Coping With Climate

Developing nations will bear the brunt of global warming. Public-private partnerships can help.

By Raj Singh, NEWSWEEK, ISSUES 2009, Dec 30, 2008

Even if the world were to take steps to quickly and dramatically limit greenhouse-gas emissions, the levels already in the atmosphere will continue to alter our climate in the coming decades. As the focus of the debate on global warming shifts to assessing the impact of rises in temperature and coping with their effects, it has become increasingly clear that the developing world will face some of the greatest challenges. Dealing with this problem will require broad partnerships between public, private and nonprofit organizations.

The Stern Review estimates that by 2030, the cost of adapting to global warming will amount to anywhere between $55 billion and $180 billion per year, of which $30 billion to $70 billion will be required in developing countries. In absolute terms, the cost of adaptation is fairly evenly distributed, but in relative terms these numbers mean a real problem for countries without deep pockets. The United Nations Development Program (UNDP) estimates that of the 262 million people affected by climate disasters annually from 2000 to 2004, more than 98 percent were in the developing world.

This will be especially problematic for populations heavily reliant on agriculture for their livelihood, as climate change will have a dramatic impact on the world's ability to produce food. We will see less rain in some areas, causing drought. We will see more rain in other areas, potentially causing floods. The latest UNDP report on climate change estimates that of the world's 1 billion people living on less than $1 a day, three quarters are primarily dependent on agriculture for survival.

With no formal insurance markets, the poor living in agricultural areas typically cope with economic crisis through self-insurance such as using savings, going into debt or selling assets. But these approaches will not be enough to cope with the unpredictability of climate change. We need to offer these populations more resilient, more modern financial tools.

The difficulty is developing solutions that effectively reach these large populations, the majority of whom work small plots of land in areas where weather patterns have been poorly documented. We cannot deliver solutions through the same channels that would be used in the United States and Europe. Establishing a strong network of partnerships involving the private sector, local government and nonprofit organizations will be essential.

One example is a pilot program now underway in Ethiopia. Initially the program will focus on the village of Adi Ha in Tigray, where 40 percent of all households produce teff, a cereal crop. The program aims to develop a comprehensive risk-management approach, including plans to reduce and spread risk. These include improving land-management practices and technology transfer and increasing market access for farmers to sell their crops. The relief-and-development agency Oxfam America will manage the project, build local partner organizations and implement measures to reduce risk, while the reinsurance company Swiss Re will advise on the commercial viability of certain aspects of the project and provide advice on risk-transfer schemes. The International Research Institute for Climate and Society at Columbia University will provide primary technical support for the project.

Another challenge is to overcome the reluctance of farmers to experiment with higher-risk—but more productive—technologies, such as high-yielding seeds. If farmers can get more resources to produce food, and rainfall-index insurance to manage their exposure to risk, they may feel more confident taking on production risks, which also provides protection from greater poverty being caused by climate change. In sub-Saharan Africa, where economic growth rates are closely correlated with the amount of rainfall and drought can stall economic progress, rainfall-index insurance can serve as collateral for banks and microfinance institutions, which are typically reluctant to make loans for inherently risky agricultural activities. The microfinance institution Basix, working in coordination with Swiss Re and a local insurer, developed a weather-insurance market for farmers in India in 2004. It has since provided 44 reinsurance contracts covering 350,000 farmers and can be used as a reference for future projects.

These kinds of public-private partnerships will be essential in developing solutions to address the impact of climate change in developing economies.

Singh Is Chief Risk Officer At Swiss Re.

© 2008 Newsweek, Inc.

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