Economic Analysis of Climate-Proofing Investment Projects

By Asian Development Bank

Climate change represents an increasing threat to the continued development of the people, preservation of ecosystems, and economic growth of Asia and the Pacific. Mainstreaming climate risk management in all aspects of development is thus key to an effective transition to climate-resilient development pathways. ADB's climate risk management framework aims to reduce risks resulting from climate change to investment projects in Asia and the Pacific. A key step in this framework is the technical and economic valuation of climate-proofing measures. This report describes the conduct of the cost-benefit analysis of climate proofing investment projects. An important message is that the presence of uncertainty about climate change does not invalidate the conduct of the economic analysis of investment projects, nor does it require a new type of economic analysis. However, the presence of uncertainty does require a different type of decision-making process in which technical and economic expertise combine to present decision makers with the best possible information on the economic efficiency of alternative designs of investment projects.

• Language: English
• Publisher: Asian Development Bank
• Release date: Sep 1, 2015
• ISBN: 9789292570781

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ECONOMIC ANALYSIS OF CLIMATE-PROOFING INVESTMENT PROJECTS

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

© 2015 Asian Development Bank

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Asian Development Bank.

                  Economic analysis of climate proofing investment projects

Mandaluyong City, Philippines: Asian Development Bank, 2015.

1. Climate change 2. Risk management 3. Adaptation I. Asian Development Bank.

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Contents

Tables, Figures, and Boxes

TABLES

FIGURES

BOXES

Abbreviations

Foreword

Climate change is a central challenge to development in Asia and the Pacific. Its impacts are already being felt. Sea levels are rising, glaciers are melting, temperatures are increasing, and rain patterns are changing, threatening the water, food, and health security of the region. Numerous countries of the region are among the most vulnerable to the adverse impacts of climate change globally, with poor and marginalized communities likely to be the most severely impacted.

Adjusting to the need for climate-resilient development will mean integrating responses to the physical, social, and economic impacts of climate change into all aspects of development planning and investment. The long-term strategic framework of the Asian Development Bank (ADB), Strategy 2020, and its climate change strategy, Addressing Climate Change in Asia and the Pacific: Priorities for Action, confirm ADB’s commitment to support developing member countries in Asia and the Pacific in addressing the increasing challenges posed by climate change and to build a climate-resilient region. As ADB continues to support significant infrastructure investments in the region, ADB also seeks to enhance the climate resilience of vulnerable sectors by climate proofing investments and ensure intended development outcomes are not compromised by ongoing and projected climate change.

The complexity and uncertainty of the factors that define climate risks and vulnerability, particularly at a project scale makes climate proofing a challenging activity for scientists, engineers, economists and decision makers. ADB is developing a set of technical resources to assist both its own operational staff and developing member countries in managing climate-related risks and vulnerability throughout the project cycle. This set encompasses climate risk screening tools, technical guidelines for climate proofing investments in critical development sectors (e.g., transport, agriculture, and energy), and knowledge products capturing our experiences with climate proofing investment projects. These resources reflect ADB’s as well as development partners’ growing experience in using a wide range of approaches, methods, and tools aimed at increasing climate resilience in the region. It is hoped that these resources will also be of support and of interest to a much wider community of individuals and organizations addressing climate change risks.

This report aims to clarify how the economic analysis of climate-proofing measures can inform the design of investments. An important message of this report is that the principles guiding the economic analysis of climate proofing investment projects do not fundamentally differ from the principles guiding the economic analysis of any other investment project. However, decision-making processes need to account for the uncertainty associated with