A Changing Climate for Development

Worldbank Development Report 2010

Developing countries are highly vulnerable to climate change
Climate change complicates efforts to reduce poverty and promote prosperity
A “climate smart” world is possible if we act now, act together, and act differently
An equitable, efficient climate deal that recognizes the needs of developing countries is critical

September 15, 2009

World Development Report (WDR) 2010, highlights the enormous risks—but also the opportunities—presented by a rapidly warming planet.

“Developing countries, which have historically contributed little to global warming, are now, ironically, faced with 75 to 80 percent of the potential damage from it,” said Justin Lin, World Bank Chief Economist. “They need help to cope with climate change, as they are preoccupied with existing challenges such as reducing poverty and hunger and providing access to energy and water.”

Time for a “climate-smart” world?

“The latest and best scientific evidence suggests that at global warming of more than 2°C above pre-industrial temperatures, more than a billion people could face water scarcity, 15 to 30 percent of species worldwide could be doomed to extinction, and hunger will rise, particularly in tropical countries,” said Rosina Bierbaum, co-director of the report, and Dean of the School of Natural Resources and Environment at the University of Michigan.

As the planet rapidly warms towards this grim scenario—and beyond it, if no action is taken—the poorest countries are already facing the largest damages from extreme weather events, the report notes. Hurricane Ivan, for instance, caused damage equivalent to 200 percent of Grenada’s GDP. Future climate change could include more frequent and intense floods, droughts, and extreme weather events that developing countries are not well equipped to manage even now.

While “adapting” or taking steps to build climate resilience is critical, “mitigating” or reducing greenhouse gas emissions is also vital to reduce the risk of catastrophic climate change.

The good news, according to the report, is that a “climate-smart” world is possible, but only if countries and individuals act now, act together, and act differently than in the past. These messages take on added importance ahead of Copenhagen, where negotiators will meet in December this year to shape an international response to climate change.

Act now, act together, and act differently

The WDR makes a case for urgent action because of increasingly severe warnings from the Intergovernmental Panel on Climate Change (IPCC) and evidence of damage already caused, and because mitigation must begin now in order to try to keep temperatures from soaring to as much as 5°C above pre-industrial temperatures.

“What happens in the next ten years will deeply influence the choices available to future generations,” said Marianne Fay, Chief Economist for Sustainable Development at the World Bank, and co-director of the WDR. “We must act now to tackle the climate crisis, with all the ingenuity and collaborative spirit of the human race, because the price of delay or inaction appears very high.”

“Even today, the poorest billion people on the planet produce only 3 percent of global emissions, while the richest billion of us emit 50 percent,” said Bierbaum. “So the conundrum is how to supply much-needed energy to the poorest countries of the world so that they develop faster, but not along a high-carbon path as was taken by rich countries, which are still emitting at a prodigious rate.”

Globally, 1.6 billion people still lack access to modern energy, without which no country can achieve prosperity. Strong actions by rich countries to free up some “pollution space” in the atmosphere would help rebalance the global emissions picture as low-income countries begin to emit more in the future.

Countries must also act together to adapt to climate change, the report notes, sharing technologies and financing new approaches to increase agricultural productivity, as well as enabling those in need to rely on food imports without fear of soaring prices and trade protectionism.

IMF chief: Asia may have to act against new bubbles

By Peter Brieger (AFP) – Jan 19, 2010

HONG KONG — The IMF chief said Asia may need to erect temporary capital controls among other measures to guard against the risk of new economic bubbles as speculative money floods into the region.

Dominique Strauss-Kahn said the global economy looked on course to beat the 3.1 percent growth forecast currently expected by the International Monetary Fund for 2010, as a post-crisis recovery accelerates.

Speaking in Hong Kong, the IMF managing director also reiterated his call for China to boost the value of its currency, the yuan, which critics say is kept artificially low to boost Chinese exports.

There is broad concern about the influx of foreign money pouring into Asia -- which has sent property prices rocketing in Hong Kong, Singapore and mainland China -- as the region leads the recovery.

Strauss-Kahn said the cash flowing into Asia was in stark contrast to the global financial crisis when the fear was of money drying up.

"Understandably, however, policymakers in recipient countries are concerned now with how to manage these flows -- their impact on exchange rates, domestic demand, financial stability -- and the danger of asset bubbles," he said.

Strauss-Kahn said options to discourage the inflow included cutting interest rates, accumulating reserves or tightening fiscal policy.

He added: "Capital controls can also play a role, particularly where the surge in capital flows is expected to be temporary, or where exchange rate overshooting is a real danger.

"As long as it's temporary, it may be the only way" to ward off a bubble, Strauss-Kahn told the Asian Financial Forum, a gathering of political and business leaders.

And in a veiled comment on China, he said: "In many countries, exchange-rate appreciation should be the key response -- especially in those where the exchange rate is undervalued."

In a later statement, Strauss-Kahn said he had told Hong Kong officials that money pouring into the territory "could lead to rapid credit growth that in turn unduly drives up asset prices and creates macroeconomic volatility".

Malaysia was ridiculed by financial institutions and foreign governments in 1998 when it became the first crisis-hit Asian country to roll out capital controls to protect its financial markets and collapsing currency.

But the measures, including pegging the ringgit to the dollar and barring investors from taking money out of Malaysia, were later hailed by the IMF and other free-market proponents as an effective tool against speculation.

Economies worldwide went into a tailspin in late 2008 when credit dried up due largely to the collapse of a US property bubble.

But Strauss-Kahn said some emerging economies could begin exiting stimulus programmes sooner than rich countries, with world growth likely to outstrip the IMF's forecast figure of 3.1 percent this year.

-Excluding Japan, Asia may expand by more than seven percent, the IMF boss said.

In his speech, he again dismissed fears of a "double-dip" recession for the world economy, but said the pace of recovery had been uneven with Asia bouncing back faster than the rest of the world.

The region must also look at boosting domestic demand to cut its reliance on foreign consumers, especially in the hard-hit United States, he said.

Strauss-Kahn said world leaders should press on with financial reforms to prevent a repeat of the credit crisis, including better regulation and oversight of the banking sector.

"We need reform and we need political will," he said.

"There is still a lot to do... My concern is that in six to 12 months, everybody will be back to business as usual and will have forgotten the lessons of the financial crisis."

Asian Century Institute

A Changing Climate for Development