Evidence paper on VFM of investments in climate resilient development
This paper draws on cost-benefit-analyses, ex-post evaluations and other relevant literature
Abstract
This paper provides a brief summary of the evidence on VfM frameworks and returns to investment in climate resilient development, drawing on cost-benefit-analyses, ex-post evaluations and other relevant literature. While there have been a number of global and national level studies seeking to quantify the costs and benefits of adaptation, this review focuses primarily on sector- or project-level assessments that may inform the appraisal of new projects, particularly those where cost-benefit analysis has been undertaken. Such information is potentially relevant for resource allocation decisions and in maximising socioeconomic returns from programmes and projects.
Over recent years, the strength of the evidence base of Value for Money (VfM) for investment in climate resilient development has been increasing. A significant number of studies have been undertaken at a global, national, sector and project level to quantify the costs and benefits of adaptation. A forthcoming EU-funded study (ECONADAPT 2015) has identified more than 500 relevant sources with cost and benefit data, and a recent OECD publication (OECD 2015) summarises much of the emerging evidence from both developed and developing countries. Further insights continue to be generated by the on-going appraisal, evaluation and ex-post analysis of resilience-oriented climate funds (including by the UK International Climate Fund).
The economic returns associated with climate resilient development are reported in the literature as positive for the overwhelming majority of sources reviewed (i.e. benefit-cost ratios of >1). In most cases, benefits are identified as being significantly in excess of the costs (i.e. BCRs in excess of 3:1 and in some cases as high as 50:1). Projects across all sectors report positive returns, including disaster risk reduction, social protection and livelihoods, investment in resilient infrastructure and public goods (e.g. flood prevention), and climate smart agriculture.
However, many of the earlier studies with higher BCRs used classic impact assessment of technical options and did not take into account uncertainty associated with future climate change. There is some evidence that more recent studies may provide more realistic (although still positive) assessment (OECD 2015). The evidence base is weaker for investments in capacity building, reflecting the upstream enabling nature of such activities. There remain gaps in the evidence base, particularly in relation to developing countries and some sectors not covered in this report (e.g. business services, eco-systems).
The case for structuring and sequencing of adaptation options from a risk management perspective is also emerging as a key driver of VfM in climate resilient development (IPCC 2014, Watkiss et al 2014). These frameworks promote iterative adaptation management, targeting early no and low regret adaptation options whilst addressing the need for longer term risk screening and robust decision making under uncertainty. A focus on low-regrets options will tend to promote measures that are lower cost (e.g. capacity building, information services), with potentially wider development co-benefits (OECD 2015).
Such evidence is useful both in project design and appraisal, and in the sharing of best practice. However, care should be taken with the transferability of evidence between projects. This is due to a number of reasons, such as the highly localised nature of climate change costs and benefits, the wide diversity in the scope and methodologies of the identified studies, the different time periods under assessment and the range of metrics used (OECD 2015).
As a result, while the current evidence base provides a strong overall justification for investment in climate resilient development, it is not sufficient to influence resource allocation decisions between projects or sectors without more detailed economic analysis of the specific opportunities and the local context.
This report has been produced by Oxford Consulting Partners for Evidence on Demand with the assistance of the UK Department for International Development (DFID) contracted through the Climate, Environment, Infrastructure and Livelihoods Professional Evidence and Applied Knowledge Services (CEIL PEAKS) programme, jointly managed by DAI (which incorporates HTSPE Limited) and IMC Worldwide Limited.
Citation
Savage, M. Evidence paper on VFM of investments in climate resilient development. Evidence on Demand, UK (2015) iii + 11 pp. [DOI: 10.12774/eod_hd.august2015.savagem]
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