88908 v2 Adding up the benefits of actions that help build prosperity, end poverty and combat climate change LIVES SAVED CROPS PROTECTED ENERGY SAVED GOP INCREASED EXECUTIVE SUMMARY ClimateWorks WORLD BANK GROUP FOUNDATION Climate-Smart Development Adding up the benefits of actions that help build prosperity, end poverty and combat climate change EXECUTIVE SUMMARY Acknowledgements The ClimateWorks Foundation and the World Bank would like Robert Bisset, Fionna Douglas, Stacy Morford, Venkat Gopal- to thank the modeling teams, the reviewers, and the project task akrishnan, Karin Rives, and Samrawit Beyene. Management teams for their contributions to the development of this report. oversight was provided by Karin Kemper and Jane Ebinger. The modeling work for the report was conducted by Rita Van Advice on the macroeconomic analysis was provided by Kirk Dingenen (Joint Research Centre, European Commission), Sarah Hamilton, Erika Jorgenson, and Stéphane Hallegatte. The Hunter (Oxford Economics), and Sudhir Gota (Clean Air Asia). report was peer-reviewed by Masami Kojima, Andreas Kopp, The ClimateWorks task team included Surabi Menon and Laura Muthukumar Mani, Tijen Arin, and Carter Brandon. Inputs Segafredo (co-Task Team Leaders). Ruoting Jiang, formerly at were also gratefully received from the following World Bank ClimateWorks, provided analysis support for the modeling work; staff: Nupur Gupta, Om Prakash Agarwal, Gaurav Joshi, Sintana Seth Monteith designed the graphics and Debra Jones edited the Vergara, Marcus Lee, Farouk Banna, Stephen Hammer, Yabei report. Management oversight was provided by Charlotte Pera. Zhang, Yun Wu, Charles Feinstein, Svetlana Edmeades, Tim The task team from the World Bank included Sameer Akbar Valentiner, Guillermo Hernández, Onno Ruhl, Gloria Grando- and Gary Kleiman (co-Task Team Leaders), Samuel Oguah, lini, Klaus Rohland, and Deborah Wetzel. iii Glossary of Keywords and Phrases Anthropogenic: Human-caused. Local Socioeconomic Benefits: Benefits such as GDP growth, employment gains, reduced energy and fuel costs, time savings, Black Carbon (BC): A small, dark particle that warms the earth’s improved water and air quality, higher crop yields, improved climate. Although black carbon is a particle rather than a public health, and reduced mortality that are realized in the greenhouse gas, it is the second-largest climate warmer after jurisdiction that enacts the policy or project. carbon dioxide. Unlike carbon dioxide, black carbon is quickly washed out and can be eliminated from the atmosphere if Methane (CH4): A greenhouse gas that only lasts an average of 12 emissions stop. Reductions would also improve human health. years in the atmosphere; it is an extremely powerful warmer during that period. One molecule of methane warms about 25 Carbon Dioxide (CO2): The greenhouse gas that contributes the times more than CO2 over 100 years (and 72 times as much most to global warming. While more than half of the CO2 over 20 years). emitted is removed from the atmosphere within a century, some fraction (about 20 percent) of emitted CO2 remains in Mitigation: Actions to address climate change by decreasing the atmosphere for many thousands of years. greenhouse gases and other climate-forcing agents. Global Burdens of Disease: A study to estimate the number of Ozone (O3): A harmful pollutant and greenhouse gas that only worldwide deaths annually from different diseases or environ- forms though complex chemical reactions with other substances mental causes; can also be divided into different regions and in the atmosphere (e.g., methane); it can harm human health groups. See http://www.healthmetricsandevaluation.org/gbd. and crops. Global Public Goods Benefits: Benefits such as protection of Radiative Forcing: A measure of the net change in the energy ecosystem services, reduced acid deposition and infrastructure balance of the earth with space; that is, the incoming solar loss, and reduced climate change impacts that are realized radiation minus outgoing terrestrial radiation. At the global beyond the jurisdiction where a policy is implemented or a scale, the annual average radiative forcing is measured at project carried out. the top of the atmosphere, or tropopause. Expressed in units of warming rate (watts, W) per unit of area (meters Hydrofluorocarbons (HFCs): Chemical replacements for ozone- squared, m 2). depleting substances being phased out by the Montreal Protocol. These substances are used in heating and cooling Short-lived Forcers or Short-lived Climate Pollutants (SLCPs): systems and as aerosols. Although less damaging to the ozone Substances such as methane, black carbon, tropospheric layer than what they replace, they can have very large global ozone, and some hydrofluorocarbons that have a significant warming potentials. impact on near-term climate change and a relatively short v CLIM ATE - S M A RT D E V E L OP M E N T lifespan in the atmosphere compared to carbon dioxide and Systems Approach: An approach capturing the direct and indirect other longer-lived gases. benefits of policies and projects and quantifying their macroeco- nomic impacts; it is meant to capture the interconnectedness Synergistic Economic Benefits: Macroeconomic benefits from between identified benefits. multiplier effects, forward linkage of investment, and poten- tial cross-sector interactions; for example, indirect health and Tropospheric Ozone: Sometimes called ground-level ozone, this agriculture benefits that would result from the electrification refers to ozone that is formed or resides in the portion of the of the transport sector if the power sector simultaneously atmosphere from the earth’s surface up to the tropopause (the reduced its carbon intensity and co-pollutant emissions due lowest 10–20 km of the atmosphere). to a performance standard or a renewable energy mandate. vi Acronyms and Abbreviations Ag Agriculture IIASA International Institute for Applied Systems Analysis BAU Business-as-usual scenario ICE Internal combustion engine BenMAP Environmental Benefits Mapping and Analysis KCAL Kilocalories Program of the U.S. EPA LFG Landfill gas BC Black carbon LPG Liquefied petroleum gas BRT Bus rapid transit system MACC Marginal Abatement Cost Curve CapEx Capital expenditures MOUD Ministry of Urban Development (of the CCAC Climate and Clean Air Coalition to Reduce Short- Government of India) Lived Climate Pollutants Mt Megaton (million metric tons) CCS Carbon capture and storage MSW Municipal solid waste CGE Computable General Equilibrium model NMVOC Non-methane volatile organic compounds CH4 Methane NPV Net present value CO Carbon monoxide N2O Nitrous oxide CO2 Carbon dioxide O3 Ozone CO2e Carbon dioxide equivalent OC Organic carbon CW ClimateWorks Foundation OpEx Operational costs or expenditures EU European Union (refers to EU27) PAD Project Appraisal Document EV Electric vehicle PM Particulate matter EPA U.S. Environmental Protection Agency PM2.5 Particulate matter with an aerodynamic diameter less than 2.5 microns FASST Fast Scenario Screening Tool for Global Air Quality and Instantaneous Radiative Forcing PPP Purchasing power parity GAINS Greenhouse Gas and Air Pollution Interactions PV Photovoltaic and Synergies: a model that provides a framework RoW Rest of world for the analysis of co-benefits reduction strategies SLCP Short-lived climate pollutants from air pollution and greenhouse gas sources SRC Source receptor coefficient GBD Global burden of disease TM5 Chemical Transport Model (maintained by the GDP Gross domestic product European Commission’s Joint Research Center and GHG Greenhouse gas the model on which the FASST tool is based) GEIM Global Energy and Industry Model of Oxford TEEMP Transportation Emissions Evaluation Models for Projects Economics TSP Total suspended particulates GEF Global Environment Facility U.S. United States GNI Gross national income UNEP United Nations Environment Programme GOM Government of Mexico WAVES Wealth Accounting and the Valuation of Ecosystem Gt Gigaton (billion metric tons) Services IBRD International Bank for Reconstruction and WB World Bank Development vii Foreword The evidence is clear that climate change is already hurting the European Union. If enacted together, these policies could reduce poor. It is damaging infrastructure, threatening coastal cities, and greenhouse gas emissions by the same amount as taking two bil- depressing crop yields, as well as changing our oceans, jeopardiz- lion cars off the streets. ing fish stocks, and endangering species. The report also looks at four country-specific projects and the The UN Intergovernmental Panel on Climate Change (IPCC) impact they would have if scaled-up nationwide. For example, has shown more clearly than ever before that climate change is if India built 1,000 kilometers of new bus rapid transit lanes real, and that it has impacted every continent and all oceans. in about twenty large cities, the benefits over 20 years would Consecutive IPCC reports make clear that we are ill-prepared to include more than 27,000 lives saved from reduced accidents manage the risks of climate change and the impact it brings, and and air pollution, and 128,000 long-term jobs created. It would that global emissions of greenhouse gases are rising faster than also have large, positive effects on India’s GDP, its agriculture, ever before, despite reduction efforts. and the global climate. No one will escape the impact. Climate change poses a severe Climate-Smart Development is a collaboration with the Climate- risk to global economic stability. Without urgent mitigation action, Works Foundation, and provides a framework to better understand ending extreme poverty by 2030 will not be possible. the climate risks and benefits in everything we do. The report’s At the World Bank Group, we know it doesn’t have to be like findings show clearly that development done well can deliver this. We believe it is possible to reduce emissions and deliver jobs significant climate benefits. and economic opportunity, while also cutting health care and energy I recommend this publication to policy makers and develop- costs. This report provides powerful evidence in support of that view. ment practitioners alike. This publication, Climate-Smart Development, highlights scal- able development solutions and builds on research to quantify the social benefits of climate action. The report simulates case studies of policies that could lead to emissions reductions in three sectors: transportation, industry, and the energy efficiency of buildings. It also describes the national-level impact that scaling-up Dr. Jim Yong Kim development solutions could have in five large countries and the President, World Bank Group ix Executive Summary Officials responsible for a nation’s economy have been primarily impacts are proving to be devastating for the world’s most vulner- concerned with delivering jobs, stimulating growth, and promoting able populations. competitiveness. They are also becoming worried about the effects Emissions of carbon dioxide and other greenhouse gases must climate change will inflict on their country’s economic future. be substantially reduced to keep the world from exceeding the Increasingly, these officials want to know if there are investments 2°Celsius threshold of global warming.2 While efforts to reduce and efforts that can advance urgent development priorities and, at these climate pollutants, despite some progress, have been slow, the same time address the challenges of our rapidly warming world. recent scientific evidence suggests that cutting so-called “short-lived Thanks to a growing body of research, it is now clear that climate pollutants,” which are responsible for up to 40 percent climate-smart development can boost employment and can save of the current warming, can have immediate climate impacts.3 millions of lives. Smart development policies and projects can Complementary actions on greenhouse gases and short-lived also slow the pace of adverse climate changes. Based on this climate pollutants can slow the rate of near-term warming, push new scientific understanding, and with the development of new back dangerous tipping points4 and provide time to allow the economic modeling tools to quantify these benefits, it is clear that world’s poorest people to adapt to the changing climate. the objectives of economic development and climate protection Among the short-lived climate pollutants, black carbon and can be complementary. methane are climate forcers but they are also air pollutants that This report uses new modeling tools to examine the full range injure human health and diminish agriculture production. By of benefits ambitious climate mitigation policies can produce across reducing them, it is possible to prevent the deaths of 2.4 million the transportation, industry and building sectors in the United people and boost crop production by 32 million tons of crops States, China, the European Union, India, Mexico and Brazil. This that would have been lost each year.5 In rural areas, millions of report also describes the multiple benefits of four development people can be saved from premature death by switching to clean project simulations scaled up to the national level. The report builds on recent efforts to estimate the develop- 1 Note that the term co-benefit is not used in this report as it implies a primary ment benefits1 that come with a reduction in climate pollutants. benefit whereas this work seeks to demonstrate the many reasons for undertaking These include economic growth, new jobs, improved crop yields, emission reductions without assigning a preference for one benefit over another. 2 “Turn Down the Heat: Why a 4°C Warmer World Must Be Avoided,” World enhanced energy security, healthier people, and millions of lives Bank, 2012a. saved. In many cases these benefits accrue quickly, and they accrue 3 Short-lived Climate Pollutants (SLCPs) such as methane, black carbon, tropo- locally, primarily in the nation where action is taken. spheric ozone, and some hydrofluorocarbons have a significant impact on near-term climate change and a relatively short lifespan in the atmosphere compared to carbon dioxide and other longer-lived gases. 4 With warming beyond 2oC, the risk of crossing activation thresholds for nonlin- Why emissions matter ear tipping elements in the Earth System and irreversible climate change impacts increases. These include Amazon rain forest die-back, ocean ecosystem impacts, and ice sheet destabilization, “Turn Down the Heat: Why a 4°C Warmer World Must Be Climate change impacts impose undeniable burdens on economic Avoided,” World Bank, 2012a. development by causing significant damage to agriculture, water 5 “Integration of Short-Lived Climate Pollutants in World Bank Activities,” World resources, ecosystems, infrastructure, and human health. These Bank, 2013a. xi CLIM ATE - S M A RT D E V E L OP M E N T cooking solutions. In cities, commuters can save time, and many • Contributes a compelling rationale for effectively combin- thousands of asthma and heart attacks can be alleviated, through ing climate action with sustainable development and green improved transit systems. Limiting these pollutants through smart growth worldwide development enhances economies, stimulates production, leaves populations healthier and slows the rate of climate change. The report responds to demand from countries that are striving to advance local development priorities and needs for resilient, low carbon growth. By looking at policies and projects more Achieving development and climate holistically, one can better assess the overall value of actions that goals simultaneously reduce emissions of GHGs and short-lived climate pollutants, and provide a more compelling case for coordinated development and climate action. Policies that reduce GHG emissions and other short-lived climate The report proposes the following framework to analyze poli- pollutants can have clear economic, health, and other social cies and projects: benefits. For example, a policy that encourages more efficient transportation—including fuel efficient vehicles, and effective 1. Identify the full range of benefits that result from a project public transit—will save fuel and time which improves energy or policy, including improved health, crop yields, energy sav- security and labor productivity. These policies can also reduce ings, job growth, labor productivity, and economic growth smog-related respiratory problems, thus saving lives, and improve 2. Select appropriate assessment tools that provide insight on visibility, benefiting local investment in sectors such as tourism each measurable benefit and recreation. Similarly, a project to improve solid waste man- 3. Choose the appropriate macroeconomic tool to analyze direct agement may initially be pursued for its sanitation and health and synergistic economic benefits benefits; it can also reduce methane emissions that may boost 4. Estimate the full range of benefits and present results using crop yields and save energy. All these gains directly contribute metrics relevant to the audience to economic growth. At the project level, these benefits have often been left out Several simulated case studies are used in this study to dem- of economic analyses because many health and environmental onstrate how to apply this analytical framework. The case studies benefits were not easily quantifiable. This has left decision makers cover multiple pollutants (particulate matter, primarily black carbon; with analyses that are incomplete. Recent efforts to better estimate and GHGs, including methane, a precursor to ozone, and CO2) and the full impacts of proposed development projects have produced multiple sectors (transportation, industry, buildings, waste, and several new analytical tools and models. With these new tools, agriculture). They demonstrate the frameworks’ benefits from two economists can more fully assess the multiple impacts of pollut- perspectives: sector policies applied at the national or regional level, ants and estimate the value of emission reductions. Today’s tools and projects implemented at the sub-national level. By applying can also model the synergistic impacts of harms and benefits as the framework to analyze both types of interventions, the report they flow through the economy. demonstrates the value of this approach for national and local policymakers, international finance organizations, and others. The report focuses on assessing the multiple benefits of A framework to assess benefits simulated policy and project case studies. These analyses should be viewed as “full implementation simulations”7 relative to a This report attempts to quantify investments that represent a true business-as-usual scenario. The benefits quantified have an opti- economic gain in terms of increased economic productivity.6 It does mistic bias because they do not necessarily include transaction so by applying new modeling tools that give a fuller accounting of costs, risks, market distortions, and other factors that would be the benefits of near-term and long-term climate and development included in a policy implementation evaluation. Nonetheless, interventions. The report: they offer an important building block to refine the approaches, methods, and tools for multiple-benefit analysis. The results also • Introduces a holistic, adaptable framework to capture and measure the multiple benefits of reducing emissions of several 6 Work has already been undertaken to expand consideration of some hidden pollutants costs of mitigation, such as Paltsev, S. and Capros, P. (2013). A similar effort on benefits is needed. • Demonstrates how local and national policymakers, members 7 Here “full implementation” means that it is assumed that policies and programs of the international development community, and others can achieve their full technical potential. Additional education and outreach or other use this framework to design and analyze policies and projects program costs may be required to achieve this full potential. xii Exec u tive Sum m ary highlight the need to fine-tune the modeling tools to represent rapid transit in India, integrated solid waste management in Brazil, real-world conditions more accurately. cleaner cookstoves in rural China, and biogas digestion and solar photovoltaics in Mexican agriculture. The aggregate benefits over the life of the projects are esti- Case studies demonstrate sizeable mated to include more than 1 million lives saved, about 1 mil- benefits lion–1.5 million tons of crop losses avoided, and some 200,000 jobs created. These projects could reduce CO2e emissions by 355 million–520 million metric tons, roughly equivalent to shutting Three simulated case studies analyzed the effects of key sector down 100–150 coal-fired power plants. This equates to about policies to determine the benefits realized in six regions8 (the $100 billion–$134 billion in additional value for just three of these United States, China, the European Union, India, Mexico, and projects in India, Brazil, and Mexico when accounting for health Brazil) and the impact on global GDP. The sector policies include benefits, avoided crop losses, GDP benefits, and the social benefits regulations, taxes, and incentives to stimulate a shift to clean of carbon mitigation (beyond direct project benefits such as the transport, improved industrial energy efficiency, and more energy value of carbon finance assets, reduced operating costs and other efficient buildings and appliances. project-related economic benefits). In China, the estimated value The annual benefits9 of just these policies in 2030 include an of avoided premature death alone would come to more than $1 estimated GDP growth of between $1.8 trillion and $2.6 trillion. trillion. Figure E.2 illustrates potential benefits for four project Approximately 94,000 premature pollution-related deaths could simulations scaled to the national level. be avoided. Additionally, the policies would avoid production of 8.5 billion metric tons of carbon dioxide equivalent (CO2e)10 emissions and almost 16 billion kilowatt-hours of energy saved, 8 These five large countries and the European Union are referred to as “six regions” a savings roughly equivalent to taking 2 billion cars off the throughout the report for simplicity. 9 Since the sector policy case studies covered a limited number of pollutants road. These policies alone would account for 30 percent of the (methane and BC, but not other co-pollutants), the health and agricultural benefits total reduction needed in 2030 to limit global warming to 2°C.11 are underestimated. However, even with the limited emissions data included in this Figure E.1 illustrates annual benefits for three case studies in study, the resulting benefits can be significant. 10 CO equivalents (CO e) as used in this report include only CO , BC, methane 2030 for key sectors. 2 2 2 (CH4), HFCs, and nitrous oxide (N2O). This report also presents results of four simulated case studies 11 To limit the average global temperature increase to 2°C, 2030 emissions must that analyzed several sub-national development projects, scaled be limited to approximately 35 Gt CO2e (UNEP, 2013; Spiegel and Bresch, 2013); up to the national level, to determine the additional benefits business-as-usual emissions are estimated at 63 Gt CO2e in 2030. (beyond the economic net present value typically calculated in project financial analysis) over the life of each project, generally 20 years. Four project simulations were studied: expanded bus Figure E.2: Aggregate benefits over 20 years of four development projects Figure E.1: Total annual benefits in 2030 of key sector policies in six regions About 1 million lives saved 195,000 to 261,000 $37 billion–$60 billion new jobs increases to GDP 1million–1.5 million 350–520 tons of crop Mt CO2 e Reduced loss avoided Sustainable Transport: Cleaner Coookstoves: Solid Waste Management: Biogas Digastion & PV India China Brazil in Agriculture: 1 million metric 8.5 Gt CO2 e 15,800 TWh 94,000 Mexico tons of increased of emissions of energy llives crop yields reduced saving saved Note: (Results for Mexico are combined with Brazil’s.). Source: Authors. xiii CLIM ATE - S M A RT D E V E L OP M E N T Conclusions and next steps cars could yield greater benefits than clean transport or clean power in isolation) This analysis shows that by using the proposed framework, • Additional macroeconomic analysis to reflect the additional actions can be identified that secure growth, increase jobs and benefits of green versus non-green investment options competitiveness, save lives and slow the rate of climate changes. Many development efforts—across a range of sectors—hold As scientists continue to clarify the many ways that local air the promise of economic growth as borne out by economic pollution, short-lived climate pollutants, and greenhouse gases harm analysis. Activities that also reduce emissions—across a range of health, welfare, and the environment, the framework presented pollutants—deliver health, agriculture and other socioeconomic in this report can be honed to better account for these costs by benefits that are integral to a broader development agenda. Quan- providing more complete economic analyses. tifying and including these benefits, where possible, can reveal Ultimately, climate change is an issue for the whole economy and the broader socioeconomic value of projects while enhancing the all facets of development. All policy makers, whether in government case for climate mitigation. Given the rising cost of inaction on cabinets or corporate boardrooms, need to understand where they climate change, it is imperative that the broad benefits of smart can get development and climate benefits from the decisions they development be included in economic analyses. make. Similarly, those charged with informing decisions from a As a result of limitations in the framework and available model- climate perspective need to able to present more complete analysis ing tools, this report does not provide project-level evaluation for and evidence of the broad impacts of their projects and policies. decision making nor does it focus on policy implementation issues or costs, which are required for comprehensive policy evaluation.12 12 The policy case studies use data from a marginal abatement cost curve model The report does however highlight areas where additional research that only considers project costs to implement a technology for a transition and could improve limitations with the framework. For example, thus is limited in use for full-scale analysis of implementation costs for policies. improved tools are needed to account for behavioral changes As a result, the outcomes presented have no prescriptive value in terms of policy such as shifting to public transit and advanced cookstoves, and to evaluation. Rather, due to the limitations of existing information and assumptions, they provide illustrative simulations of how additional benefits could be quantified explicitly account for the full climate change costs of emissions.13 and integrated into policy evaluation in the future. The framework also needs additional work to tailor its application 13 The social cost of carbon (SCC) is used to monetize the climate change dam- at the individual project level. Areas for research include: age avoided when CO2 is reduced. Lacking specific World Bank guidance on the social cost of carbon, values developed by the US Interagency Working Group on Social Cost of Carbon (2013) are used. The SCC accounts for changes in agricultural • Further benefits assessments based on more comprehensive productivity, human health, and property damage from increased flood risks (US emissions data EPA, 2013, http://www.epa.gov/climatechange/EPAactivities/economics/scc.html); however, it does not include all the damage caused by increased CO2 and may evolve • Multi-sector macroeconomic analysis that better illustrates as scientific understanding develops further. This does not constitute a World Bank the synergistic benefits (for example, using cleaner energy endorsement of these values. The SCC is very sensitive to the discount rate used. In sources to supply the increased power demand for electric addition, the climate change costs of black carbon emissions are not accounted for. xiv @ WORLD BANK GROUP 1818 H Street, N.W. Washington, DC 20433