Critical to the progress:rapid economic growth driven by techno-logical innovation and institutional reform,particularly in today’s middle-income coun-tries, where per capita incomes have dou-bled. Yet the needs remain enormous, withthe number of hungry people having passedthe billion mark this year for the first timein history.2With so many still in povertyand hunger, growth and poverty alleviationremain the overarching priority for develop-ing countries.Climate change only makes the challengemore complicated. First, the impacts of achanging climate are already being felt, withmore droughts, more floods, more strongstorms, and more heat waves—taxing indi-viduals, firms, and governments, drawingresources away from development. Second,continuing climate change, at current rates,will pose increasingly severe challenges todevelopment. By century’s end, it could leadto warming of 5�C or more compared withpreindustrial times and to a vastly differ-ent world from today, with more extremeweather events, most ecosystems stressedand changing, many species doomed toextinction, and whole island nations threat-ened by inundation. Even our best effortsare unlikely to stabilize temperatures atanything less than 2�C above preindustrial

temperatures, warming that will requiresubstantial adaptation.High-income countries can and mustreduce their carbon footprints. They cannotcontinue to fill up an unfair and unsustain-able share of the atmospheric commons. Butdeveloping countries—whose average percapita emissions are a third those of high-income countries (figure 1)—need massiveexpansions in energy, transport, urban sys-tems, and agricultural production. If pursuedusing traditional technologies and carbonintensities, these much-needed expansionswill produce more greenhouse gases and,hence, more climate change. The question,then, is not just how to make developmentmore resilient to climate change. It is how topursue growth and prosperity without caus-ing “dangerous” climate change.3Climate change policy is not a simplechoice between a high-growth, high-carbonworld and a low- growth, low- carbonworld—a simple question of whether togrow or to preserve the planet. Plenty ofinefficiencies drive today’s high- carbonintensity.4For example, existing technolo-gies and best practices could reduce energyconsumption in industry and the powersector by 20–30 percent, shrinking carbonfootprints without sacrificing growth.5Many mitigation actions—meaningchanges to reduce emissions of greenhousegases—have significant co-benefits in pub-lic health, energy security, environmentalsustainability, and financial savings. InAfrica, for example, mitigation opportuni-ties are linked to more sustainable land and

forest management, to cleaner energy (suchas geothermal or hydro power), and to thecreation of sustainable urban transportsystems. So the mitigation agenda in Africais likely to be compatible with furtheringdevelopment.6This is also the case for LatinAmerica.7Nor do greater wealth and prosperityinherently produce more greenhouse gases,even if they have gone hand in hand inthe past. Particular patterns of consump-tion and production do. Even excluding oilproducers, per capita emissions in high-income countries vary by a factor of four,from 7 tons of carbon dioxide equivalent(CO2e)8per capita in Switzerland to 27 inAustralia and Luxembourg.9And dependence on fossil fuel can hardlybe considered unavoidable given the inad-equacy of the efforts to find alternatives.While global subsidies to petroleum productsamount to some $150 billion annually, publicspending on energy research, development,and deployment (RD&D) has hovered around$10 billion for decades, apart from a brief spikefollowing the oil crisis (see chapter 7). Thatrepresents 4 percent of overall public RD&D.Private spending on energy RD&D, at$40 billion to $60 billion a year, amounts to0.5 percent of private revenues—a fraction ofwhat innovative industries such as telecom-

munications (8 percent) or pharmaceuticals(15 percent) invest in RD&D.10A switch to a low-carbon world throughtechnological innovation and complemen-tary institutional reforms has to start withimmediate and aggressive action by high-income countries to shrink their unsus-tainable carbon footprints. That wouldfree some space in the atmospheric com-mons (figure 2). More important, a crediblecommitment by high-income countries todrastically reduce their emissions wouldstimulate the needed RD&D of new tech-nologies and processes in energy, transport,industry, and agriculture. And large andpredictable demand for alternative tech-nologies will reduce their price and helpmake them competitive with fossil fuels.Only with new technologies at competi-tive prices can climate change be curtailedwithout sacrificing growth.There is scope for developing countriesto shift to lower-carbon trajectories withoutcompromising development, but this var-ies across countries and will depend on theextent of financial and technical assistancefrom high-income countries. Such assis-tance would be equitable (and in line withthe 1992 United Nations Framework Con-vention on Climate Change, or UNFCCC):high-income countries, with one-sixth ofthe world’s population, are responsible fornearly two-thirds of the greenhouse gasesin the atmosphere (figure 3). It wouldalso be efficient: the savings from helpingto finance early mitigation in developingcountries—for example, through infra-structure and housing construction overthe next decades—are so large that theyproduce clear economic benefits for all.11But designing, let alone implementing, aninternational agreement that involves sub-stantial, stable, and predictable resourcetransfers is no trivial matter.Developing countries, particularly thepoorest and most exposed, will also needassistance in adapting to the changing cli-mate. They already suffer the most fromextreme weather events (see chapter 2). Andeven relatively modest additional warm-ing will require big adjustments to the waydevelopment policy is designed and imple-mented, to the way people live and make a

living, and to the dangers and the opportu-nities they face.The current financial crisis cannot be anexcuse to put climate on the back burner.On average, a financial crisis lasts less thantwo years and results in a 3 percent loss ingross domestic product (GDP) that is lateroffset by more than 20 percent growth overeight years of recovery and prosperity.12Sofor all the harm they cause, financial crisescome and go. Not so with the growing threatimposed by a changing climate. Why?Because time is not on our side. Theimpacts of greenhouse gases released intothe atmosphere will be felt for decades, evenmillennia,13making the return to a “safe”level very difficult. This inertia in the cli-mate system severely limits the possibilityof making up for modest efforts today withaccelerated mitigation in the future.14Delaysalso increase the costs because impactsworsen and cheap mitigation options disap-pear as economies become locked into high-carbon infrastructure and lifestyles—moreinertia.Immediate action is needed to keepwarming as close as possible to 2�C. Thatamount of warming is not desirable, but itis likely to be the best we can do. There isn’ta consensus in the economic profession thatthis is the economic optimum. There is,however, a growing consensus in policy andscientific circles that aiming for 2�C warm-ing is the responsible thing to do.15ThisReport endorses such a position. From theperspective of development, warming muchabove 2�C is simply unacceptable. But sta-bilizing at 2�C will require major shifts inlifestyle, a veritable energy revolution, and atransformation in how we manage land andforests. And substantial adaptation wouldstill be needed. Coping with climate changewill require all the innovation and ingenu-ity that the human race is capable of.Inertia, equity, and ingenuity are threethemes that permeate this Report. Inertiais the defining characteristic of the climatechallenge—the reason we need to act now.Equity is the key to an effective global deal,to the trust needed to find an efficient reso-lution to this tragedy of the commons—thereason we need to act together. And ingenuityis the only possible answer to a problem that

Source:WDR team calculations based on BTS 2008.Note:Estimates are based on 40 million SUVs (sports utility vehicles) in the United States traveling a total of480 billion miles (assuming 12,000 miles a car) a year. With average fuel efficiency of 18 miles a gallon, theSUV fleet consumes 27 billion gallons of gasoline annually with emissions of 2,421 grams of carbon a gallon.Switching to fuel-efficient cars with the average fuel efficiency of new passenger cars sold in the EuropeanUnion (45 miles a gallon; see ICCT 2007) results in a reduction of 142 million tons of CO2(39 million tons of car-bon) annually. Electricity consumption of poor households in developing countries is estimated at 170 kilowatt-hours a person-year and electricity is assumed to be provided at the current world average carbon intensity of160 grams of carbon a kilowatt-hour, equivalent to 160 million tons of CO2(44 million tons of carbon). The sizeof the electricity symbol in the global map corresponds to the number of people without access to electricity.

Sources:DOE 2009; World Bank 2008c; WRI 2008 augmented with land-use change emissions from Houghton 2009.Note:The data cover over 200 countries for more recent years. Data are not available for all countries inthe 19th century, but all major emitters of the era are included. Carbon dioxide (CO2) emissions from energyinclude all fossil-fuel burning, gas flaring, and cement production. Greenhouse gas emissions include CO2,methane (CH4), nitrous oxide (N2O), and high-global-warming-potential gases (F-gases). Sectors includeenergy and industrial processes, agriculture, land-use change (from Houghton 2009), and waste. Overuse ofthe atmospheric commons relative to population share is based on deviations from equal per capita emissions;in 2005 high-income countries constituted 16 percent of global population; since 1850, on average, today’shigh-income countries constituted about 20 percent of global population.

million (ppm) for 800,000 years, but shotup to about 387 ppm over the past 150 years(figure 4), mainly because of the burning offossil fuels and, to a lesser extent, agricultureand changing land use. A decade after theKyoto Protocol set limits on internationalcarbon emissions, as developed countriesenter the first period of rigorous accountingof their emissions, greenhouse gases in theatmosphere are still increasing. Worse, theyare increasing at an accelerating rate.17The effects of climate change are alreadyvisible in higher average air and ocean tem-peratures, widespread melting of snow andice, and rising sea levels. Cold days, coldnights, and frosts have become less fre-quent while heat waves are more common.Globally, precipitation has increased evenas Australia, Central Asia, the Mediterra-nean basin, the Sahel, the western UnitedStates, and many other regions have seenmore frequent and more intense droughts.Heavy rainfall and floods have becomemore common, and the damage from—and probably the intensity of—storms andtropical cyclones have increased.

Climate change threatens all, butparticularly developing countriesThe more than 5�C warming that unmiti-gated climate change could cause this cen-tury18amounts to the difference betweentoday’s climate and the last ice age, when gla-ciers reached central Europe and the north-ern United States. That change occurredover millennia; human-induced climatechange is occurring on a one-century timescale giving societies and ecosystems littletime to adapt to the rapid pace. Such adrastic temperature shift would cause largedislocations in ecosystems fundamental tohuman societies and economies—such asthe possible dieback of the Amazon rainforest, complete loss of glaciers in the Andesand the Himalayas, and rapid ocean acidifi-cation leading to disruption of marine eco-systems and death of coral reefs. The speedand magnitude of change could condemnmore than 50 percent of species to extinc-tion. Sea levels could rise by one meter thiscentury,19threatening more than 60 mil-lion people and $200 billion in assets indeveloping countries alone.20Agricultural

Number of years agoSource:Lüthi and others 2008.Note:Analysis of air bubbles trapped in an Antarctic ice core extending back 800,000 years documents theEarth’s changing CO2concentration. Over this long period, natural factors have caused the atmospheric CO2concentration to vary within a range of about 170 to 300 parts per million (ppm). Temperature-related datamake clear that these variations have played a central role in determining the global climate. As a result ofhuman activities, the present CO2concentration of about 387 ppm is about 30 percent above its highest levelover at least the last 800,000 years. In the absence of strong control measures, emissions projected for thiscentury would result in a CO2concentration roughly two to three times the highest level experienced in thepast 800,000 or more years, as depicted in the two projected emissions scenarios for 2100.

productivity would likely decline through-out the world, particularly in the tropics,even with changes in farming practices.And over 3 million additional people coulddie from malnutrition each year.21Even 2�C warming above preindus-trial temperatures would result in newweather patterns with global consequences.Increased weather variability, more fre-quent and intense extreme events, andgreater exposure to coastal storm surgeswould lead to a much higher risk of cata-strophic and irreversible impacts. Between100 million and 400 million more peoplecould be at risk of hunger.22And 1 billionto 2 billion more people may no longer haveenough water to meet their needs.23Developing countries are more exposed andless resilient to climate hazards.Theseconsequences will fall disproportionately

on developing countries. Warming of 2�Ccould result in a 4 to 5 percent permanentreduction in annual income per capita inAfrica and South Asia,24as opposed tominimal losses in high-income countriesand a global average GDP loss of about1 percent.25These losses would be driven byimpacts in agriculture, a sector importantto the economies of both Africa and SouthAsia (map 1).It is estimated that developing coun-tries will bear most of the costs of thedamages—some 75–80 percent.26Severalfactors explain this (box 1). Developingcountries are particularly reliant on ecosys-tem services and natural capital for produc-tion in climate-sensitive sectors. Much oftheir population lives in physically exposedlocations and economically precariousconditions. And their financial and institu-tional capacity to adapt is limited. Already

Sources:Müller and others 2009; World Bank 2008c.Note:The coloring in the figure shows the projected percentage change in yields of 11 major crops (wheat, rice, maize, millet, field pea, sugar beet, sweet potato, soybean,groundnut, sunflower, and rapeseed) from 2046 to 2055, compared with 1996–2005. The yield-change values are the mean of three emission scenarios across five global climatemodels, assuming no CO2fertilization (a possible boost to plant growth and water-use efficiency from higher ambient CO2concentrations). The numbers indicate the share of GDPderived from agriculture in each region. (The share for Sub-Saharan Africa is 23 percent if South Africa is excluded.) Large negative yield impacts are projected in many areasthat are highly dependent on agriculture.

All developing regions are vulnerable to the impacts of climate change—for different reasonswell-managed coral reefs is $13 billion inSoutheast Asia alone—which are alreadystressed by industrial pollution, coastaldevelopment, overfishing, and runoff ofagricultural pesticides and nutrients.Vulnerability to climate change inEast-ern Europe and Central Asiais driven bya lingering Soviet legacy of environmen-tal mismanagement and the poor stateof much of the region’s infrastructure.An example: rising temperatures andreduced precipitation in Central Asia willexacerbate the environmental catastro-phe of the disappearing Southern AralSea (caused by the diversion of water togrow cotton in a desert climate) whilesand and salt from the dried-up seabedare blowing onto Central Asia’s glaciers,accelerating the melting caused by highertemperature. Poorly constructed, badlymaintained, and aging infrastructure andhousing—a legacy of both the Soviet eraand the transition years—are ill suited towithstand storms, heat waves, or floods.Latin America and the Caribbean’smost critical ecosystems are under threat.First, the tropical glaciers of the Andesare expected to disappear, changing thetiming and intensity of water available toseveral countries, resulting in water stressfor at least 77 million people as early as2020 and threatening hydropower, thesource of more than half the electricity inmany South American countries. Second,warming and acidifying oceans will resultin more frequent bleaching and possiblediebacks of coral reefs in the Caribbean,which host nurseries for an estimated65 percent of all fish species in the basin,provide a natural protection againststorm surge, and are a critical tourismasset. Third, damage to the Gulf of Mex-ico’s wetlands will make the coast morevulnerable to more intense and morefrequent hurricanes. Fourth, the mostdisastrous impact could be a dramaticdieback of the Amazon rain forest anda conversion of large areas to savannah,with severe consequences for the region’sclimate—and possibly the world’s.Water is the major vulnerability intheMiddle East and North Africa,theworld’s driest region, where per capitawater availability is predicted to halve by2050 even without the effects of climatechange. The region has few attractiveoptions for increasing water storage,since close to 90 percent of its fresh-water resources are already stored inreservoirs. The increased water scarcitycombined with greater variability willthreaten agriculture, which accounts forsome 85 percent of the region’s wateruse. Vulnerability is compounded by aheavy concentration of population andeconomic activity in flood-prone coastalzones and by social and political tensionsthat resource scarcity could heighten.South Asiasuffers from an alreadystressed and largely degraded naturalresource base resulting from geographycoupled with high levels of poverty andpopulation density. Water resources arelikely to be affected by climate changethrough its effect on the monsoon, whichprovides 70 percent of annual precipita-tion in a four-month period, and on themelting of Himalayan glaciers. Rising sealevels are a dire concern in the region,which has long and densely populatedcoastlines, agricultural plains threatenedby saltwater intrusion, and many low-lying islands. In more severe climate-change scenarios, rising seas wouldsubmerge much of the Maldives andinundate 18 percent of Bangladesh’s land.Sources:de la Torre, Fajnzylber, and Nash2008; Fay, Block, and Ebinger 2010; WorldBank 2007a; World Bank 2007c; World Bank2008b; World Bank 2009b.

The problems common to developingcountries—limited human and financialresources, weak institutions—drive theirvulnerability. But other factors, attribut-able to their geography and history, arealso significant.Sub-Saharan Africasuffers fromnatural fragility (two-thirds of its sur-face area is desert or dry land) and highexposure to droughts and floods, whichare forecast to increase with furtherclimate change. The region’s econo-mies are highly dependent on naturalresources. Biomass provides 80 percentof the domestic primary energy supply.Rainfed agriculture contributes some23 percent of GDP (excluding SouthAfrica) and employs about 70 percent ofthe population. Inadequate infrastructurecould hamper adaptation efforts, withlimited water storage despite abundantresources. Malaria, already the biggestkiller in the region, is spreading to higher,previously safe, altitudes.InEast Asia and the Pacificone majordriver of vulnerability is the large num-ber of people living along the coast andon low-lying islands—over 130 millionpeople in China, and roughly 40 million,or more than half the entire population, inVietnam. A second driver is the continuedreliance, particularly among the poorercountries, on agriculture for income andemployment. As pressures on land, water,and forest resources increase—as a resultof population growth, urbanization, andenvironmental degradation caused byrapid industrialization—greater vari-ability and extremes will complicate theirmanagement. In the Mekong River basin,the rainy season will see more intense pre-cipitation, while the dry season lengthensby two months. A third driver is that theregion’s economies are highly depen-dent on marine resources—the value of

Growth is necessary for greater resilience,but is not sufficient.Economic growthis necessary to reduce poverty and is at theheart of increasing resilience to climatechange in poor countries. But growth aloneis not the answer to a changing climate.Growth is unlikely to be fast enough to helpthe poorer countries, and it can increasevulnerability to climate hazards (box 2).Nor is growth usually equitable enoughto ensure protection for the poorest andmost vulnerable. It does not guarantee thatkey institutions will function well. And ifit is carbon intensive, it will cause furtherwarming.But there is no reason to think that alow-carbon path must necessarily sloweconomic growth: many environmentalregulations were preceded by warnings ofmassive job losses and industry collapse, fewof which materialized.28Clearly, however,the transition costs are substantial, notablyin developing low-carbon technologies andinfrastructure for energy, transport, hous-ing, urbanization, and rural development.Two arguments often heard are that thesetransition costs are unacceptable giventhe urgent need for other more immedi-ate investments in poor countries, and thatcare should be taken not to sacrifice thewelfare of poor individuals today for thesake of future, possibly richer, generations.There is validity to these concerns. But thepoint remains that a strong economic argu-ment can be made for ambitious action onclimate change.

Economic growth: Necessary, but not sufficientcommunity-based early warning sys-tem for cyclones and a flood forecast-ing and response program drawingon local and international expertise.But the scope of possible adaptationis limited by resources—its annualper capita income is $450. Mean-while, the Netherlands governmentis planning investments amountingto $100 for every Dutch citizen everyyear for the next century. And eventhe Netherlands, with a per capitaincome 100 times that of Bangladesh,has begun a program of selectiverelocation away from low-lying areasbecause continuing protection every-where is unaffordable.Sources:Barbier and Sathirathai 2004;Deltacommissie 2008; FAO 2007; Gov-ernment of Bangladesh 2008; Guanand Hubacek 2008; Karim and Mimura2008; Shalizi 2006; and Xia and others2007.

Richer countries have more resourcesto cope with climate impacts, andbetter educated and healthier popu-lations are inherently more resilient.But the process of growth mayexacerbate vulnerability to climatechange, as in the ever-increasingextraction of water for farming,industry, and consumption in thedrought-prone provinces around Bei-jing, and as in Indonesia, Madagascar,Thailand, and U.S. Gulf Coast, whereprotective mangroves have beencleared for tourism and shrimp farms.Growth is not likely to be fastenough for low-income countriesto afford the kind of protection thatthe rich can afford. Bangladesh andthe Netherlands are among thecountries most exposed to rising sealevels. Bangladesh is already doing alot to reduce the vulnerability of itspopulation, with a highly effective

thresholds or tipping points beyond whichcatastrophic impacts occur (see Sciencefocus). The comparison is also complicatedby distributional issues across time (mitiga-tion incurred by one generation producesbenefits for many generations to come)and space (some areas are more vulnerablethan others, hence more likely to supportaggressive global mitigation efforts). Andit is further complicated by the question ofhow to value the loss of life, livelihoods, andnonmarket services such as biodiversity andecosystem services.Economists have typically tried to iden-tify the optimal climate policy using cost-benefit analysis. But as box 3 illustrates,the results are sensitive to the particularassumptions about the remaining uncer-tainties, and to the normative choices maderegarding distributional and measurementissues. (A technology optimist, who expectsthe impact of climate change to be relativelymodest and occurring gradually over time,and who heavily discounts what happensin the future, will favor modest action now.And vice versa for a technology pessimist.)So economists continue to disagree on theeconomically or socially optimal carbon

The cost of “climate insurance”value of consumption and the presentvalue of consumption that the worldwould enjoy with no climate change).A key point evident in the figure is therelative flatness of the consumption losscurves over wide ranges of peak CO2econcentrations. As a consequence, mov-ing from 750 ppm to 550 ppm results ina relatively small loss in consumption(0.3 percent) with the Nordhaus assump-tions. The results therefore suggest thatthe cost of precautionary mitigation to550 ppm is small. With the Stern assump-tions, a 550 ppm target results in againin present value of consumption of about0.5 percent relative to the 750 ppmtarget.A strong motivation for choosing alower peak concentration target is toreduce the risk of catastrophic outcomeslinked to global warming. From this per-spective, the cost of moving from a hightarget for peak CO2e concentrations to alower target can be viewed as the cost ofclimate insurance—the amount of wel-fare the world would sacrifice to reducethe risk of catastrophe. The analysis ofHof, den Elzen, and van Vuuren suggeststhat the cost of climate insurance is mod-est under a very wide range of assump-tions about the climate system and thecost of mitigating climate change.Source:Hof, den Elzen, and van Vuuren 2008.

Hof, den Elzen, and van Vuuren examinethe sensitivity of the optimal climatetarget to assumptions about the timehorizon, climate sensitivity (the amountof warming associated with a doublingof carbon dioxide concentrations frompreindustrial levels), mitigation costs,likely damages, and discount rates. To doso, they run their integrated assessmentmodel (FAIR), varying the model’s settingsalong the range of assumptions found inthe literature, notably those associatedwith two well-known economists: Nicho-las Stern, who advocates early and ambi-tious action; and William Nordhaus, whosupports a gradual approach to climatemitigation.Not surprisingly, their model resultsin completely different optimal targetsdepending on which assumptions areused. (The optimal target is defined asthe concentration that would result in thelowest reduction in the present value ofglobal consumption.) The “Stern assump-tions” (which include relatively highclimate sensitivity and climate damages,and a long time horizon combined withlow discount rates and mitigation costs)produce an optimum peak CO2e concen-tration of 540 parts per million (ppm). The“Nordhaus assumptions” (which assumelower climate sensitivity and damages,a shorter time horizon, and a higherdiscount rate) produce an optimum of750 ppm. In both cases, adaptation costsare included implicitly in the climate dam-age function.The figure plots the least cost of stabi-lizing atmospheric concentrations in therange of 500 to 800 ppm for the Stern andNordhaus assumptions (reported as thedifference between the modeled present

climate action lies with costs that occurin the future, which gradualists heavilydiscount.The large uncertainties about the poten-tial losses associated with climate changeand the possibility of catastrophic risksmay well justify earlier and more aggressiveaction than a simple cost-benefit analysiswould suggest. This incremental amountcould be thought of as the insurance pre-mium to keep climate change within whatscientists consider a safer band.32Spendingless than half a percent of GDP as “climateinsurance” could well be a socially accept-able proposition: the world spends 3 percentof global GDP on insurance today.33But beyond the question of “climateinsurance” is the question of what mightbe the resulting mitigation costs—and theassociated financing needs. In the mediumterm, estimates of mitigation costs in devel-oping countries range between $140 billionand $175 billion annually by 2030. Thisrepresents the incremental costs relative toa business-as-usual scenario (table 1).Financing needs would be higher, how-ever, as many of the savings from the loweroperating costs associated with renewableenergy and energy efficiency gains onlymaterialize over time. McKinsey, for exam-ple, estimates that while the incremental costin 2030 would be $175 billion, the upfrontinvestments required would amount to$563 billion over and above business-as-usualinvestment needs. McKinsey does point outthat this amounts to a roughly 3 percentincrease in global business-as-usual invest-ments, and as such is likely to be within thecapacity of global financial markets.34How-ever, financing has historically been a con-straint in developing countries, resulting inunderinvestment in infrastructure as wellas a bias toward energy choices with lowerupfront capital costs, even when such choiceseventually result in higher overall costs. Thesearch for suitable financing mechanismsmust therefore be a priority.What about the longer term? Mitigationcosts will increase over time to cope withgrowing population and energy needs—but so will income. As a result, the presentvalue of global mitigation costs to 2100 isexpected to remain well below 1 percentof global GDP, with estimates ranging

between 0.3 percent and 0.7 percent (table2). Developing countries’ mitigation costswould represent a higher share of their ownGDP, however, ranging between 0.5 and1.2 percent.There are far fewer estimates of neededadaptation investments, and those that existare not readily comparable. Some look onlyat the cost of climate-proofing foreign aidprojects. Others include only certain sec-tors. Very few try to look at overall countryneeds (see chapter 6). A recent World Bankstudy that attempts to tackle these issuessuggests that the investments needed couldbe between $75 billion and $100 billionannually in developing countries alone.35Table 1 Incremental mitigation costs and associated financing requirements for a 2�Ctrajectory: What will be needed in developing countries by 2030?Constant 2005$ModelIEA ETPMcKinseyMESSAGEMiniCAMREMIND139384175Mitigation costFinancing requirement565563264

Sources:IEA ETP: IEA 2008c; McKinsey: McKinsey & Company 2009 and additional data provided by McKinsey(J. Dinkel) for 2030, using a dollar-to-euro exchange rate of $1.25 to€1;MESSAGE: IIASA 2009 and additionaldata provided by V. Krey; MiniCAM: Edmonds and others 2008 and additional data provided by J. Edmonds andL. Clarke; REMIND: Knopf and others, forthcoming and additional data provided by B. Knopf.Note:Both mitigation costs and associated financing requirements are incremental relative to a business-as-usual baseline. Estimates are for the stabilization of greenhouse gases at 450 ppm CO2e, which would provide a40–50 percent chance of staying below 2�C warming by 2100 (Schaeffer and others 2008; Hare and Meinshausen2006). IEA ETP is the model developed by the International Energy Agency, and McKinsey is the proprietarymethodology developed by McKinsey & Company; MESSAGE, MiniCAM, and REMIND are the peer-reviewedmodels of the International Institute for Applied Systems Analysis, the Pacific Northwest Laboratory, and thePotsdam Institute for Climate Impact Research, respectively. McKinsey includes all sectors; other modelsonly include mitigation efforts in the energy sector. MiniCAM reports $168 billion in mitigation costs in 2035, inconstant 2000 dollars; this figure has been interpolated to 2030 and converted to 2005 dollars.

A climate-smart world is withinreach if we act now, act together,and act differentlyEven if the incremental cost of reducingclimate risk is modest and the investmentneeds far from prohibitive, stabilizingwarming around 2�C above preindustrialtemperatures is extremely ambitious. By2050 emissions would need to be 50 percentbelow 1990 levels and be zero or negative by2100 (figure 5). This would require imme-diate and Herculean efforts: within the next20 years global emissions would have tofall, compared to a business-as-usual path,by an amount equivalent to total emissionsfrom high-income countries today. In addi-tion, even 2�C warming would also requirecostly adaptation—changing the kinds ofrisks people prepare for; where they live;what they eat; and the way they design,develop, and manage agroecological andurban systems.36So both the mitigation and the adap-tation challenges are substantial. But the

Act now: Inertia means thattoday’s actions will determinetomorrow’s optionsThe climate system exhibits substantial iner-tia (figure 6). Concentrations lag emissionreductions: CO2remains in the atmospherefor decades to centuries, so a decline in emis-sions takes time to affect concentrations.Temperatures lag concentrations: tempera-tures will continue increasing for a few cen-turies after concentrations have stabilized.And sea levels lag temperature reductions:the thermal expansion of the ocean from anincrease in temperature will last 1,000 yearsor more while the sea-level rise from meltingice could last several millennia.37The dynamics of the climate systemtherefore limit how much future mitiga-tion can be substituted for efforts today. Forexample, stabilizing the climate near 2�C(around 450 ppm of CO2e) would requireglobal emissions to begin declining immedi-ately by about 1.5 percent a year. A five-yeardelay would have to be offset by faster emis-sion declines. And even longer delays simplycould not be offset: a ten-year delay in miti-gation would most likely make it impossibleto keep warming from exceeding 2�C.38Inertia is also present in the built envi-ronment, limiting flexibility in reducinggreenhouse gases or designing adaptationresponses. Infrastructure investments arelumpy, concentrated in time rather thanevenly distributed.39They are also long-lived: 15–40 years for factories and powerplants, 40–75 years for road, rail, and powerdistribution networks. Decisions on land useand urban form—the structure and densityof cities—have impacts lasting more than acentury. And long-lived infrastructure trig-gers investments in associated capital (cars

Figure 5 What does the way forward look like? Two options among many: Business as usualor aggressive mitigationProjected annual total global emissions (GtCO2e)160140120100806040200–20–40200020102020203020402050YearSource:Clarke and others, forthcoming.Note:The top band shows the range of estimates across models (GTEM, IMAGE, MESSAGE, MiniCAM) for emis-sions under a business-as-usual scenario. The lower band shows a trajectory that could yield a concentrationof 450 ppm of CO2e (with a 50 percent chance of limiting warming to less than 2�C). Greenhouse gas emissionsinclude CO2, CH4, and N2O. Negative emissions (eventually required by the 2�C path) imply that the annual rate ofemissions is lower than the rate of uptake and storage of carbon through natural processes (for example, plantgrowth) and engineered processes (for example, growing biofuels and when burning them, sequestering the CO2underground). GTEM, IMAGE, MESSAGE, and MiniCAM are the integrated assessment models of the AustralianBureau of Agricultural and Resource Economics, the Netherlands Environmental Assessment Agency, Interna-tional Institute of Applied Systems Analysis, and Pacific Northwest National Laboratory.

for low-density cities; gas-fired heat andpower generation capacity in response to gaspipelines), locking economies into lifestylesand energy consumption patterns.The inertia in physical capital is nowhereclose to that in the climate system and ismore likely to affect the cost rather than thefeasibility of achieving a particular emissiongoal—but it is substantial. The opportuni-ties to shift from high-carbon to low-carboncapital stocks are not evenly distributed intime.40China is expected to double its build-ing stock between 2000 and 2015. And thecoal-fired power plants proposed around theworld over the next 25 years are so numer-ous that their lifetime CO2emissions wouldequal those of all coal-burning activitiessince the beginning of the industrial era.41Only those facilities located close enough tothe storage sites could be retrofitted for car-bon capture and storage (if and when thattechnology becomes commercially available:see chapters 4 and 7). Retiring these plantsbefore the end of their useful life—if changesin the climate force such action—would beextremely costly.Inertia is also a factor in research anddevelopment (R&D) and in the deploymentof new technologies. New energy sourceshave historically taken about 50 years toreach half their potential.42Substantialinvestments in R&D are needed now toensure that new technologies are availableand rapidly penetrating the marketplacein the near future. This could require anadditional $100 billion to $700 billionannually.43Innovation is also needed intransport, building, water management,urban design, and many other sectorsthat affect climate change and are in turnaffected by climate change—so innovationis a critical issue for adaptation as well.Inertia is also present in the behaviorof individuals and organizations. Despitegreater public concern, behaviors have notchanged much. Available energy-efficienttechnologies that are effective and pay forthemselves are not adopted. R&D in renew-ables is underfunded. Farmers face incen-tives to over-irrigate their crops, which inturn affects energy use, because energy isa major input in water provision and treat-ment. Building continues in hazard-prone

facilitate adaptation, notably through bet-ter risk management and safety nets to pro-tect the most vulnerable.To keep costs down and fairly distributed.Affordability hinges on mitigation beingdone cost effectively. When estimating themitigation costs discussed earlier, model-ers assume that greenhouse gas emissionreductions occur wherever and wheneverthey are cheapest.Wherevermeans pur-suing greater energy efficiency and otherlow-cost options to mitigate in whatevercountry or sector the opportunity arises.Wheneverentails timing investments innew equipment, infrastructure, or farm-ing and forestry projects to minimize costsand keep economies from getting lockedinto high-carbon conditions that would beexpensive to alter later. Relaxing the wher-ever, whenever rule—as would necessarilyhappen in the real world, especially in theabsence of a global carbon price—dramat-ically increases the cost of mitigation.The implication is that there are enor-mous gains to global efforts—on this point,analysts are unanimous. If any country orgroup of countries does not mitigate, oth-ers must reach into higher-cost mitigationoptions to achieve a given global target. Forexample, by one estimate, the nonparticipa-tion of the United States, which is respon-sible for 20 percent of world emissions, inthe Kyoto Protocol increases the cost ofachieving the original target by about 60percent.46Both equity and efficiency argue fordeveloping financial instruments that sepa-rate who finances mitigation from where ithappens. Otherwise, the substantial miti-gation potential in developing countries(65–70 percent of emission reductions,adding up to 45–70 percent of global miti-gation investments in 2030)47will not befully tapped, substantially increasing thecost of achieving a given target. Takingit to the extreme, a lack of financing thatresults in fully postponing mitigation indeveloping countries to 2020 could morethan double the cost of stabilizing around2�C.48With mitigation costs estimated toadd up to $4 trillion to $25 trillion49overthe next century, the losses implied by such

delays are so large that there are clear eco-nomic benefits for high-income countriescommitted to limiting dangerous climatechange to finance early action in develop-ing countries.50More generally, the totalcost of mitigation could be greatly reducedthrough well-performing carbon-financemechanisms, financial transfers, and pricesignals that help approximate the out-come produced by the whenever, whereverassumption.To manage risk better and protect the poor-est.In many places previously uncom-mon risks are becoming more widespread.Consider floods, once rare but now increas-ingly common, in Africa and the first hur-ricane ever recorded in the South Atlantic,which hit Brazil in 2004.51Reducing disas-ter risk—through community-based earlywarning systems, climate monitoring,safer infrastructure, and strengthened andenforced zoning and building codes, alongwith other measures—becomes moreimportant in a changing climate. Finan-cial and institutional innovations can alsolimit risks to health and livelihoods. Thisrequires domestic action—but domesticaction will be greatly enhanced if it is sup-ported by international finance and sharingof best-practice.But as discussed in chapter 2, activelyreducing risk will never be enough becausethere will always be a residual risk thatmust also be managed through betterpreparedness and response mechanisms.The implication is that development mayneed to be done differently, with muchgreater emphasis on climate and weatherrisk. International cooperation can help,for example, through pooling efforts toimprove the production of climate infor-mation and its broad availability (see chap-ter 7) and through sharing best practices tocope with the changing and more variableclimate.52Insurance is another instrument tomanage the residual risk, but it has its limi-tations. Climate risk is increasing along atrend and tends to affect entire regionsor large groups of people simultaneously,making it difficult to insure. And evenwith insurance, losses associated with

catastrophic events (such as widespreadflooding or severe droughts) cannot befully absorbed by individuals, communi-ties, and the private sector. In a more vola-tile climate, governments will increasinglybecome insurers of last resort and have animplicit responsibility to support disasterrecovery and reconstruction. This requiresthat governments protect their own liquid-ity in times of crisis, particularly poorer orsmaller countries that are financially vul-nerable to the impacts of climate change:Hurricane Ivan caused damages equivalentto 200 percent of Grenada’s GDP.53Havingimmediate funds available to jump-startthe rehabilitation and recovery processreduces the derailing effect of disasters ondevelopment.Multicountry facilities and reinsurancecan help. The Caribbean Catastrophe RiskInsurance Facility spreads risk among 16Caribbean countries, harnessing the rein-surance market to provide liquidity togovernments quickly following destructivehurricanes and earthquakes.54Such facili-ties may need help from the internationalcommunity. More generally, high-incomecountries have a critical role in ensur-ing that developing countries have timelyaccess to the needed resources when shockshit, whether by supporting such facilities orthrough the direct provision of emergencyfunding.But insurance and emergency fund-ing are only one part of a broader risk-management framework. Social policieswill become more important in helpingpeople cope with more frequent and per-sistent threats to their livelihoods. Socialpolicies reduce economic and social vul-nerability and increase resilience to climatechange. A healthy, well-educated popula-tion with access to social protection canbetter cope with climate shocks and climatechange. Social protection policies will needto be strengthened where they exist, devel-oped where they are lacking, and designedso that they can be expanded quickly aftera shock.55Creating social safety nets incountries that do not yet have them is criti-cal, and Bangladesh shows how it can bedone even in very poor countries (box 4).Development agencies could help spread

Bangladesh has had a long history ofcyclones and floods, and these couldbecome more frequent or intense. Thegovernment has safety nets that canbe tailored fairly easily to respond tothe effects of climate change. The bestexamples are the vulnerable-groupfeeding program, the food-for-workprogram, and the new employmentguarantee program.The vulnerable- group feedingprogram runs at all times and usuallycovers more than 2 million house-holds. But it is designed to be rampedup in response to a crisis: followingthe cyclone in 2008, the programwas expanded to close to 10 millionhouseholds. Targeting, done by thelowest level of local government andmonitored by the lowest administra-tive level, is considered fairly good.The food-for-work program, whichnormally operates during the low agri-culture season, is ramped up duringemergencies. It too is run in collabo-ration with local governments, butprogram management has been sub-contracted to nongovernmental orga-nizations in many parts of the country.Workers who show up at the work siteare generally given work, but there isusually not enough to go around, sothe work is rationed through rotation.

The new employment guaranteeprogram provides those with noother means of income (includingaccess to other safety nets) withemployment for up to 100 days atwages linked to the low-seasonagricultural wage. The guaranteeelement ensures that those whoneed help get it. If work cannot beprovided, the individual is entitled to40 days of wages at the full rate andthen 60 days at half the rate.Bangladesh’s programs, and othersin India and elsewhere, suggest somelessons. Rapid response requires rapidaccess to funding, targeting rules toidentify people in need—chronicpoor or those temporarily in need—and procedures agreed on well beforea shock hits. A portfolio of “shovel-ready” projects can be preidentifiedas particularly relevant to increasingresilience (water storage, irrigationsystems, reforestation, and embank-ments, which can double as roads inlow-lying areas). Experience from Indiaand Bangladesh also suggests theneed for professional guidance (engi-neers) in the selection, design, andimplementation of the public worksand for equipment and supplies.Source:Contributed by Qaiser Khan.

more intensively, they will have to scale upcooperation on international water bodiesthrough new international treaties or therevision of existing ones. The system ofwater allocation will need to be reworkeddue to the increased variability, and coop-eration can be effective only when all ripar-ian countries are involved and responsiblefor managing the watercourse.Similarly, increasing arid conditions incountries that already import a large shareof their food, along with more frequentextreme events and growth in income andpopulation, will increase the need for foodimports.58But global food markets arethin—relatively few countries export foodcrops.59So small changes in either supply ordemand can have big effects on prices. Andsmall countries with little market powercan find it difficult to secure reliable foodimports.To ensure adequate water and nutritionfor all, the world will have to rely on animproved trade system less prone to largeprice shifts. Facilitating access to marketsfor developing countries by reducing tradebarriers, weatherproofing transport (forexample, by increasing access to year-roundroads), improving procurement methods,Figure 7 Global CO2e emissions by sector: Energy,but also agriculture and forestry, are major sourcesWaste andwastewater3%Power26%

Act differently: To transform energy,food production, and decision-makingsystemsAchieving the needed emission reductionswill require a transformation both of ourenergy system and of the way we manageagriculture, land use, and forests (figure 7).These transformations must also incorpo-rate the needed adaptations to a changingclimate. Whether they involve decidingwhich crop to plant or how much hydro-electric power to develop, decisions willhave to be robust to the variety of climateoutcomes we could face in the future ratherthan being optimally adapted to the climateof the past.To ignite a veritable energy revolution.Iffinancing is available, can emissions be cutsufficiently deeply or quickly without sacri-ficing growth? Most models suggest that theycan, although none find it easy (see chapter4). Dramatically higher energy efficiency,stronger management of energy demand,and large-scale deployment of existinglow-CO2-emitting electricity sources couldproduce about half the emission reductionsneeded to put the world on a path toward2�C (figure 8). Many have substantial co-benefits but are hampered by institutionaland financial constraints that have provenhard to overcome.So known technologies and practicescan buy time—if they can be scaled up. Forthat to happen, appropriate energy pricingis absolutely essential. Cutting subsidiesand increasing fuel taxes are politically dif-ficult, but the recent spike and fall in oiland gas prices make the time opportune fordoing so. Indeed, European countries usedthe 1974 oil crisis to introduce high fueltaxes. As a result, fuel demand is about halfwhat it likely would have been had pricesbeen close to those in the United States.61Similarly, electricity prices are twice as high

in Europe as they are in the United Statesand electricity consumption per capita ishalf.62Prices help explain why Europeanemissions per capita (10 tons of CO2e) areless than half those in the United States(23 tons).63Global energy subsidies indeveloping countries were estimated at$310 billion in 2007,64disproportionatelybenefiting higher-income populations.Rationalizing energy subsidies to target thepoor and encourage sustainable energy andtransport could reduce global CO2emis-sions and provide a host of other benefits.But pricing is only one tool for advanc-ing the energy-efficiency agenda, which suf-fers from market failures, high transactioncosts, and financing constraints. Norms,regulatory reform, and financial incentivesare also needed—and are cost-effective.Efficiency standards and labeling programscost about 1.5 cents a kilowatt-hour, muchless than any electricity supply options,65while industrial energy performance targetsFigure 8

spur innovation and increase competitive-ness.66And because utilities are potentiallyeffective delivery channels for makinghomes, commercial buildings, and indus-try more energy efficient, incentives have tobe created for utilities to conserve energy.This can be done by decoupling a utility’sprofits from its gross sales, with profitsinstead increasing with energy conserva-tion successes. Such an approach is behindCalifornia’s remarkable energy conserva-tion program; its adoption has become acondition for any U.S. state to receive fed-eral energy-efficiency grants from the 2009fiscal stimulus.For renewable energy, long-term power-purchase agreements within a regulatoryframework that ensures fair and open gridaccess for independent power producers willattract investors. This can be done throughmandatory purchases of renewable energy ata fixed price (known as a feed-in tariff) as inGermany and Spain; or through renewable

portfolio standards that require a minimumshare of power to come from renewables, asin many U.S. states.67Importantly, predict-ably higher demand is likely to reduce thecosts of renewables, with benefits for allcountries. In fact, experience shows thatexpected demand can have an even higherimpact than technological innovation indriving down prices (figure 9).But new technologies will be indispens-able: every energy model reviewed for thisReport concludes that it is impossible to getonto the 2�C trajectory with only energyefficiency and the diffusion of existingtechnologies. New or emerging technolo-gies, such as carbon capture and storage,second-generation biofuels, and solar pho-tovoltaics, are also critical.Few of the needed new technologiesare available off the shelf. Ongoing car-bon capture and storage demonstrationprojects currently store only about 4 mil-lion tons of CO2annually.68Fully provingthe viability of this technology in differentregions and settings will require about 30full-size plants at a total cost of $75 billionto $100 billion.69Storage capacity of 1 bil-lion tons a year of CO2is necessary by 2020to stay within 2�C warming.Investments in biofuels research are alsoneeded. Expanded production using thecurrent generation of biofuels would dis-place large areas of natural forests and grass-lands and compete with the production offood.70Second-generation biofuels that relyFigure 9 High expected demand drove cost reductions in solar photovoltaics by allowing forlarger-scale productionCost reduction by factor ($/watt)$25$20$15$10$501979 pricePlant size43%30%22%EfficiencyOther5%Unexplained2001 price$25.30Expected demand effectR&D$3.68

on nonfood crops may reduce competitionwith agriculture by using more marginallands. But they could still lead to the loss ofpasture land and grassland ecosystems andcompete for water resources.71Breakthroughs in climate-smart tech-nologies will require substantially morespending for research, development, dem-onstration, and deployment. As mentionedearlier, global public and private spendingon energy RD&D is modest, both rela-tive to estimated needs and in comparisonwith what innovative industries invest. Themodest spending means slow progress,with renewable energy still accountingfor only 0.4 percent of all patents.72More-over, developing countries need access tothese technologies, which requires boost-ing domestic capacity to identify and adaptnew technologies as well as strengtheninginternational mechanisms for technologytransfer (see chapter 7).To transform land and water managementand manage competing demands.By 2050the world will need to feed 3 billion morepeople and cope with the changing dietarydemands of a richer population (richer peo-ple eat more meat, a resource-intensive wayto obtain proteins). This must be done in aharsher climate with more storms, droughts,and floods, while also incorporating agricul-ture in the mitigation agenda—because agri-culture drives about half the deforestationevery year and directly contributes 14 per-cent of overall emissions. And ecosystems,already weakened by pollution, populationpressure, and overuse, are further threat-ened by climate change. Producing more andprotecting better in a harsher climate whilereducing greenhouse gas emissions is a tallorder. It will require managing the compet-ing demands for land and water from agri-culture, forests and other ecosystems, cities,and energy.So agriculture will have to become moreproductive, getting more crop per drop andper hectare—but without the increase inenvironmental costs currently associatedwith intensive agriculture. And societies willhave to put much more effort into protectingecosystems. To avoid pulling more land intocultivation and spreading into “unmanaged”

land and forests, agricultural productivitywill have to increase, perhaps by as much as1.8 percent a year compared to 1 percent ayear without climate change.73Most of thatincrease will have to occur in developingcountries because agriculture in high-incomecountries is already close to maximum fea-sible yields. Fortunately, new technologiesand practices are emerging (box 5). Someimprove productivity and resilience as theysequester carbon in the soil and reduce thenutrient runoff that damages aquatic ecosys-tems. But more research is needed to under-stand how to scale them up.Increased efforts to conserve species andecosystems will need to be reconciled withfood production (whether agriculture or fish-eries). Protected areas—already 12 percentof the earth’s land but only a tiny portion ofthe ocean and fresh water system—cannotbe the only solution to maintaining biodi-versity, because species ranges are likely toshift outside the boundaries of such areas.Instead ecoagricultural landscapes, wherefarmers create mosaics of cultivated and nat-ural habitats, could facilitate the migration

of species. While benefiting biodiversity,ecoagriculture practices also increase agri-culture’s resilience to climate change alongwith farm productivity and incomes. InCentral America farms using these practicessuffered half or less of the damage inflictedon others by Hurricane Mitch.75Better management of water is essentialfor agriculture to adapt to climate change.River basins will be losing natural waterstorage in ice and snow and in reducedaquifer recharge, just as warmer tempera-tures increase evaporation. Water can beused more efficiently through a combina-tion of new and existing technologies, bet-ter information, and more sensible use.And that can be done even in poor coun-tries and among small farmers: in AndhraPradesh, India, a simple scheme, in whichfarmers monitor their rain and groundwa-ter and learn new farming and irrigationtechniques, has caused 1 million farmers tovoluntarily reduce groundwater consump-tion to sustainable levels.75Efforts to increase water resourcesinclude dams, but dams can be only a part

Promising approaches that are good for farmers and good for the environmentminimum necessary fertilizer and watercould help the intensive, high-input farmsof high-income countries, Asia, and LatinAmerica to reduce emissions and nutrientrunoff, and increase water-use efficiency.New technologies that limit emissionsof gaseous nitrogen include controlled-release nitrogen through the deep place-ment of supergranules of fertilizer orthe addition of biological inhibitors tofertilizers. Remote sensing technologiesfor communicating precise informationabout soil moisture and irrigation needscan eliminate unnecessary applicationof water. Some of these technologiesmay remain too expensive for mostdeveloping- country farmers (and couldrequire payment schemes for soil carbonconservation or changes in water pric-ing). But others such as biological inhibi-tors require no extra labor and improveproductivity.the Amazon rain forest could sequestercarbon on a huge scale while improv-ing soil productivity. Burning wet cropresidues or manure (biomass) at lowtemperatures in the almost completeabsence of oxygen produces biochar,a charcoal-type solid with a very highcarbon content. Biochar is highly stablein soil, locking in the carbon that wouldotherwise be released by simply burningthe biomass or allowing it to decom-pose. In industrial settings this processtransforms half the carbon into biofueland the other half into biochar. Recentanalysis suggests biochar may be able tostore carbon for centuries, possibly mil-lennia, and more studies are underwayto verify this property.

Promising practicesCultivation practices such as zero-tillage(which involves injecting seeds directlyinto the soil instead of sowing onploughed fields) combined with residuemanagement and proper fertilizer use canhelp to preserve soil moisture, maximizewater infiltration, increase carbon storage,minimize nutrient runoff, and raise yields.Now being used on about 2 percent ofglobal arable land, this practice is likelyto expand. Zero tillage has mostly beenadopted in high-income countries, butis expanding rapidly in countries such asIndia. In 2005, in the rice–wheat farmingsystem of the Indo- Gangetic plain, farm-ers adopted zero-tillage on 1.6 millionhectares; by 2008, 20–25 percent of thewheat in two Indian states (Haryana andPunjab) was cultivated using minimumtillage. And in Brazil, about 45 percent ofcropland is farmed using these practices.

of the solution, and they will need to bedesigned flexibly to deal with more variablerainfall. Other approaches include usingrecycled water and desalination, which,while costly, can be worthwhile for high-value use in coastal areas, especially if pow-ered by renewable energy (see chapter 3).But changing practices and technolo-gies can be a challenge, particularly in poor,rural, and isolated settings, where introduc-ing new ways of doing things requires work-ing with a large number of very risk-averseactors located off the beaten track and fac-ing different constraints and incentives.Extension agencies usually have limitedresources to support farmers and are staffedwith engineers and agronomists rather thantrained communicators. Taking advantageof emerging technologies will also requirebringing higher technical education to ruralcommunities.To transform decision-making processes:Adaptive policy making to tackle a riskier andmore complex environment.Infrastructuredesign and planning, insurance pricing, andnumerous private decisions—from plantingand harvesting dates to siting factories anddesigning buildings—have long been basedon stationarity, the idea that natural systemsfluctuate within an unchanging envelope ofvariability. With climate change, stationarityis dead.76Decision makers now have to con-tend with the changing climate compound-ing the uncertainties they already faced.More decisions have to be made in a contextof changing trends and greater variability,not to mention possible carbon constraints.The approaches being developed andapplied by public and private agencies, cities,and countries around the world from Aus-tralia to the United Kingdom are showingthat it is possible to increase resilience evenin the absence of expensive and sophisticatedmodeling of future climate.77Of course bet-ter projections and less uncertainty help,but these new approaches tend to focus onstrategies that are “robust” across a range ofpossible future outcomes, not just optimalfor a particular set of expectations (box 6).78Robust strategies can be as simple as pick-ing seed varieties that do well in a range ofclimates.

Robust strategies typically build flex-ibility, diversification, and redundancy inresponse capacities (see chapter 2). Theyfavor “no-regrets” actions that providebenefits (such as water and energy effi-ciency) even without climate change. Theyalso favor reversible and flexible optionsto keep the cost of wrong decisions as lowas possible (restrictive urban planning forcoastal areas can easily be relaxed whileforced retreats or increased protection canbe difficult and costly). They include safetymargins to increase resilience (paying themarginal costs of building a higher bridgeor one that can be flooded, or extendingsafety nets to groups on the brink). Andthey rely on long-term planning based onscenario analysis and an assessment ofstrategies under a wide range of possiblefutures.79Participatory design and imple-mentation is critical, because it permitsthe use of local knowledge about existingvulnerability and fosters ownership of thestrategy by its beneficiaries.Policy making for adaptation also needsto be adaptive itself, with periodic reviewsbased on the collection and monitoring ofinformation, something increasingly fea-sible at low cost thanks to better technolo-gies. For example, a key problem in watermanagement is the lack of knowledge aboutunderground water, or about who con-sumes what. New remote-sensing technol-ogy makes it possible to infer groundwaterconsumption, identify which farmers havelow water productivity, and specify when toincrease or decrease water applications tomaximize productivity without affectingcrop yields (see chapter 3).

Human healthMany adaptations of health systemsto climate change will initially involvepractical options that build on existingknowledge. But others will require newskills. Advances in genomics are makingit possible to design new diagnostic toolsthat can detect new infectious diseases.These tools, combined with advances incommunications technologies, can detectemerging trends in health and providehealth workers with early opportunitiesto intervene. Innovations in a range oftechnologies are already transformingmedicine. For example, the advent ofhand-held diagnostic devices and video-mediated consultations are expandingthe prospects for telemedicine andmaking it easier for isolated communi-ties to connect to the global healthinfrastructure.

Physical capitalClimate change is likely to affect infra-structure in ways not easily predictableand varying greatly with geography.For example, infrastructure in low-lyingareas is threatened by flooding rivers andrising seas whether in Tangier Bay, NewYork City, or Shanghai. Heat waves softenasphalt and can require road closures;they affect the capacity of electricitytransmission lines and warm the waterneeded to cool thermal and nuclearpower plants just as they increase elec-tricity demand. Uncertainties are likely toinfluence not only investment decisionsbut the design of infrastructure that willneed to be robust to the future climate.Similar uncertainty about the reliability ofwater supply is leading to both integratedmanagement strategies and improvedwater-related technologies as hedgesagainst climate change. Greater technicalknowledge and engineering capabilitieswill be needed to design future infra-structure in the light of climate change.

Natural capitalA diversity of natural assets will beneeded to cope with climate change andensure productive agriculture, forestry,and fisheries. For example, crop variet-ies are needed that perform well underdrought, heat, and enhanced CO2. But theprivate-sector- and farmer-led processof choosing crops favors homogeneityadapted to past or current conditions,not varieties capable of producing con-sistently high yields in warmer, wetter, ordrier conditions. Accelerated breedingprograms are needed to conserve a widerpool of genetic resources of existingcrops, breeds, and their wild relatives.Relatively intact ecosystems, such asforested catchments, mangroves, andwetlands, can buffer the impacts of cli-mate change. Under a changing climatethese ecosystems are themselves at risk,and management approaches will needto be more proactive and adaptive. Con-nections between natural areas, such as

behavior changes possible. The answer liesin a combination of new pressures, newinstruments, and new resources.New pressures are coming from a grow-ing awareness of climate change and itscurrent and future costs. But awarenessdoes not always lead to action: to suc-ceed, climate-smart development policymust tackle the inertia in the behavior ofindividuals and organizations. Domes-tic perception of climate change will alsodetermine the success of a global deal—itsadoption but also its implementation. Andwhile many of the answers to the climateand development problem will be nationalor even local, a global deal is needed to gen-erate new instruments and new resourcesfor action (see chapter 5). So while newpressures must start at home with chang-ing behaviors and shifting public opinion,action must be enabled by an efficient andeffective international agreement, one thatfactors in development realities.

New pressures: Success hingeson changing behavior and shiftingpublic opinionInternational regimes influence nationalpolicies but are themselves a product ofdomestic factors. Political norms, gover-nance structures, and vested interests drivethe translation of international law intodomestic policy, while shaping the inter-national regime.80And in the absence of aglobal enforcement mechanism, the incen-tives for meeting global commitments aredomestic.To succeed, climate-smart developmentpolicy has to factor in these local determi-nants. The mitigation policies that a countrywill follow depend on domestic factors suchas the energy mix, the current and potentialenergy sources, and the preference for stateor market-driven policies. The pursuit ofancillary local benefits—such as cleaner air,technology transfers, and energy security—is crucial to generating sufficient support.

Climate-smart policies also have totackle the inertia in the behavior of individ-uals and organizations. Weaning moderneconomies from fossil fuels and increasingresilience to climate change will requireattitudinal shifts by consumers, businessleaders, and decision makers. The chal-lenges in changing ingrained behaviors callfor a special emphasis on nonmarket poli-cies and interventions.Throughout the world disaster risk man-agement programs are focused on changingcommunity perceptions of risk. The City ofLondon has made targeted communica-tion and education programs a centerpieceof its “London Warming” Action Plan.And utilities across the United States havebegun using social norms and peer com-munity pressure to encourage lower energydemand: simply showing households howthey are faring relative to others, and sig-naling approval of lower than average con-sumption is enough to encourage lowerenergy use (see chapter 8).Addressing the climate challenge willalso require changes in the way govern-ments operate. Climate policy touches onthe mandate of many government agencies,yet belongs to none. For both mitigation andadaptation, many needed actions require along-term perspective that goes well beyondthose of any elected administration. Manycountries, including Brazil, China, India,Mexico, and the United Kingdom, havecreated lead agencies for climate change,set up high-level coordination bodies, andimproved the use of scientific informationin policy making (see chapter 8).Cities, provinces, and regions providepolitical and administrative space closer tothe sources of emissions and the impacts ofclimate change. In addition to implement-ing and articulating national policies andregulations, they perform policy-making,regulatory, and planning functions in sec-tors key to mitigation (transportation, con-struction, public services, local advocacy)and adaptation (social protection, disasterrisk reduction, natural resource manage-ment). Because they are closer to citizens,these governments can raise public aware-ness and mobilize private actors.81And atthe intersection of the government andthe public, they become the space where

New instruments and new resources:The role of a global agreementImmediate and comprehensive action is notfeasible without global cooperation, whichrequires a deal perceived as equitable by allparties—high-income countries, which needto make the most immediate and stringentefforts; middle-income countries, wheresubstantial mitigation and adaptation needto happen; and low-income countries, wherethe priority is technical and financial assis-tance to cope with vulnerability to today’sconditions, let alone unfolding changes inthe climate. The deal must also be effectivein achieving climate goals, incorporatinglessons from other international agreementsand from past successes and failures withlarge international transfers of resources.Finally, it has to be efficient, which requiresadequate funding and financial instrumentsthat can separate where mitigation happensfrom who funds it—thereby achieving miti-gation at least cost.An equitable deal.Global cooperationat the scale needed to deal with climatechange can happen only if it is based on aglobal agreement that addresses the needsand constraints of developing countries,only if it can separate where mitigationhappens from who bears the burden ofthis effort, and only if it creates financialinstruments to encourage and facilitatemitigation, even in countries that are richin coal and poor in income or that havecontributed little or nothing historically toclimate change. Whether these countriesseize the opportunity to embark on a moresustainable development path will be heav-ily influenced by the financial and techni-cal support that higher-income countriescan muster. Otherwise the transition costscould be prohibitive.Global cooperation will require morethan financial contributions, however.Behavioral economics and social psychol-ogy show that people tend to reject dealsthey perceive as unfair toward them, evenif they stand to benefit.82So the fact that

Cities reducing their carbon footprintsby photovoltaic solar cells. In total thecity has over 500,000 square meters ofsolar water heating panels, the equiva-lent of about 0.5 megawatts of electricwater heaters. As a result of these efforts,energy use has fallen by nearly a third andCO2emissions by half.Examples of movements to carbon-neutral cities are mushrooming wellbeyond China. In 2008 Sydney becamethe first city in Australia to become carbonneutral, through energy efficiency, renew-able energy, and carbon offsets. Copenha-gen is planning to cut its carbon emissionsto zero by 2025. The plan includes invest-ments in wind energy and encouragingthe use of electric and hydrogen-poweredcars with free parking and recharging.More than 700 cities and local govern-ments around the world are participatingin a “Cities for Climate Protection Cam-paign” to adopt policies and implementquantifiable measures to reduce localgreenhouse gas emissions (http://www.iclei.org). Together with other local gov-ernment associations, such as the C40Cities Climate Leadership Group and theWorld Mayors Council on Climate Change,they have embarked on a process thatseeks empowerment and inclusion of citiesand local governments in the UN Frame-work Convention on Climate Change.Sources:Bai 2006; World Bank 2009d; C40Cities Climate Leadership Group, http://www.c40cities.org (accessed August 1, 2009).

it is in everyone’s interest to collaborate isno guarantee of success. There are real con-cerns among developing countries that adrive to integrate climate and developmentcould shift responsibility for mitigationonto the developing world.Enshrining a principle of equity in aglobal deal would do much to dispel suchconcerns and generate trust (see chapter 5).A long-term goal of per capita emissionsconverging to a band could ensure that nocountry is locked into an unequal shareof the atmospheric commons. India hasrecently stated that it would never exceedthe average per capita emissions of high-income countries.83So drastic action byhigh-income countries to reduce their owncarbon footprint to sustainable levels isessential. This would show leadership, spurinnovation, and make it feasible for all toswitch to a low-carbon growth path.Another major concern of developingcountries is technology access. Innovationin climate-related technologies remainsconcentrated in high-income countries,although developing countries are increas-ing their presence (China is seventh inoverall renewable energy patents,84andan Indian firm is now the leader in on-road electric cars85). In addition, devel-oping countries—at least the smaller orpoorer ones—may need assistance to pro-duce new technology or tailor it to their

circumstances. This is particularly prob-lematic for adaptation, where technologiescan be very location specific.International transfers of clean technol-ogies have so far been modest. They haveoccurred in at best one-third of the projectsfunded through the Clean DevelopmentMechanism (CDM), the main channel forfinancing investments in low-carbon tech-nologies in developing countries.86TheGlobal Environment Facility, which hashistorically allocated about $160 milliona year to climate mitigation programs,87is supporting technology needs assess-ments in 130 countries. About $5 billionhas recently been pledged under the newClean Technology Fund to assist develop-ing countries by supporting large, riskyinvestments involving clean technologies,but there are disputes over what constitutesclean technology.Building technology agreements into aglobal climate deal could boost technologyinnovation and ensure developing-countryaccess. International collaboration is criti-cal for producing and sharing climate-smart technologies. On the production side,cost-sharing agreements are needed forlarge-scale and high-risk technologies suchas carbon capture and storage (see chapter7). International agreements on standardscreate markets for innovation. And inter-national support for technology transfer

can take the form of joint production andtechnology sharing—or financial supportfor the incremental cost of adopting newcleaner technology (as was done throughthe Multilateral Fund for the Implementa-tion of the Montreal Protocol on Substancesthat Deplete the Ozone Layer).A global deal will also have to be accept-able to high-income countries. They worryabout the financial demands that could beplaced on them and want to ensure thatfinancial transfers deliver the desired adap-tation and mitigation results. They also areconcerned that a tiered approach allowingdeveloping countries to delay actions mightaffect their own competitiveness with lead-ing middle-income countries.An effective deal: Lessons from aid effective-ness and international agreements.Aneffective climate deal will achieve agreedtargets for mitigation and adaptation. Itsdesign can build on the lessons of aid effec-tiveness and international agreements. Cli-mate finance is not aid finance, but the aidexperience does offer critical lessons. Inparticular, it has become clear that com-mitments are seldom respected unless theycorrespond to a country’s objectives—theconditionality versus ownership debate.So funding for adaptation and mitigationshould be organized around a process thatencourages recipient-country developmentand ownership of a low-carbon developmentagenda. The aid experience also shows that amultiplicity of funding sources imposes hugetransaction costs on recipient countries andreduces effectiveness. And while the sourcesof funding might be separate, the spendingof adaptation and mitigation resources mustbe fully integrated into development efforts.International agreements also show thattiered approaches can be an appropriate wayof bringing hugely different partners into asingle deal. Look at the World Trade Orga-nization: special and differential treatmentfor developing countries has been a definingfeature of the multilateral trading system formost of the postwar period. Proposals areemerging in the climate negotiations aroundthe multitrack framework put forward inthe UNFCCC’s Bali Action Plan.88Theseproposals would have developed countries

commit to output targets, where the “out-put” is greenhouse gas emissions, and devel-oping countries commit to policy changesrather than emission targets.This approach is appealing for three rea-sons. First, it can advance mitigation oppor-tunities that carry development co-benefits.Second, it is well suited to developing coun-tries, where fast population and economicgrowth is driving the rapid expansion of thecapital stock (with opportunities for goodor bad lock-in) and increases the urgency ofmoving energy, urban, and transport sys-tems toward a lower-carbon path. A policy-based track can also offer a good frameworkfor countries with a high share of hard-to-measure emissions from land use, land-usechange, and forestry. Third, it is less likelyto require monitoring of complex flows—achallenge for many countries. Neverthe-less, some overall monitoring and evalua-tion of these approaches is critical, if onlyto understand their effectiveness.89

An efficient deal: The role ofclimate financeClimate finance can reconcile equity andefficiency by separating where climate actiontakes place from who pays for it. Sufficientfinance flowing to developing countries—combined with capacity building and accessto technology—can support low-carbongrowth and development. If mitigationfinance is directed to where mitigation costsare lowest, efficiency will increase. If adapta-tion finance is directed to where the needsare greatest, undue suffering and loss can beavoided. Climate finance offers the means toreconcile equity, efficiency, and effectivenessin dealing with climate change.But current levels of climate financefall far short of foreseeable needs. Theestimates presented in table 1 suggestmitigation costs in developing countriescould reach $140–$175 billion a year by2030 with associated financing needs of$265–$565 billion. Current flows of miti-gation finance averaging some $8 billion ayear to 2012 pale in comparison. And theestimated $30–$100 billion that could beneeded annually for adaptation in develop-ing countries dwarfs the less than $1 billiona year now available (figure 10).

Compounding the shortfalls in climatefinance are significant inefficiencies in howfunds are generated and deployed. Keyproblems include fragmented sources offinance; high costs of implementing marketmechanisms such as the Clean DevelopmentMechanism; and insufficient, distortionaryinstruments for raising adaptation finance.Chapter 6 identifies nearly 20 differentbilateral and multilateral funds for climatechange currently proposed or in operation.This fragmentation has a cost identified inthe Paris Declaration on Aid Effectiveness:each fund has its own governance, raisingtransaction costs for developing countries;and alignment with country developmentobjectives may suffer if sources of financeare narrow. Other tenets of the ParisDeclaration, including ownership, donorharmonization, and mutual accountabil-ity, also suffer when financing is highlyfragmented. An eventual consolidationof funds into a more limited number isclearly warranted.Looking forward, pricing carbon (whetherthrough a tax or through a cap and tradescheme) is the optimal way of both generat-ing carbon-finance resources and directingthose resources to efficient opportunities. Inthe near future, however, the CDM and otherperformance-based mechanisms for carbonoffsets are likely to remain the key market-based instruments for mitigation finance indeveloping countries and are therefore criti-cal in supplementing direct transfers fromhigh-income countries.The CDM has in many ways exceededexpectations, growing rapidly, stimulatinglearning, raising awareness of mitigationoptions, and building capacity. But it alsohas many limitations, including low devel-opment co-benefits, questionable addition-ality (because the CDM generates carboncredits for emission reductions relative to abaseline, the choice of baseline can alwaysbe questioned), weak governance, inefficientoperation, limited scope (key sectors suchas transport are not covered), and concernsabout market continuity beyond 2012.90Forthe effectiveness of climate actions it is alsoimportant to understand that CDM trans-actions do not reduce global carbon emis-sions beyond agreed commitments—they

simply change where they occur (in devel-oping rather than developed countries)and lower the cost of mitigation (therebyincreasing efficiency).The Adaptation Fund under the KyotoProtocol employs a novel financing instru-ment in the form of a 2 percent tax on cer-tified emission reductions (units of carbonoffset generated by the CDM). This clearlyraises finance that is additional to othersources, but as pointed out in chapter 6, thisapproach has several undesirable character-istics. The instrument is taxing a good (miti-gation finance) rather than a bad (carbonemissions) and like any tax, there are inevi-table inefficiencies (deadweight losses). Anal-ysis of the CDM market suggests that mostof the lost gains from trade as a result of the

tax would fall on developing-country suppli-ers of carbon credits.91Adaptation financewill also require an allocation mechanismthat ideally would embrace the principles oftransparency, efficiency, and equity—effi-cient approaches would direct finance to themost vulnerable countries and those with thegreatest capacity to manage adaptation, whileequity would require that particular weightbe given to the poorest countries.Strengthening and expanding the climatefinance regime will require reforming exist-ing instruments and developing new sourcesof climate finance (see chapter 6). Reform ofthe CDM is particularly important in viewof its role in generating carbon finance forprojects in developing countries. One set ofproposals aims at reducing costs throughstreamlining project approval, includingupgrading the review and administrativefunctions. A key second set of proposalsfocuses on allowing the CDM to supportchanges in policies and programs ratherthan limit it to projects. “Sector no-lose tar-gets” are an example of a performance-basedscheme, where demonstrable reductions insectoral carbon emissions below an agreedbaseline could be compensated through thesale of carbon credits, with no penalty if thereductions are not achieved.Forestry is another area where climatefinance can reduce emissions (box 8). Addi-tional mechanisms for pricing forest car-bon are likely to emerge from the currentclimate negotiations. Already several ini-tiatives, including the World Bank’s ForestCarbon Partnership Facility, are exploringhow financial incentives can reduce defores-tation in developing countries and therebyreduce carbon emissions. The major chal-lenges include developing a national strat-egy and implementation framework forreducing emissions from deforestation anddegradation; a reference scenario for emis-sions; and a system for monitoring, report-ing, and verification.Efforts to reduce emissions of soil car-bon (through incentives to change till-ing practices, for example) could also bea target of financial incentives—and areessential to ensure natural areas are notconverted to food and biofuel production.But the methodology is less mature than for

forest carbon, and major monitoring issueswould need to be resolved (see box 8). Pilotprograms must be developed rapidly toencourage more resilient and sustainableagriculture and to bring more resourcesand innovation to a sector that has lackedboth in recent decades.92Within countries the role of the publicsector will be critical in creating incentivesfor climate action (through subsidies, taxes,caps, or regulations), providing informa-tion and education, and eliminating mar-ket failures that inhibit action. But muchof the finance will come from the privatesector, particularly for adaptation. For pri-vate infrastructure service providers theflexibility of the regulatory regime will becrucial in providing the right incentives forclimate-proofing investments and opera-tions. While it will be possible to leverageprivate finance for specific adaptation invest-ments (such as flood defenses) experienceto date with public-private partnerships oninfrastructure in developing countries sug-gests that the scope will be modest.Generating additional finance foradaptation is a key priority, and innova-tive schemes such as auctioning assignedamount units (AAUs, the binding caps thatcountries accept under the UNFCCC), tax-ing international transport emissions, and aglobal carbon tax have the potential to raisetens of billions of dollars of new financeeach year. For mitigation it is clear that hav-ing an efficient price for carbon, througheither a tax or cap-and-trade, will be trans-formational. Once this is achieved, the pri-vate sector will provide much of the neededfinance as investors and consumers factorin the price of carbon. But national carbontaxes or carbon markets will not neces-sarily provide the needed flows of financeto developing countries. If the solution tothe climate problem is to be equitable, areformed CDM and other performance-based schemes, the linking of nationalcarbon markets, the allocation and sale ofAAUs, and fiscal transfers will all providefinance to developing countries.As this Report goes to press, countriesare engaged in negotiations on a global cli-mate agreement under the auspices of theUNFCCC. Many of these same countries

The role of land use, agriculture, and forestry in managing climate changeearn $400 million to $2 billion a year.As for soil carbon, even in Africa, whererelatively carbon-poor lands cover closeto half the continent, the potential forsoil carbon sequestration is 100 millionto 400 million tons of CO2e a year. At $10a ton, this would be on par with currentofficial development assistance to Africa.Largely through the efforts of a groupof developing countries that formedthe Coalition for Rainforests, land use,land-use change, and forestry account-ing were reintroduced into the UNFCCCagenda. Those countries seek opportuni-ties to contribute to reducing emissionsunder their common but differentiatedresponsibility and to raise carbon financeto better manage their forested systems.Negotiations over what has becomeknown as REDD (Reduced Emissions fromDeforestation and Forest Degradation)continue, but most expect some ele-ments of REDD to be part of an agree-ment in Copenhagen.Initiatives on soil carbon are not soadvanced. While carbon sequestration inagriculture would be an inexpensive, tech-nically simple, and efficient response toclimate change, developing a market forit is no easy feat. A pilot project in Kenya(see chapter 3) and soil carbon offsets onthe Chicago Climate Exchange point toopportunities. Three steps can help movesoil carbon sequestration forward.First, the carbon monitoring should fol-low an “activity-based” approach, whereemission reductions are estimated basedon the activities carried out by the farmerrather than on much more expensivesoil analyses. Specific and conservativeemission reduction factors can be appliedfor different agroecological and climaticzones. This is simpler, cheaper, and morepredictable for the farmer, who knows upfront what the payments, and possiblepenalties, are for any given activity.Second, transaction costs can bereduced by “aggregators,” who combineactivities over many smallholder farms, asin the Kenya pilot project. By working withmany farms, aggregators can build up apermanent buffer and average out occa-sional reversals in sequestration. Poolingover a portfolio of projects with conserva-tive estimates of permanence can makesoil carbon sequestration fully equivalentto CO2reduction in other sectors.Third, logistical help, especially for poorfarmers who need help to finance up-front costs, must include strengthenedextension services. They are key to dis-seminating knowledge about sequestra-tion practices and finance opportunities.Sources:Canadell and others 2007; Eliasch2008; FAO 2005; Smith and others 2008;Smith and others 2009; Tschakert 2004;UNEP 1990; Voluntary Carbon Standard2007; World Bank 2008c.

Land use, agriculture, and forestry have asubstantial mitigation potential but havebeen contentious in the climate negotia-tions. Could emissions and uptakes bemeasured with sufficient accuracy? Whatcan be done about natural fluctuations ingrowth and losses from fires associatedwith climate change? Should countriesget credits for actions taken decades orcenturies before the climate negotia-tions? Would credits from land-basedactivities swamp the carbon market anddrive down the carbon price, reducingincentives for further mitigation? Progresshas been made on many of these issues,and the Intergovernmental Panel on Cli-mate Change has developed guidelinesfor measuring land-related greenhousegases.Net global deforestation averaged7.3 million hectares a year from 2000 to2005, contributing about 5.0 gigatons ofCO2a year in emissions, or about a quar-ter of the emission reduction needed.Another 0.9 gigaton reduction couldcome from reforestation and better forestmanagement in developing countries.But improved forest management andreduced deforestation in developingcountries are currently not part of theinternational Clean Development Mecha-nism of the UNFCCC.There is also interest in creating amechanism for payments for improvedmanagement of soil carbon and othergreenhouse gases produced by agri-culture. Technically about 6.0 gigatonsof CO2e in emissions could be reducedthrough less tillage of soils, better wetlandand rice paddy management, and bet-ter livestock and manure management.About 1.5 gigatons of emission reductionsa year could be achieved in agriculture fora carbon price of $20 a ton of CO2e (figure).Forestry and agricultural mitigationwould produce many co-benefits. Themaintenance of forests keeps open awider diversity of livelihood options,protects biodiversity, and buffers againstextreme events such as floods and land-slides. Reduced tillage and better fertilizermanagement can improve productivity.And the resources generated could besubstantial—at least for countries withlarge forests: if the forest carbon marketsmeet their full potential, Indonesia could

are also in the throes of one of the mostsevere financial crises of recent decades.Fiscal difficulties and urgent needs couldmake it difficult to get legislatures to agreeto spend resources on what is incorrectlyperceived as solely a longer-term threat.Yet a number of countries have adoptedfiscal recovery packages to green the econ-omy while restoring growth, for a globaltotal of more than $400 billion over thenext few years in the hope of stimulatingthe economy and creating jobs.93Invest-ments in energy efficiency can produce atriple dividend of greater energy savings,fewer emissions, and more jobs.The current climate negotiations, to cul-minate in Copenhagen in December 2009,have been making slow progress—inertiain the political sphere. For all the reasonshighlighted in this Report—inertia in theclimate system, inertia in infrastructure,inertia in socioeconomic systems—a cli-mate deal is urgently needed. But it must bea smart deal, one that creates the incentivesfor efficient solutions, for flows of financeand the development of new technologies.And it must be an equitable deal, one thatmeets the needs and aspirations of develop-ing countries. Only this can create the rightclimate for development.

ference with the climate system.” http://unfccc.int/resource/docs/convkp/conveng.pdf (accessedAugust 1, 2009).4. Defined as carbon emitted per dollar ofGDP.5. On a global scale, this would reduce CO2emissions by 4–6 gigatons a year given the cur-rent energy mix in the power sector and industry(IEA 2008e). Similar reductions would be pos-sible in the building sector in high-income coun-tries. See, for example, Mills 2009.6. World Bank 2009b.7. de la Torre, Fajnzylber, and Nash 2008.8. Greenhouse gases each have differentheat-trapping potential. The carbon dioxideequivalent (CO2e) concentration can be used todescribe the composite global warming effect ofthese gases in terms of the amount of CO2thatwould have the same heat-trapping potentialover a specified period of time.9. Authors’ calculations, based on data fromClimate Analysis Indicators Tool (WRI 2008).The range is much greater if small island statessuch as Barbados (4.6 tons of CO2e per capita)and oil producers such as Qatar (55 tons of CO2eper capita) or the United Arab Emirates (39 tonsof CO2e per capita) are included.10. IEA 2008c.11. Edmonds and others 2008; Hamilton 2009.Blanford, Richels, and Rutherford (2008) also showsubstantial savings from countries announcing inadvance the date when they will engage in mitiga-tion, because that allows those investing in long-lived assets to factor in the likely change in futureregulatory regimes and carbon prices and there-fore minimizes the number of stranded assets.12. Financial crises that are highly synchro-nized across countries are associated with similardurations and are followed by similar recover-ies, although the losses tend to be more severe(5 percent of GDP on average). IMF 2009, table3.1. Even the Great Depression in the UnitedStates lasted only three and a half years, fromAugust 1929 to March 1933. National Bureau of

Economic Research Business Cycle Expansionand Contraction database, http://www.nber.org/cycles.html (accessed August 1, 2009).13. Matthews and Caldeira 2008.14. Schaeffer and others 2008.15. While the question of what constitutes dan-gerous climate change requires value judgments,summaries of recent research by the Intergovern-mental Panel on Climate Change (IPCC) suggestthat warming by more than 2�C above preindus-trial levels sharply increases risks, so that “signifi-cant benefits result from constraining tempera-tures to not more than 1.6�C–2.6�C.” Fisher andothers 2007; IPCC 2007b; IPCC 2007c; Parry andothers 2007. Recent scientific publications furthersupport the notion that warming should be con-strained to remain as close as possible to 2�C abovepreindustrial temperatures. Focus A on science;Mann 2009; Smith and others 2009. The organiz-ers of the 2009 International Scientific Congress onClimate Change concluded that “there is increas-ing agreement that warming above 2�C wouldbe very difficult for contemporary societies andecosystems to cope with.” http://climatecongress.ku.dk/ (accessed August 1, 2009). Other calls fornot allowing warming to exceed 2�C include Euro-pean Commission 2007; SEG 2007; and Interna-tional Scientific Steering Committee 2005. Theleaders of Australia, Brazil, Canada, China, theEuropean Union, France, Germany, India, Indone-sia, Italy, Japan, the Republic of Korea, Mexico, theRussian Federation, South Africa, the United King-dom, and the United States—meeting at the MajorEconomies Forum on Energy and Climate in July2009—recognized “the scientific view that theincrease in global average temperature above pre-industrial levels ought not to exceed 2�C.” http://usclimatenetwork.org/resource-database/MEF_Declarationl-0.pdf (accessed August 1, 2009).16. IPCC 2007c.17. Raupach and others 2007.18. Lawrence and others 2008; Matthewsand Keith 2007; Parry and others 2008; Scheffer,Brovkin, and Cox 2006; Torn and Harte 2006;Walter and others 2006.19. Horton and others 2008.20. This estimate does not take into accountthe increase of damages from storm surges, andit uses current population and economic activi-ties. So in the absence of large-scale adaptation,it is likely to be a significant underestimate. Das-gupta and others 2009.21. Stern 2007.22. Easterling and others 2007, table 5.6, p 299.23. Parry and others 2007, table TS.3, p 66.24. Nordhaus and Boyer 2000. Stern (2007) alsofinds that losses associated with climate changewould be much greater in India and Southeast Asiathan the world average.

25. Nordhaus 2008; Stern 2007; Yohe andothers 2007, figure 20.3.26. The PAGE model, used for the SternReview of Climate Change, estimates that 80percent of the costs of damages would be borneby developing countries; Hope (2009), withfurther data breakdowns communicated by theauthor. The RICE model (Nordhaus and Boyer2000), as expanded to include adaptation in deBruin, Dellink, and Agrawala (2009), suggeststhat about three-quarters of the costs of dam-ages would be borne by developing countries.See also Smith and others (2009); Tol (2008).Note that this may well be an underestimate,since it does not take into account the value oflost ecosystem services. See chapter 1 for a dis-cussion of the limitation of models’ ability tocapture costs of impacts.27. Noted during consultations with EastAfrican and Latin American countries.28. Barbera and McConnell 1990; Barrett2003; Burtraw and others 2005; Jaffe and others1995; Meyer 1995.29. Hope 2009; Nordhaus 2008.30. Nordhaus 2008.31. Few models incorporate adaptation costs.See de Bruin, Dellink, and Agrawala (2009) for adiscussion.32. Nordhaus 2008, p. 86, figure 5.3. Nordhausfinds the additional cost of stabilizing warming at2�C rather than his optimal target of 3.5�C to be0.3 percent of GDP annually. The additonal costof 2.5�C rather than 3.5�C is less than 0.1 percentof GDP annually.33. The developing-country average is 1.5 per-cent of GDP; it includes health insurance andexcludes life insurance. Swiss Re 2007.34. McKinsey & Company 2009.35. In constant 2005 dollars. World Bank2009c.36. Adger and others 2009.37. IPCC 2001.38. Mignone and others 2008. This is true inthe absence of effective and acceptable geoengi-neering technology (see chapter 7).39. This can result from economies of scalein technology provision (as was the case for theFrench nuclear program and appears to be anissue for concentrated solar power); networkeffects (for a highway or rail construction pro-gram); or demographic or economic shocks.This and the rest of the paragraph are based onShalizi and Lecocq 2009.40. Shalizi and Lecocq 2009.41. Folger 2006; Levin and others 2007.42. Häfele and others 1981, as cited in Ha-Duong, Grubb, and Hourcade 1997.43. Davis and Owens 2003; IEA 2008b; Nemetand Kammen 2007; SEG 2007; Stern 2007.

44. Repetto 2008.45. Stern 2007, part VI.46. Based on the formula used in Nordhaus2008.47. These are rounded values based on the fol-lowing. The IPCC estimates that at carbon pricesup to $50 a ton CO2e, about 65 percent of emis-sion reduction would take place in developingcountries in 2030 (Barker and others 2007a, table11.3). McKinsey & Company (2009) estimates thisshare at 68 percent for a 450 ppm scenario if doneusing a least-cost allocation. As to the least-costshare of global mitigation investments in 2030 tak-ing place in developing countries, it is estimated at44–67 percent for a 450 ppm CO2e concentration(see table 4.2: 44 percent, MESSAGE; 56 percent,McKinsey; 67 percent, IEA ETP) although an out-lying estimate is offered by REMIND (91 percent).Over the course of the century (using present valueof all investments to 2100), the estimated share ofdeveloping countries is somewhat higher, withranges between 66 percent (Edmonds and others2008) and 71 percent (Hope 2009).48. Edmonds and others 2008.49. For a 425–450 ppm CO2e, or 2�C, stabili-zation scenario, IIASA (2009) estimates the costat $4 trillion; Knopf and others (forthcoming) at$6 trillion; Edmonds and others (2008) at $9 tril-lion; Nordhaus (2008) at $11 trillion; and Hope(2009) at $25 trillion. These are present values,and the large differences among them are largelydriven by the different discount rate used. All fol-low a first-best scenario where mitigation takesplace wherever and whenever most cost-effective.50. Hamilton 2009.51. The Nameless Hurricane, http://science.nasa.gov/headlines/y2004/02apr_hurricane.htm(accessed March 12, 2009).52. Rogers 2009; Westermeyer 2009.53. OECS 2004.54. World Bank 2008a.55. Kanbur 2009.56. FAO 2009a.57. Worldwatch Institute, “State of the World2005 Trends and Facts: Water Conflict and SecurityCooperation,” http://www.worldwatch.org/node/69(accessed July 1, 2009); Wolf and others 1999.58. Easterling and others 2007; Fisher andothers 2007.59. FAO 2008.60. von Braun and others 2008; World Bank2009a.61. Sterner 2007. The average fuel price in theEuro area in 2007 was more than twice what it wasin the United States ($1.54 a liter as opposed to 63cents a liter). Variations in emissions not drivenby income can be captured by the residuals of aregression of emissions per capita on income.When these residuals are regressed on gasoline

prices, the elasticity is estimated at –0.5, meaningthat a doubling of fuel prices would halve emis-sions, holding income per capita constant.62. Based on average electricity prices forhouseholds in 2006–07 from the U.S. Energy Infor-mation Agency, http://www.eia.doe.gov/emeu/international/elecprih.html (accessed August 1, 2009).63. Emission data is from WRI (2008).64. IEA 2008d; UNEP 2008. A 2004 reportby the European Environment Agency (EEA2004) estimated European subsidies to energy at€30billion in 2001, two-thirds for fossil fuels, therest for nuclear and renewables.65. http://www.eia.doe.gov/emeu/international/elecprih.html (accessed July 2009).66. Price and Worrell 2006.67. ESMAP 2006.68. http://co2captureandstorage.info/index.htm(accessed August 1, 2009).69. Calvin and others, forthcoming; IEA2008a.70. Gurgel, Reilly, and Paltsev 2007; IEA 2006;Wise and others 2009.71. NRC 2007; Tilman, Hill, and Lehman2006; WBGU 2009.72. OECD 2008.73. Lotze-Campen and others 2009; Wise andothers 2009. See chapter 3 for a discussion.74. Scherr and McNeely 2008.75. World Bank 2007b.76. Milly and others 2008.77. Fay, Block, and Ebinger 2010; Ligeti, Pen-ney, and Wieditz 2007; Heinz Center 2007.78. Lempert and Schlesinger 2000.79. Keller, Yohe, and Schlesinger 2008.80. Cass 2005; Davenport 2008; Dolsak 2001;Kunkel, Jacob, and Busch 2006.81. Alber and Kern 2008.82. Guth, Schmittberger, and Schwarze 1982;Camerer and Thaler 1995; Irwin 2009; Ruffle 1998.83.Times of India,http://timesofindia.indiatimes.com/NEWS/India/Even-in-2031-Indias-per- capita- emission- will- be- 1/7th- of- US/articleshow/4717472.cms (accessed August 2009).84. Dechezleprêtre and others 2008.85. Maini 2005; Nagrath 2007.86. Haites and others 2006.87. http://www.gefweb.org/uploadedFiles/Publications/ClimateChange-FS-June2009.pdf(accessed July 6, 2009).88. http://unfccc.int/meetings/cop_13/items/4049.php (accessed August 1, 2009).89. The development and aid communityhas been moving toward impact evaluation andresults-based aid, suggesting a degree of frus-tration with input-based programs (where thequantity of funds disbursed and the number ofschools built were monitored, as opposed to thenumber of children graduating from schools or

improvements in their performance). However,there is some difference in the way “input-based”approaches are defined in this case, because the“inputs” are policy changes rather than narrowlydefined financial inputs—adoption and enforce-ment of a fuel efficiency standard rather thanpublic spending on an efficiency program. Nev-ertheless, monitoring and evaluation would stillbe important to learn what works.90. Olsen 2007; Sutter and Parreno 2007; Olsenand Fenhann 2008; Nussbaumer 2009; Michael-owa and Pallav 2007; Schneider 2007.91. Fankhauser, Martin, and Prichard, forth-coming.92. World Bank 2007d.93. Stimulus packages around the world areexpected to inject about $430 billion in key climatechange areas over the next few years: $215 billionwill be spent on energy efficiency, $38 billion onlow-carbon renewables, $20 billion on carboncapture and storage, and $92 billion on smartgrids. Robins, Clover, and Singh 2009. See chapter1 for a discussion of expected job creation.

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