## 0.5 percent in 2030 (IMF, 2019b), whereas other studies indicate that any impact on GDP

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### Carbon-pricing impacts and distributional considerations
- Empirical evidence on the elasticity of carbon emissions with respect to prices is relatively limited; estimates are subject to considerable uncertainty.
- Rafaty, Dolphin, and Pretis (2020) indicates a positive link between carbon prices and emissions reductions.
- Recycling carbon-tax revenue into productive investment could reduce GDP impacts (Ojha, Pohit, and Ghosh, 2020).
- Welfare costs of introducing a carbon tax combined with pro-poor fiscal transfers will depend on:
  - future improvements in the social safety net; and
  - enhancements in targeting of welfare programs.
- Administrative capacity need not be a constraint for designing socially fair climate policy.
- Distributional consequences and implementation costs should be weighed against indirect economic benefits associated with reduced carbon emissions, including better health outcomes and reduction in premature pollution-related deaths.
- Options to enhance protection of vulnerable households are discussed further in IMF (2020).
- Over the medium term, a well-designed carbon tax package combined with complementary product and labor market policies could support:
  - re-allocation of capital to more productive and cleaner sectors; and
  - re-skilling of labor.

### Short- to medium-term sectoral re-allocation linked to COVID-19
- The COVID-19 shock has already led to sectoral re-allocation away from some dirty-energy-intensive sectors.
- Sectors relying intensively on carbon—such as airlines and transportation—have been particularly impacted by the COVID-19 shock, with adverse impacts expected to last for several years.
- Short-term effects: sizable pain for workers and businesses in affected sectors.
- Medium-term opportunity: potential job creation in less pollution-prone sectors through re-allocation and policy support.

### IV. ADAPTATION STRATEGY IN SOUTH ASIA — overview
- Adaptation is a main policy response to climate change and involves improving resilience of people’s behavior and infrastructure.
- Adapting to climate change includes:
  - making physical infrastructure more resilient to climate shocks;
  - improving policy-making processes to be more agile in the face of climate shocks;
  - internalizing climate risk in areas such as land use laws and procurement;
  - educating households and firms on their role in adapting to climate change and providing support.
- South Asia has made strides in adapting to climate change, but there is scope for more action.

### Different types of adaptation policies — examples and evidence
- Early warning systems for cyclones in the North Indian Ocean are highlighted as effective adaptation through policy.
  - 1991 Bangladesh cyclone: more than 138,000 deaths and an estimated US$1.78 billion in damages (EM-DAT).
  - 20 May 2020 cyclone Amphan: estimated damages above US$13 billion and 128 deaths; 2.4 million Bangladeshis were evacuated before landfall, saving thousands of lives (IFRC, 2020).
- Adaptation policies that educate the public and change behavior can trigger significant benefits.
- Improving physical infrastructure resilience is key to effective adaptation.

### Infrastructure needs, costs, and investment strategy for South Asia
- Rozenberg and Fay (2019) estimate that to achieve development goals, low- and middle-income countries will need to spend between 2 and 8 percent of GDP annually until 2030; estimates vary based on spending efficiency and development goals.
- In the scenario where SDGs are attained and full decarbonization is achieved around 2050:
  - average annual capital cost for South Asia up to 2030: 4.8 percent of regional GDP;
  - average annual maintenance cost for South Asia up to 2030: 2.7 percent of regional GDP.
- New infrastructure should be resilient to climate shocks to maximize benefits.
- Satisfying infrastructure needs requires:
  - comprehensive analysis of investment plans and their impact on future economic prospects; and
  - a strategy for funding sources, especially given limited fiscal space in the region.
- The Maldives example (Box 1) illustrates how the choice between standard- and adaptation-capital is intertwined with decisions on financing additional investment (debt or other sources).
- Other studies (Box 2) highlight potential gains for South Asian economies from improving adaptability, including infrastructure improvements.

### COVID-19, biodiversity, and pandemic preparedness in adaptation design
- The incidence and impact of COVID-19 highlight the importance of strengthening preparedness for future pandemics and designing adaptation policies with this risk in mind.
- Evidence cited: climate change, urbanization, deforestation, and increased demand for food reduce biodiversity and exacerbate the risk of emergence and transmission of new diseases to humans (Keesing et al., 2010; Romanelli et al., 2015).
- Mechanisms increasing zoonotic risk:
  - Deforestation and urbanization encroach on ecosystems of species that carry pathogens, increasing human contact.
  - Domesticated mammals (cattle, pigs) can transmit pathogens if exposed to originating species (Johnson et al., 2020; Romanelli et al., 2015).
- Policy implications:
  - Maintain surveillance of at-risk areas to protect habitats of pathogen-carrying species and limit interaction with humans and other animals.
  - Environmental impact assessments can and should take health risks into account (Keesing et al., 2010; Romanelli et al., 2015).
- Vector-borne diseases are impacted by climate change: changes in rainfall and temperatures alter regions where vectors spread disease and can intensify transmission (UNEP, 2018).
  - Important to monitor vector-population growth and reduce vector populations to limit interaction with humans.

### Box 1. Enhancing Infrastructure Resilience to Climate Change in the Maldives — model, scenarios, and findings
- Model, objectives, and approach:
  - Calibrated the model of Marto, et al. (2017) to Maldivian data in a general equilibrium framework for a small-open economy prone to natural disasters.
  - Model distinguishes between standard infrastructure capital and adaptation (resilient) infrastructure capital; adaptation capital has a greater gross rate of return and greater durability (smaller depreciation rate).
  - Main objectives:
    - (i) Quantify gains associated with adaptation infrastructure when a natural disaster occurs.
    - (ii) Compare outcomes when initial investment is financed with international grants versus higher taxation.
    - (iii) Estimate financing needs for reconstruction after a disaster depending on initial capital type.
- Experimental design and scenarios:
  - Budget envelope assumption: authorities use the same budget envelope of 1 percent of GDP for 5 consecutive years for building infrastructure (standard or adaptation).
  - Natural disaster timing: occurs as soon as this investment plan is completed.
  - Assumed natural-disaster shock: destroys 10 percent of capital and triggers a symmetric productivity drop in both the tradable and non-tradable sectors.
  - Three scenarios simulated:
    1. Investment in standard infrastructure.
    2. Investment in adaptation infrastructure financed by higher taxation.
    3. Investment in adaptation infrastructure financed by international grants.
  - Post-disaster reconstruction financing assumption: financed by increased taxation (simulations assume Maldives has no fiscal space for deficit-financed spending); donor post-disaster grants are acknowledged as a possible alternative but not assumed in the baseline simulations.
- Key quantitative findings:
  - "Building resilient infrastructure in the Maldives can halve the losses in terms of GDP at the trough triggered by the natural disaster."
  - Investing in resilient infrastructure yields a dividend even before the disaster because of higher gross rate of return and greater durability (smaller depreciation rate).
  - Tax pressure for reconstruction with standard infrastructure:
    - "The supplementary increase in tax revenues should be of the tune of 6-7 percentage points of GDP, in the aftermath of the shock."
  - Financing public investment with higher taxation leads to a sacrifice in terms of GDP, and private consumption and investment during the ramp up of the investment effort.
  - Grant-financing can reduce this cost or eliminate it if it covers the investment plan in full (as in the provided example).
  - Donors’ tradeoff: finance initial adaptation investment (with prospects of much smaller post-disaster disbursements) or wait and provide larger reconstruction financing after a disaster under standard infrastructure (potentially twice-as-large disbursements, per the experiment).
- Donor, financing, and insurance context:
  - Example instruments and arrangements:
    - Cat DDO: several South Asian countries have an approved Cat DDO with the World Bank; Maldives, Bhutan, Nepal and Sri Lanka had an approved Cat DDO as of July 2020.
    - On April 2020, World Bank approved a USD 10 million contingency financing for the Maldives under the Cat DDO signed in 2019 to deal with the COVID-19 crisis.
  - Regional climate finance allocation (2017/2018 averages, Global Landscape of Climate Finance, 2019):
    - East Asia & Pacific: US$   238 billion per year (53 percent of all flows).
    - South Asia: US$   31 billion per year (7   percent of all flows).
  - Composition of climate finance:
    - Mitigation receives 93 percent of available funds; adaptation receives minimal private funding and relies primarily on multilateral climate funds.
- Policy implications and recommendations:
  - For Maldives-specific resilience strategy:
    - Prioritize investment in adaptation (resilient) infrastructure because it can substantially reduce GDP losses from disasters and yields higher net returns due to greater durability.
    - Consider using international grants to finance upfront adaptation investment to avoid the GDP, private consumption, and private investment costs associated with tax-financing during the investment ramp-up.
    - Recognize the political infeasibility of large post-disaster tax increases (6-7 percentage points of GDP) implied by reconstruction after investing in standard infrastructure.
  - For donors and international community:
    - Weigh financing initial adaptation investment (smaller future disbursements) against waiting to finance reconstruction after a disaster (potentially much larger disbursements).
    - Provide ex-ante financing and risk-sharing instruments (e.g., Cat DDO, contingency financing) to small states like the Maldives where domestic fiscal space is limited.
  - For broader South Asia context relevant to Maldives:
    - Strengthen PFM and public investment management to improve access to climate finance.
    - Expand ex-ante risk financing, pooling arrangements, and insurance instruments to reduce dependence on post-disaster lending or grants.
    - Mobilize donors to support initial adaptation investments that lower long-run reconstruction burdens.
- Representative exact figures and policy instruments cited:
  - Budget envelope used in experiments: 1 percent of GDP for 5 consecutive years.
  - Assumed disaster damage in experiments: destroys 10 percent of capital.
  - Post-disaster tax increase required under standard infrastructure: 6-7 percentage points of GDP (supplementary increase in tax revenues).
  - Example regional climate finance flows (2017/2018):
    - East Asia & Pacific: US$   238 billion per year (53 percent).
    - South Asia: US$   31 billion per year (7   percent).
  - Bangladesh Climate Fiscal Framework example: about 2 percent of the national budget allocated to resilient infrastructure building in 2017.
  - Maldives green tax: six US dollars per person per day from resorts, vessels, and hotels and three US dollars per person per day from guest houses (from 2016).
  - Cat DDO contingency financing approved for Maldives: USD 10 million (World Bank approval on April 2020 under Cat DDO signed in 2019).
  - Countries in the region with approved Cat DDO as of July 2020: Maldives, Bhutan, Nepal and Sri Lanka.
  - Mitigation share of climate finance: 93 percent.

### Box 2. The Costs and Benefits of Climate-Resilient Infrastructure — estimates, evidence, and policy
- Overview:
  - South Asian economies can gain from improving adaptability to climate change.
  - ND-GAIN measures vulnerability and readiness; a higher index denotes a higher degree of readiness relative to the vulnerabilities present.
  - The average ND-GAIN index for South Asian countries is slightly below that of emerging and developing economies in Asia, though improvements have been made over time.
- Measurements and country estimates:
  - Identified adaptation costs between 2020 and 2030:
    - Bangladesh: USD40 billion
    - India: USD206 billion
  - Mitigation costs for the same period:
    - Bangladesh: US$24 million
    - India: US$834 million
  - The INDCs database includes 46 countries with self-reported costs for adaptation between 2020 and 2030 amounting to US$783 million.
- Cost–benefit evidence for climate-resilient infrastructure:
  - Hallegatte et al. (2019) results (3000 scenarios by varying parameters):
    - In 96 percent of the scenarios the cost-benefit is above 1.
    - In 55 percent of the scenarios it was above 4.
    - In 93 percent of the scenarios, there is a cost to delaying strengthening infrastructure.
  - Global Commission on Adaptation (2019) finds benefit-cost ratios of investments in adaptation ranging from 2:1 to 10:1.
  - Investing in climate-resilient infrastructure is therefore generally cost-effective, delivering benefits and averting losses.
- Global cost estimates and uncertainty:
  - Earlier global estimates (World Bank, 2010) using a top-down approach found costs for developing countries ranged between US$70 and US$100 million per year.
  - UNEP Adaptation GAP reports (2016, 2018, 2020) using bottom-up approaches found higher estimates:
    - US$140 to US$300 billion per year by 2030.
    - US$280 to US$500 billion per year by 2050.
    - The 2016 estimates were retained in subsequent UNEP reports.
  - A recent IMF study estimates public investment needs for making infrastructure climate resilient:
    - Less than 1 percent of GDP annually for Bhutan, India, Nepal and Sri Lanka.
    - Between 1-2 percent for Bangladesh (IMF, 2021).
  - Estimates are subject to uncertainties, including:
    - The emissions pathway (cost under business as usual is higher than under a 2-degree-Celsius scenario).
    - Development level, implementation capacity, education, and governance.
    - Limited sectoral coverage in studies (coastal areas, agriculture, adaptation to hotter temperatures) and exclusion of adaptation undertaken by individuals, households, and firms.
- Policy implications and recommendations:
  - Mitigation:
    - Increasing the cost of thermal power production—likely through a carbon tax—is the most promising medium-term policy option to more aggressively limit carbon emissions.
    - A carbon tax would generate a fiscal windfall that could support the government budget or offset impacts on lower-income households via fiscal transfers.
    - Further work is needed in each country to design practical policy implementation and to ensure vulnerable and low-income households are protected and adequately covered.
    - Considerations needed on carbon taxes’ impacts on growth and inflation, equity between nations given lower emissions per capita in South Asia, and technology and knowledge transfer from advanced nations to accelerate renewables’ competitiveness.
  - Adaptation:
    - A comprehensive, multifaceted approach is needed; planning has progressed but implementation and concrete financing plans are often lacking.
    - Climate finance and technology transfers from developed countries are essential for South Asia’s adaptation and mitigation plans and need to be on track.
    - Coordinated regional approaches can yield benefits in river management, development of drought-resistant crops, harnessing hydropower potential, and pooled insurance mechanisms for more frequent natural disasters.
  - International context:
    - The UN Independent Expert Group on Climate Finance (2020) highlights that meeting the pledge by developed countries to mobilize at least US$100 billion a year to support developing countries requires urgent action.

*Source: wpiea2021217-print-pdf (IMF working paper content provided in the input).*

### 0.5 percent in 2030 (IMF, 2019b), whereas other studies indicate that any impact on GDP

### wpiea2021217-print-pdf - 0.5 percent in 2030 (IMF, 2019b), whereas other studies indicate that any impact on GDP

### Carbon-pricing impacts and distributional considerations
- Empirical evidence on the elasticity of carbon emissions with respect to prices is relatively limited; estimates are subject to considerable uncertainty.
- One empirical study cited: Rafaty, Dolphin, and Pretis (2020), which indicates a positive link between carbon prices and emissions reductions.
- Recycling carbon-tax revenue into productive investment could reduce GDP impacts (Ojha, Pohit, and Ghosh, 2020).
- Welfare costs of introducing a carbon tax combined with pro-poor fiscal transfers will depend on:
  - future improvements in the social safety net; and
  - enhancements in targeting of welfare programs.
- Administrative capacity need not be a constraint for designing socially fair climate policy.
- Distributional consequences and implementation costs should be weighed against indirect economic benefits associated with reduced carbon emissions, including better health outcomes and reduction in premature pollution-related deaths.
- Options to enhance protection of vulnerable households are discussed further in IMF (2020).
- Over the medium term, a well-designed carbon tax package combined with complementary product and labor market policies could support:
  - re-allocation of capital to more productive and cleaner sectors; and
  - re-skilling of labor.

### Short- to medium-term sectoral re-allocation linked to COVID-19
- The COVID-19 shock has already led to sectoral re-allocation away from some dirty-energy-intensive sectors.
- Sectors relying intensively on carbon—such as airlines and transportation—have been particularly impacted by the COVID-19 shock, with adverse impacts expected to last for several years.
- Short-term effects: sizable pain for workers and businesses in affected sectors.
- Medium-term opportunity: potential job creation in less pollution-prone sectors through re-allocation and policy support.

### IV. ADAPTATION STRATEGY IN SOUTH ASIA — overview
- Adaptation is a main policy response to climate change and involves improving resilience of people’s behavior and infrastructure.
- Adapting to climate change includes:
  - making physical infrastructure more resilient to climate shocks;
  - improving policy-making processes to be more agile in the face of climate shocks;
  - internalizing climate risk in areas such as land use laws and procurement;
  - educating households and firms on their role in adapting to climate change and providing support.
- South Asia has made strides in adapting to climate change, but there is scope for more action.

### Different types of adaptation policies — examples and evidence
- Early warning systems for cyclones in the North Indian Ocean are highlighted as effective adaptation through policy.
  - Comparison of two category 5 cyclones:
    - 1991 Bangladesh cyclone: more than 138,000 deaths and an estimated US$1.78 billion in damages (EM-DAT).
    - 20 May 2020 cyclone Amphan: estimated damages above US$13 billion and 128 deaths; 2.4 million Bangladeshis were evacuated before landfall, saving thousands of lives (IFRC, 2020).
- Adaptation policies that educate the public and change behavior can trigger significant benefits.
- Improving physical infrastructure resilience is key to effective adaptation.

### Infrastructure needs, costs, and investment strategy for South Asia
- Rozenberg and Fay (2019) estimate that to achieve development goals, low- and middle-income countries will need to spend between 2 and 8 percent of GDP annually until 2030; estimates vary based on spending efficiency and development goals.
- In the scenario where SDGs are attained and full decarbonization is achieved around 2050:
  - average annual capital cost for South Asia up to 2030: 4.8 percent of regional GDP;
  - average annual maintenance cost for South Asia up to 2030: 2.7 percent of regional GDP.
- New infrastructure should be resilient to climate shocks to maximize benefits.
- Satisfying infrastructure needs requires:
  - comprehensive analysis of investment plans and their impact on future economic prospects; and
  - a strategy for funding sources, especially given limited fiscal space in the region.
- The Maldives example (Box 1) illustrates how the choice between standard- and adaptation-capital is intertwined with decisions on financing additional investment (debt or other sources).
- Other studies (Box 2) highlight potential gains for South Asian economies from improving adaptability, including infrastructure improvements.

### COVID-19, biodiversity, and pandemic preparedness in adaptation design
- The incidence and impact of COVID-19 highlight the importance of strengthening preparedness for future pandemics and designing adaptation policies with this risk in mind.
- Evidence cited: climate change, urbanization, deforestation, and increased demand for food reduce biodiversity and exacerbate the risk of emergence and transmission of new diseases to humans (Keesing et al., 2010; Romanelli et al., 2015).
- Mechanisms increasing zoonotic risk:
  - Deforestation and urbanization encroach on ecosystems of species that carry pathogens, increasing human contact.
  - Domesticated mammals (cattle, pigs) can transmit pathogens if exposed to originating species (Johnson et al., 2020; Romanelli et al., 2015).
- Policy implications:
  - Maintain surveillance of at-risk areas to protect habitats of pathogen-carrying species and limit interaction with humans and other animals.
  - Environmental impact assessments can and should take health risks into account (Keesing et al., 2010; Romanelli et al., 2015).
- Vector-borne diseases are impacted by climate change: changes in rainfall and temperatures alter regions where vectors spread disease and can intensify transmission (UNEP, 2018).
  - Important to monitor vector-population growth and reduce vector populations to limit interaction with humans.

*Source: IMF working paper content provided in the input.*

### Box 1. Enhancing Infrastructure Resilience to Climate Change in the Maldives

### Box 1. Enhancing Infrastructure Resilience to Climate Change in the Maldives

### Model, objectives, and approach
- Calibrated the model of Marto, et al. (2017) to Maldivian data and used it as a general equilibrium framework for a small-open economy prone to natural disasters.
- Model features:
  - Firms use different types of capital and labor to produce traded and non-traded goods and services.
  - Climate change-related shocks damage both public and private capital and temporarily hamper productivity.
  - Distinguishes between standard infrastructure capital and adaptation (resilient) infrastructure capital; adaptation capital has a greater gross rate of return and greater durability (captured by a smaller depreciation rate).
- Main objectives of the experiments:
  - (i) Quantify gains associated with adaptation infrastructure when a natural disaster occurs.
  - (ii) Compare outcomes when initial investment is financed with international grants versus higher taxation.
  - (iii) Estimate financing needs for reconstruction after a disaster depending on whether the government invested in standard or adaptation capital.

### Experimental design and scenarios
- Budget envelope assumption: authorities use the same budget envelope of 1 percent of GDP for 5 consecutive years for building infrastructure (standard or adaptation).
- Natural disaster timing: occurs as soon as this investment plan is completed.
- Assumed natural-disaster shock: destroys 10 percent of capital and triggers a symmetric productivity drop in both the tradable and non-tradable sectors.
- Three scenarios simulated:
  1. Investment in standard infrastructure.
  2. Investment in adaptation infrastructure financed by higher taxation.
  3. Investment in adaptation infrastructure financed by international grants.
- Post-disaster reconstruction financing assumption: financed by increased taxation (simulations assume Maldives has no fiscal space for deficit-financed spending); donor post-disaster grants are acknowledged as a possible alternative but not assumed in the baseline simulations.

### Key quantitative findings
- Impact on GDP:
  - "Building resilient infrastructure in the Maldives can halve the losses in terms of GDP at the trough triggered by the natural disaster."
  - Investing in resilient infrastructure yields a dividend even before the disaster because of higher gross rate of return and greater durability (smaller depreciation rate).
- Tax pressure for reconstruction with standard infrastructure:
  - "The supplementary increase in tax revenues should be of the tune of 6-7 percentage points of GDP, in the aftermath of the shock."
- Financing public investment:
  - Financing public investment with higher taxation leads to a sacrifice in terms of GDP, and private consumption and investment during the ramp up of the investment effort.
  - Grant-financing can reduce this cost or eliminate it if it covers the investment plan in full (as in the provided example).
- Donors’ tradeoff:
  - Donors face a tradeoff: finance initial adaptation investment (with prospects of much smaller post-disaster disbursements) or wait and provide larger reconstruction financing after a disaster under standard infrastructure (potentially twice-as-large disbursements, per the experiment).

### Donor, financing, and insurance context (regional context drawn into Maldives implications)
- Example instruments and arrangements:
  - Cat DDO: several South Asian countries have an approved Cat DDO with the World Bank; Maldives, Bhutan, Nepal and Sri Lanka had an approved Cat DDO as of July 2020.
  - On April 2020, World Bank approved a USD 10 million contingency financing for the Maldives under the Cat DDO signed in 2019 to deal with the COVID-19 crisis.
- Regional climate finance allocation (2017/2018 averages, Global Landscape of Climate Finance, 2019):
  - East Asia & Pacific: US$   238 billion per year (53 percent of all flows).
  - South Asia: US$   31 billion per year (7   percent of all flows).
- Composition of climate finance:
  - Mitigation receives 93 percent of available funds; adaptation receives minimal private funding and relies primarily on multilateral climate funds.

### Policy implications and recommendations
- For Maldives-specific resilience strategy:
  - Prioritize investment in adaptation (resilient) infrastructure because it can substantially reduce GDP losses from disasters and yields higher net returns due to greater durability.
  - Consider using international grants to finance upfront adaptation investment to avoid the GDP, private consumption, and private investment costs associated with tax-financing during the investment ramp-up.
  - Recognize the political infeasibility of large post-disaster tax increases (6-7 percentage points of GDP) implied by reconstruction after investing in standard infrastructure.
- For donors and international community:
  - Weigh financing initial adaptation investment (smaller future disbursements) against waiting to finance reconstruction after a disaster (potentially much larger disbursements).
  - Provide ex-ante financing and risk-sharing instruments (e.g., Cat DDO, contingency financing) to small states like the Maldives where domestic fiscal space is limited.
- For broader South Asia context relevant to Maldives:
  - Strengthen PFM and public investment management to improve access to climate finance.
  - Expand ex-ante risk financing, pooling arrangements, and insurance instruments to reduce dependence on post-disaster lending or grants.
  - Mobilize donors to support initial adaptation investments that lower long-run reconstruction burdens.

### Representative exact figures and policy instruments cited in the analysis
- Budget envelope used in experiments: 1 percent of GDP for 5 consecutive years.
- Assumed disaster damage in experiments: destroys 10 percent of capital.
- Post-disaster tax increase required under standard infrastructure: 6-7 percentage points of GDP (supplementary increase in tax revenues).
- Example regional climate finance flows (2017/2018):
  - East Asia & Pacific: US$   238 billion per year (53 percent).
  - South Asia: US$   31 billion per year (7   percent).
- Bangladesh Climate Fiscal Framework example: about 2 percent of the national budget allocated to resilient infrastructure building in 2017.
- Maldives green tax: six US dollars per person per day from resorts, vessels, and hotels and three US dollars per person per day from guest houses (from 2016).
- Cat DDO contingency financing approved for Maldives: USD 10 million (World Bank approval on April 2020 under Cat DDO signed in 2019).
- Countries in the region with approved Cat DDO as of July 2020: Maldives, Bhutan, Nepal and Sri Lanka.
- Mitigation share of climate finance: 93 percent.

*Source: Box 1. Enhancing Infrastructure Resilience to Climate Change in the Maldives (from wpiea2021217-print-pdf).*

### Box 2. The Costs and Benefits of Climate-Resilient Infrastructure

### Box 2. The Costs and Benefits of Climate-Resilient Infrastructure

### Overview
- South Asian economies can gain from improving adaptability to climate change.
- ND-GAIN measures vulnerability and readiness; a higher index denotes a higher degree of readiness relative to the vulnerabilities present.
- The average ND-GAIN index for South Asian countries is slightly below that of emerging and developing economies in Asia, though improvements have been made over time.

### Measurements and country estimates
- Identified adaptation costs between 2020 and 2030:
  - Bangladesh: USD40 billion
  - India: USD206 billion
- Mitigation costs for the same period:
  - Bangladesh: US$24 million
  - India: US$834 million
- The INDCs database includes 46 countries with self-reported costs for adaptation between 2020 and 2030 amounting to US$783 million.

### Cost–benefit evidence for climate-resilient infrastructure
- Hallegatte et al. (2019) results (3000 scenarios by varying parameters):
  - In 96 percent of the scenarios the cost-benefit is above 1.
  - In 55 percent of the scenarios it was above 4.
  - In 93 percent of the scenarios, there is a cost to delaying strengthening infrastructure.
- Global Commission on Adaptation (2019) finds benefit-cost ratios of investments in adaptation ranging from 2:1 to 10:1.
- Investing in climate-resilient infrastructure is therefore generally cost-effective, delivering benefits and averting losses.

### Global cost estimates and uncertainty
- Earlier global estimates (World Bank, 2010) using a top-down approach found costs for developing countries ranged between US$70 and US$100 million per year.
- UNEP Adaptation GAP reports (2016, 2018, 2020) using bottom-up approaches found higher estimates:
  - US$140 to US$300 billion per year by 2030.
  - US$280 to US$500 billion per year by 2050.
  - The 2016 estimates were retained in subsequent UNEP reports.
- A recent IMF study estimates public investment needs for making infrastructure climate resilient:
  - Less than 1 percent of GDP annually for Bhutan, India, Nepal and Sri Lanka.
  - Between 1-2 percent for Bangladesh (IMF, 2021).
- Estimates are subject to uncertainties, including:
  - The emissions pathway (cost under business as usual is higher than under a 2-degree-Celsius scenario).
  - Development level, implementation capacity, education, and governance.
  - Limited sectoral coverage in studies (coastal areas, agriculture, adaptation to hotter temperatures) and exclusion of adaptation undertaken by individuals, households, and firms.

### Policy implications and recommendations
- Mitigation:
  - Increasing the cost of thermal power production—likely through a carbon tax—is the most promising medium-term policy option to more aggressively limit carbon emissions.
  - A carbon tax would generate a fiscal windfall that could support the government budget or offset impacts on lower-income households via fiscal transfers.
  - Further work is needed in each country to design practical policy implementation and to ensure vulnerable and low-income households are protected and adequately covered.
  - Considerations needed on carbon taxes’ impacts on growth and inflation, equity between nations given lower emissions per capita in South Asia, and technology and knowledge transfer from advanced nations to accelerate renewables’ competitiveness.
- Adaptation:
  - A comprehensive, multifaceted approach is needed; planning has progressed but implementation and concrete financing plans are often lacking.
  - Climate finance and technology transfers from developed countries are essential for South Asia’s adaptation and mitigation plans and need to be on track.
  - Coordinated regional approaches can yield benefits in river management, development of drought-resistant crops, harnessing hydropower potential, and pooled insurance mechanisms for more frequent natural disasters.
- International context:
  - The UN Independent Expert Group on Climate Finance (2020) highlights that meeting the pledge by developed countries to mobilize at least US$100 billion a year to support developing countries requires urgent action.

*Source: wpiea2021217-print-pdf - Box 2. The Costs and Benefits of Climate-Resilient Infrastructure*

### REFERENCES

### REFERENCES

### Key thematic coverage in the referenced literature
- Climate adaptation planning and costs (e.g., ECONADAPT; “The Costs and Benefits of Adaptation”; World Bank: “Economics of Adaptation to Climate Change: A Synthesis Report”).
- Climate finance and instruments (e.g., Climate Policy Initiative: “Global Climate Finance”; Independent Expert Group on Climate Finance, 2020; Climate Funds Update data dashboards).
- Climate risk management, infrastructure resilience, and cost–benefit analysis (e.g., Hallegatte et al., 2019; Rozenberg and Fay, 2019).
- Regional and sectoral climate impacts and adaptation (IPCC Fifth Assessment Report regional chapters; Hijioka et al., 2014; Havlík et al., 2015; Knox et al., 2012).
- Disaster risk financing, insurance, and sovereign risk pooling (World Bank technical contributions; Linnerooth-Bayer and Mechler, 2009).
- Links between biodiversity, land use, zoonotic spillover, and human health (Keesing et al., 2010; Johnson et al., 2020; Romanelli et al., 2015).
- National-level adaptation frameworks and policy guidance (Global Commission on Adaptation, 2019; World Bank and IMF country and thematic reports).
- Climate finance tracking and adaptation gaps (UNEP Adaptation Gap Reports 2016, 2018, 2020; UNDP and national landscape studies).
- Renewable energy costs and mitigation policy (IRENA, 2020; IMF Fiscal Monitor: How to Mitigate Climate Change, 2019c).
- Country- and region-specific empirical studies on migration, salinity, extreme events, and sector effects (Chen and Mueller, 2018; Mishra et al., 2021; Knutson et al., 2015).

---


_Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021217-print-pdf.pdf_