Asia to Africa to Latin America—will be disproportionately affected by the climate crisis. The World Development Report (WDR) 2010:

 

Development and Climate Change notes that they will bear 75–80 percent of the costs of damage caused by the changing climate.

 

Economic growth alone will not be fast or equitable enough to counter threats from climate change, particularly if it remains carbon intensive and accelerates global warming. So climate policy cannot be framed as a choice between growth and climate change. Instead, climate-smart policies are those that enhance development, reduce vulnerability, and finance the transition to low-carbon growth paths.
This booklet focuses on policy recommendations and steps already being taken in East Asia and the Pacific to reduce the sources of greenhouse gases (mitigation), adapt to changing weather (adaptation), and develop financial and technological partnerships in the face of a pressing global challenge.

 

The WDR 2010 argues that the East Asia and Pacific region and the rest of the world must act now, act together, and act differently, before costs go up and people suffer unnecessarily.

 

The East Asia and Pacific region, home to about 2 billion people, has come a long way in its fight against poverty. The proportion of people living on less than $1.25 a day was cut by 70 percent between 1990 and 2005. Much of this decline was in China, where 475 million people were lifted from poverty through remarkable growth.

East Asia and Pacific doubled its energy use and carbon dioxide emissions in the same period. Although average per capita emissions remain low in the region, China and Indonesia are now among the world’s largest emitters of greenhouse gases, due to high energy consumption in China and landuse changes and deforestation in Indonesia.

 

The dominant challenge in the region is to balance growth and mitigation measures that would put the region on a less perilous trajectory. The WDR 2010 cites examples of strong action to combat climate change in the region. The climate is ripe for change. Tackling climate change through innovation is a priority in East Asia and the Pacific because of several acute climate change factors and vulnerabilities:

 

Growing demand for energy. The demand for energy will continue to increase with further economic development. In East Asia and the Pacific, most countries need massive expansions in energy, transport, urban systems and agricultural production. Sustaining growth using current high-carbon technologies will produce more greenhouse gases, hence more climate change.

 

Changes in land use and deforestation. Land-use changes represent 34 % of the region's greenhouse gas emissions, followed by electricity and other power, industry, and agriculture. In Indonesia, logging, forest fires and peatland degradation is thought to contribute more than 80 percent of the country’s CO2 emissions (WRI, 2007)—although the magnitude of Indonesia’s emissions is subject to uncertainty and yearly fluctuations.

 

Deforestation across the region as a whole is being partly offset by high levels of reforestation in China. Vulnerable coastal populations. Over half the countries in the region are Pacific Island nations. A large number of people live along the coast and on low-lying islands—for example, over 130 million people in China, roughly 40 million in Vietnam, and around 2 million Pacific Islanders. Rising sea levels coupled with the subsidence or sinking of delta land threaten coastal areas throughout the region.

 

Water availability, floods and disease. Climate change is expected to threaten water availability for 270 million people in western China. Extreme events (floods and droughts) are expected to increase, and natural habitats will be at risk.

 

The last 20 years have seen an increase in the frequency of short duration heat waves in China, increased occurrence of extreme rains causing landslides and floods in the Philippines and more intense cyclones as well as sea level rise in the Pacific Islands (IFRC, 2006). Already, policy makers are devoting an increasing amount of their development budget  to cope with weather-related emergencies. Rising temperatures will change the distribution of pests and disease.

 

As pressures on land, water, and forest resources increase—as a result of population growth, urbanization, and environmental degradation caused by rapid industrialization—greater variability and extremes will complicate their management.

 

In the Mekong River basin, for example, the rainy season may see more intense precipitation, while the dry season may lengthen by two months (Snidvonds et al., 2003).

 

Economic impact. Agriculture, one of the sectors most at risk, contributes about 13 percent to the region’s GDP, but as much as a third in some countries. Around 60 percent of the population lives in rural areas and some 50 percent of the land is dedicated to agriculture. Severe droughts, flooding and land degradation are expected to reduce productivity. Substantial decreases in cereal production are expected as a consequence of climate change in Asia over the next decades. Net cereal production is projected to decline by at least 4–10 percent under the most conservative climate change projections by 2100 and up to 40 percent in some of the key grain producing zones (IPCC, 2007).

 

Off the coast, the value of well-managed coral reefs is about $13 billion in Southeast Asia. The reefs, already stressed by industrial pollution, coastal development, over-fishing, and runoff of agricultural pesticides and nutrients, are highly vulnerable to increases in sea temperature that cause bleaching.
Coastal areas, fisheries and marine resources are particularly vulnerable with important impacts on food security and livelihoods.

 

Meeting the growing energy needs of people and businesses in East Asia and the Pacific in the coming years while enhancing energy security, sustaining economic growth and reducing greenhouse gas emissions is a tough challenge for policy makers in the region. Although recent years have seen a surge in energy consumption, driven mainly by heavy industry in China, many countries are adopting measures that are good for both development and the environment.

 

Energy efficiency measures have the largest potential to save energy both on the energy supply side (as in the burning of coal, oil, and gas and the production, transmission and distribution of electricity) and the demand side (use of energy in buildings, transport and manufacturing). The second largest source of emission reductions could come from low-to-zero emission fuels for power generation—particularly renewable energy.

 

But putting the world on a sustainable, low-carbon trajectory will be impossible without new technologies such as carbon capture and storage that still require enhanced research and technology transfer.
Many countries in East Asia and the Pacific are startingto forge clean energy paths.

The Chinese government’s target of a 20 percent reduction in energy intensity from 2005 to 2010 would reduce annual CO2 emissions by 1.5 billion tons by 2010. This is the most aggressive emission reduction target in the world, five times the 300-million-ton reduction committed by the European Union under the Kyoto Protocol.

 

The World Bank has supported the development of a market for energy efficiency services in China (see box) and is building capacity in financial institutions to manage further investments in key energy-intensive sectors. Invest in renewable energy.

 

In the Philippines, a 33 MW wind farm managed by NorthWind in Ilocos Norte covers half the province’s energy needs. Support from the Bank through its Prototype Carbon Fund enables the company to generate more resources through the sale of carbon emission credits. The Philippines is also home to a large grid-connected photovoltaic installation.

Indonesia is studying options for reducing its carbon footprint without compromising growth. Like the Philippines, Indonesia has strong geothermal potential. Highly dependent on imported energy, Thailand has been pursuing renewable energy as a means to improve energy security. The country hopes to increase the share of renewable energy consumption nationwide from 1 percent today to 20 percent by 2022. China’s goal is to install 30 GW of wind power by 2020, compared with about 12 GW in 2008 (and about 120 GW worldwide). But given the needs of its growing economy where energy use is driven by heavy industry and increasing household consumption, finding fossil fuel alternatives is a formidable challenge.

 

Indonesia has nearly 100 million hectares (ha) of tropical forests (the world’s third largest area) that continue to be rapidly logged. The country is actively seeking to develop the market potential of Reduced Emissions from Deforestation and Degradation (REDD).

 

Estimates from the Indonesia Forest Climate Alliance indicate that Indonesia could earn US$500 million to $2 billion per year in carbon credits if the REDD market comes to fruition. There are at least 20 demonstration projects under various stages of development from Aceh

 

in the west to Papua in the east. Collectively, these would protect 5–22 million ha of forests and avoid the emission of at least 60 million tons of CO2 per year. This is roughly equivalent to the annual emissions from Sweden, New Zealand or Israel.

 

Protecting such a large area of forest would also have cobenefits in terms of conserving biodiversity, watersheds and other environmental services.

Urban areas are expected to increase faster in East Asia than in other regions in the next 20 years. This means that city planners need to act fast to avoid the kind of growth that fosters heavy and inefficient use of energy and resources. Under the recently launched Eco2 Cities

 

program, the Bank plans to help countries develop strategies for economic and ecologically efficient cities.

 

Half of China’s building stock in 2015 will have been built in the past 15 years, providing an opportunity to raise building energy efficiency standards. Making these buildings more energy efficient would add 10 percent to construction costs but save more than 50 percent of energy costs.
In Rizhao, a city of 3 million people in northern China, skyscrapers are built to use solar power, and 99 percent of households use solar heaters. In total, the city has over 500,000 square meters of solar water heating panels. As a result, energy use has fallen by nearly a third and CO2 emissions by half.

 

Although there is considerable uncertainty about the specific risks associated with climate change in the future, the impact of increased climate variability and extremes is already being felt across East Asia and the Pacific.Taking measures now to adapt to a range of different scenarios should help minimize the cost of catastrophes and create more climate-resilient communities. Some of the existing risk management practices may be as simple as using more diverse seeds and promoting the use of varieties that are more tolerant to heat and drought.

 

Many of the steps the region should adopt will be useful under any climate scenario. They can be financed through emerging special adaptation funding and by integrating adaptation concerns into financing that is already being used for development.

 

Countries in the region have begun investing in adaptation measures to protect their populations and development from climate change.

 

Prepare for extreme events. Coastal cities such as Bangkok, Manila, and Ho Chi Minh City will be increasingly exposed to extreme weather events. Combined with sea level rise and land subsidence, the impacts can be severe. Peak river discharges in South and Southeast Asian river basins are projected to increase with climate change, requiring greater upstream efforts to protect urban centers downstream. Local city governments can promote risk reduction and risk-based planning.

 

Risk can never be eliminated, so being prepared to cope with extreme events is vital. Warning systems and response plans save lives and prevent other avoidable losses. Engaging communities in preparedness and emergency communication protects their livelihoods.

 

Integrate climate change risk management into development plans. Better water management can help protect key resources at a time when climate change and population growth will put agriculture under stress.

 

Transferring responsibility for managing irrigation services to groups of farmers, improving cost-recovery for surface water irrigation, and introducing modern water monitoring techniques can help reduce water consumption while improving farmers’ livelihoods. China’s experience in the Hai Basin, part of the North China Plain, is a good example of such progress.

 

But additional steps should be taken to make agricultural investments more resilient. The Mainstreaming Adaptation in Irrigated Agriculture project ($5 million from the Global Environment Facility Special Climate Change Fund) seeks to integrate the effects of future climate change on the North China Plain. Although this area currently produces about half the country’s wheat, stream flows and groundwater recharge are expected to decrease in the future while irrigation water demand will increase with higher temperatures.

 

Invest in information. Because climate change introduces a vast source of uncertainty, decision makers need to switch from a world view in which the future is predictable to an assessment of strategies under a wide range of possible futures. Playing safe, often at low cost, favoring reversible and flexible options, preparing for changes that may propagate over long distances, and periodically reviewing (and correcting) investments are becoming critical management practices.

 

Impact studies such as the World Bank climate change study of the Bangkok Metropolitan area can help assess various flood scenarios and formulate policy recommendations.

 

Share the risk. Risk management should be based on layered responsibilities. In Mongolia, livestock herders, the national government, and insurance companies developed a scheme to manage the financial risks arising from severe winter-spring cold episodes (dzuds) that periodically kill large numbers of livestock. In this scheme, herders retain the responsibility for smaller losses that do not affect the viability of their business or household. Larger losses are covered through commercial livestock insurance provided by Mongolian insurers. A social insurance program through the government bears the losses associated with catastrophic livestock mortality that would overwhelm herders and insurers alike. More broadly, governments need to set up financial planning for catastrophic climate impacts and restoration of essential services after disasters. 

 

Consider alternatives. “Hard” adaptation measures such as coastal defense walls, river embankments, and dams to control river flows all present threats to biodiversity. Adaptation goals can often be achieved through better management of ecosystems rather than through physical and engineering interventions. For example, coastal ecosystems can be more effective as buffer zones against storm surges than sea walls and generate societal benefits. In Vietnam, restoration of mangrove forests at the mouth of the Mekong delta provides shoreline protection from storm surges as well as increases biodiversity, boosts fishing yields and helps sequester carbon.

 

How will countries in East Asia and Pacific raise enough finance to reduce emissions, cope with the impacts of unavoidable climate change and deploy new technologies, while continuing to grow and reduce poverty? Worldwide, mitigation and adaptation will require massive annual investments. Rich countries must take the lead in developing effective mechanisms to help bring the world within a reasonable temperature range. Although developing countries have historically contributed very little to climate change, their growing contributions make low-carbon development imperative for the future. Climate-smart development will also have important benefits in reducing pollution at the local level.

 

But current levels of climate finance fall far short of foreseeable needs (see chart). Compounding the shortfalls in climate finance are significant inefficiencies in how funds are generated and deployed. Looking forward, the WDR argues that pricing carbon (whether through a tax or through a capand- trade scheme) is the optimal way of both generating carbon finance resources and directing those resources to places where the mitigation costs are lowest and the adaptation needs greatest. In the near future, however, the Clean Development Mechanism (CDM) and other performancebased mechanisms for carbon offsets are likely to remain the key market-based instruments for mitigation finance in developing countries and are therefore critical in supplementing direct transfers from high-income countries.
 

Investments facilitated by the trade of carbon emission reduction credits have been made in thousands of successful individual projects but have not resulted in massive emission cuts so far. As the limitations of the project-based approach have to come to be recognized, and with the regulatory period of the Kyoto protocol coming to an end in 2012, greater emphasis is now being placed on larger scale government policy reforms and investments that have long-term emission reduction potential. The Bank’s new Carbon Partnership Facility is designed to support this shift  For example, Indonesia’s Ministry of Energy and Mineral Resources is working toward integrating carbon finance to enhance the viability of Indonesia’s nascent geothermal sector to meet the country’s sustainable energy development target. In Vietnam, the Facility helps the government administer programs that support commercial lending and investments in a large number of small hydropower plants by private sector developers.

 

Tapping all sources of financing. Beyond alternative energy options, Indonesia is considering a wide range of mitigation measures, from reducing energy intensity to developing carbon credits from reduced deforestation through the REDD initiative. The country is therefore working to mobilize financing and create the right environment for change.

Indonesia rationalized energy pricing by reducing fossilfuel subsidies in 2005 and 2008. It is reducing deforestation through improved enforcement and monitoring programs, and provides incentives for import and installation of pollution control equipment through tax breaks. The Finance and Development Planning Ministries have established a national blueprint and budget priorities for integrating climate change into the national development process. And the Finance Ministry is examining fiscal and financial policies to stimulate climate-friendly investment, move toward lowercarbon energy options, and improve fiscal incentives in the forestry sector.

Creating environmental synergies. Climate-friendly projects often respond to several environmental, economic and social objectives. Examples include improving energy efficiency while eliminating ozone depleting substances in industrial chillers; reducing air pollution in cities to address both global and local environmental issues; or pursuing mitigation and adaptation goals simultaneously by restoring coastal mangrove forests. Such projects reflect the interconnectedness of natural systems in a sustainable world and can help attract wider financial resources.

Linking up. The integration of carbon finance with other financing sources is essential to accelerate the deployment of low-carbon technologies. For instance, the GEF may fund policy work and provide risk coverage; low-interest loans from the Clean Technology Fund along with regular lending and equity may finance physical investments; and carbon credits may create an income stream that sustains a project’s long-term financial viability. In combination, these instruments are a powerful force to transform the market for climate-friendly solutions.

Responding strategically. Because the East Asia and Pacific region is highly vulnerable to the impacts of natural disasters, responding quickly and strategically when disaster strikes is vital. When floods, tsunamis or earthquakes take their toll, governments work with international development partners to help assess the extent of damage and work on long-term reconstruction plans that aim to “build back, better” what was destroyed. The Global Facility for Disaster Reduction and Recovery (GFDRR)—a partnership of 24 countries and international organizations coordinated by the World Bank—supports long-term risk reduction and rapidly provides resources to assist countries in sustainable recovery and reconstruction planning, such as recently in Samoa, Tonga, Indonesia and the Philippines.

 

Global greenhouse gas emissions can be drastically reduced by accelerating the deployment of existing mitigation technologies in high-carbon countries.
But to stabilize the world’s climate will require breakthrough technologies, technology transfer and capacity building.

 

Although climate-smart innovation is concentrated mostly in high-income countries, developing countries are starting to make important contributions. Developing countries accounted for 23 percent ($26 billion) of the new investments in energy efficiency and renewable energy in 2007, up from 13 percent in 2004. Eighty-two percent of those investments were concentrated in three countries—Brazil, China and India (UNEP, 2008). In 2005 China was seventh in overall renewable energy patenting and second only to Japan in geothermal and cement inventions, two major potential sources of emission reduction (OECD, 2008).

 

The WDR 2010 calls for increased investments in research and development and identifies policies that can stimulate innovation and entrepreneurship.

 

Research institutes in developing countries can help governments better prepare for the consequences of climate change. In Indonesia and Thailand, for example, NASA satellites are used to monitor environmental characteristics affecting malaria transmission in Southeast Asia, such as rainfall patterns and vegetation status. Building absorptive capacity in developing countries so that decision-makers identify challenges and adopt appropriate technologies is also key. The Bank’s Urban Hub in Singapore provides training on sustainable cities. Another program on Climate Resilient Cities trains local governments in adaptation planning.

 

Quality requirements are essential to market renewable energy sources as reliable and affordable alternatives to traditional fuels. A Renewable Energy Development Program financed by the Bank in 1999 helped Chinese producers of photovoltaic systems meet high standards that would increase consumer confidence and make their products competitive in international markets. Today China is the world’s largest exporter of solar panels.

 

An attractive investment climate for foreign direct investment is critical to accelerating technology transfer and absorption. However, weak enforcement of intellectual property rights can deter technology transfer in some cases. Regulations can provide firms with niche markets to develop
new technologies and allow countries to gain a competitive edge. A ban on gasoline-propelled motorbikes in several urban cities in China in 2004, coupled with technological improvements, faster urbanization, higher gas prices and increases in purchasing power, boosted the electric bicycle market from a mere 40,000 in 1998 to 21 million in 2008. E-bikes are cleaner and now cheaper than other motorized modes of transportation including buses, and China is exporting these low-carbon vehicles to developed countries.