Brave Enough To Become a Pioneer? Economic Analysis of Adaptation in Agriculture

On Wednesday, March 16, enthusiastic IFAD staff came together for a "standing-room only" presentation on a World Bank publication, "Economic Evaluation of Climate Change Adaptation Projects: Approaches for the Agricultural Sector and Beyond," by co-author Dr. Gretel Gambarelli, followed by a lively discussion. Gretel, our moderator Thomas Elhaut and others share their views below... share yours, too!

Gretel Gambarelli, Senior Climate Adaptation Officer, IUCN
I was invited by IFAD to present in a seminar on economic evaluation of climate change projects, with a focus on agriculture. My talk was based on a World Bank 2010 publication by Mike Toman and myself. My presentation

covered the specific challenges that make economic evaluation of adaptation different from more standard projects that do not incorporate climate change considerations, and introduced some state of the art methodologies - including non-economic approaches - that may help address those challenges. I was very pleased to find an interested and engaged audience, with about 40 IFAD staff from different departments following the presentation and asking lots of good questions. This is a good index that ex-ante project evaluation is regaining attention by development professionals in IFAD as a way to improve overall project design and make sure investments are truly "sustainable", i.e. bringing economic, social and environmental benefits. Since we're just starting to understand how to approach the economic evaluation of adaptation at the project level, I would encourage IFAD staff to become "pioneers" and test some of the possible approaches in real projects, so as to contribute to this important field of knowledge.

Thomas Elhaut, Director, Asia and Pacific Region, IFAD
The seminar on the “economic valuation of adaptation to climate change” was timely. It came at the time IFAD is reviewing the role of economic analysis of investment projects as a decision tool, and more importantly as a tool to support design choices early on in the process. It also underscored the rationale for reengaging in agriculture, as the new food equation makes agriculture more profitable (i.e. economically viable); but also threatened by climate change (i.e. volatility) and resource scarcity (i.e. high opportunity costs). It finally highlighted the issues related to the present value of future and intergenerational benefits versus current costs and consumption preferences (i.e. the discount rate trade-offs). The seminar reconfirmed the value of the “classic” cost-benefit analysis (CBA); and called for further work to: better define the costs of adaptation to climate change; design methods to measure the additionality of benefits and co-benefits, such as the change in behaviour of farmers; deal with uncertainty, given the inadequate probabilistic information; assess the with and without project values of land, water, etc…; elaborate a more hybrid approach to complement the CBA methodology with real option analysis, a landscape approach and ultimately a multi-criteria approach.

Elwyn Grainger-Jones, Director,
Environment and Climate Division, IFAD

Would you expect standing-room only for a seminar on economic appraisal? That's what we had on Wednesday. Looking at adaptation to climate change through the lens of economic appraisal is important for IFAD since adaptation to climate change is an essential element of reducing rural poverty. Most of our projects are in areas that are already ecologically fragile hence particularly vulnerable to climate change. My "take-aways" from the seminar were: 1) climate uncertainty can be reduced as forecasting improves, but will not go away; 2) cost-benefit analysis is not always the best option for assessing adaptation (it does not necessarily tell us when to invest, and the sensitivity analysis struggles to handle adaptation parameters - luckily there are alternative or complementary approaches); 3) the time dimension is critical - what should today's value be of future adaptation to climate change, and who should make that valuation? We could have spent a week just on the final point. As we have seen, different stakeholders attribute very different values to landscapes and hence have different views on the value of preserving different aspects of landscapes in the face of climate change. Further, an important issue on climate change is inter-generational poverty - what value should we attribute to preserving landscapes for future generations? We have learnt that recognizing the interconnections across the landscape is essential to building resilience - that means we have to manage a lot more complexity in how we think about rural development. It is good to see economic analysis trying to address this.

Eloisa de Villalobos Thomann, Financial and Economic Technical Adviser, Policy & Technical Advisory Division, IFAD
As an economist who recently joined IFAD working for the Technical Advisory Division responsible for reviewing the economic and financial feasibility of project proposals, I was curious to see how these new approaches could be integrated in the way we currently analyse economic impacts of IFAD projects. It was particularly interesting to get an overview of multi-criteria methodologies as a complementary option to traditional CBA analyses in cases where environmental assimilation costs or benefits are too complicated to measure. In my view, a crucial point is to develop simple ways of applying these complex methodologies at the producers' level. However, simplification should not come at any cost: the quality of the analysis has to be ensured and the use of these particular tools clearly justified in order to achieve robust results. It was interesting for me to see the diverse reactions from the different participants of the seminar. I particularly agree with the idea expressed that these kinds of analyses should be carried out from the very beginning of the project design stage, integrating environmental impact assessment into economic analysis and the overall logframe of the project design. I thank the organizers and look forward to see and assist whoever will be brave enough to pilot these analyses!

Gretel also introduced the group to Adaptation Guidance Notes available on the World Bank's website and gave an overview presentation on IUCN. Check it out!