1. Climate Change and Agricultural and Rural Development in Asia Mark W. Rosegrant Director Environment and Production Technology Division Presented during the Conference on “Agricultural and Rural Development for Reducing Poverty and Hunger in Asia: In Pursuit of Inclusive and Sustainable Growth”, Asian Development Bank, Manila, Philippines, August 9-10, 2007

2. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 2 Outline  Climate Change and Variability Impacts on Agriculture and the Poor  Pro-poor Mitigation: Constraints and Opportunities  Investing in Climate Change for the Poor

3. Climate Change and Variability Impacts

4. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 4 Impacts and Vulnerability to Climate Change & Variability  Rich countries emit majority of GHG  Poor countries are more vulnerable Geography (hotter, less rain, more variation)Geography (hotter, less rain, more variation) Greater dependence on agriculture and natural resourcesGreater dependence on agriculture and natural resources Limited infrastructure and low-input agricultureLimited infrastructure and low-input agriculture Low income, poverty and malnutritionLow income, poverty and malnutrition Thus, lower adaptive capacity (also including inadequate complementary services, like health and education)Thus, lower adaptive capacity (also including inadequate complementary services, like health and education)

5. Vulnerability of Key Sectors to the Impacts of Climate Change by Sub-regions in Asia Sub- regions Food and Fibre Biodiversity Water Resource Coastal Ecosystem Human Health Settlement Land Degradation North Asia +1 / H -2 / M +1 / M -1 / M Central Asia and West Asia -2 / H -1 / M -2 / VH -1 / L -2 / M -1 / M -2 / H Tibetan Plateau +1 / L -2 / M -1 / M NANINI -1 / L East Asia -2 / VH -2 / H -1 / H -2 / H South Asia -2 / H -2 / M -1 / M -2 / H South East Asia -2 / H -2s / H -1 / H -2 / H -1 / M -2 / H Vulnerability: -2 – Highly -1 – Moderately 0 – Slightly or Not +1 – Moderately Resilient +2 – Most Resilient NA – not applicable; NI – no information Level of Confidence: VH – Very High H - High M – Medium L – Low VL – Very Low Source: IPCC, unpublished

6. Geographical Distribution of Vulnerability, 2100 with and without mitigation along an A2 emissions scenario with a climate sensitivity of 5.5°C Source: Yohe et al. (2006)

7. Pro-Poor Mitigation: Constraints and Opportunities

8. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 8 Pro-Poor Climate Mitigation Policy  Climate change policy can generate income for small farmers and investment flows for rural communities  Requires effective integration from global governance of carbon trading, to sectoral and micro-level design of markets and contracts, and investment in community management

9. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 9 Estimated Potential Emission Savings and Costs by Sector Sector 2050 Annual Emissions Savings (GtCO 2 ) Average Annual Cost($/tCO 2 ) ~2025-2050 Deforestation3.5-5.0 2 Afforestation and Reforestation 1.0-2.05-15 Land management practices 1.0-2.020-27 Agriculture (methane & nitrous oxide) 1.0 27 27 Bioenergy2.0-3.025 Waste and fugitive emissions, industrial processes 4.13-5 Fossil fuel related, excluding bioenergy40.022-33 Source: Adapted from various estimates, Stern Review, pp. 244-63.

10. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 10 CDM Conditions for Offset Projects – High Transaction Costs 1.Additionality Must demonstrate that carbon sequestration or emission reductions would not have occurred if it were not for the incentives provided by CDMMust demonstrate that carbon sequestration or emission reductions would not have occurred if it were not for the incentives provided by CDM 2.Measurable Carbon sequestration or emission reductions of projects must be quantifiable ex-ante and monitorable ex-postCarbon sequestration or emission reductions of projects must be quantifiable ex-ante and monitorable ex-post 3.Permanence Sequestered carbon must remain sequestered indefinitely (or for at least as long as to be equivalent to reducing atmospheric GHG by emission reductions)Sequestered carbon must remain sequestered indefinitely (or for at least as long as to be equivalent to reducing atmospheric GHG by emission reductions) 4.Leakage prevention Prevent (or account for) direct or indirect GHG emissions from CC mitigation projectPrevent (or account for) direct or indirect GHG emissions from CC mitigation project

11. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11 5. Social benefits Evidence of contribution to a country’s sustainable developmentEvidence of contribution to a country’s sustainable development If cost-effective and practicable social benefits should be quantified, verified and certified together with the carbon sequestration or emission reductionsIf cost-effective and practicable social benefits should be quantified, verified and certified together with the carbon sequestration or emission reductions 6. Environmental benefits Carbon project with inherent local environmental benefits stands a higher chance of being sustained in the long runCarbon project with inherent local environmental benefits stands a higher chance of being sustained in the long run 7. Cost effectiveness Land Use, Land Use Change and Forestry activities and monitoring must be cost effective and practical if they are to be appliedLand Use, Land Use Change and Forestry activities and monitoring must be cost effective and practical if they are to be applied CDM Conditions for Offset Projects – High Transaction Costs

12. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 12 Constraints to Pro-Poor Mitigation 1.High transaction costs of Clean Development Mechanism (CDM) Conditions for Offset Projects in Developing Countries Information about carbon benefits to potential buyers, obtaining information about project partners, organizing project participants, capacity building and ensuring parties fulfill their obligationsInformation about carbon benefits to potential buyers, obtaining information about project partners, organizing project participants, capacity building and ensuring parties fulfill their obligations Transaction costs per unit of emission reduction are higher for projects involving many smallholders and forest communitiesTransaction costs per unit of emission reduction are higher for projects involving many smallholders and forest communities Projects with smaller land areas may lack economies of scaleProjects with smaller land areas may lack economies of scale

13. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 13 2.Carbon sequestration from soil carbon and avoided deforestation––important areas for climate mitigation and for poor developing countries––are excluded from CDM 3.CDM-eligible assets from afforestation and reforestation are excluded from European Union-Emissions Trading Scheme Constraints to Pro-Poor Mitigation

14. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 14 Expanding Pro-Poor Mitigation 1.Establish international capacity building and advisory services Capacity-building and advisory services for potential investors, project designers and managers, national policymakers and leaders of local organizations and federationsCapacity-building and advisory services for potential investors, project designers and managers, national policymakers and leaders of local organizations and federations Establish regional centers to assist countries and communities involved in forest carbon trading, soil carbon sequestration, othersEstablish regional centers to assist countries and communities involved in forest carbon trading, soil carbon sequestration, others

15. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 15 Measures to Reduce Transaction Costs 2.Institutional innovations Companies or agencies offer specialized business services for low-income producers (for example, in negotiating deals or design of monitoring systems)Companies or agencies offer specialized business services for low-income producers (for example, in negotiating deals or design of monitoring systems) Locally accountable intermediary organizations can manage projects and mediate between investors and local people (e.g., local environmental group in the Scolel-Té project, Mexico)Locally accountable intermediary organizations can manage projects and mediate between investors and local people (e.g., local environmental group in the Scolel-Té project, Mexico) Transaction costs reduced by developing carbon projects in communities with active local organizations in placeTransaction costs reduced by developing carbon projects in communities with active local organizations in place –E.g. a proposed carbon project in Harda, India, relies on existing hamlet and federation institutions established for community forestry

16. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 16 Measures to Reduce Transaction Costs 3.Simplified standards (baseline and monitoring) for small-scale projects (annual emission offsets are < 15,000 t CO 2 ) Agroforestry and community forestry projects should be specified as eligible for simplified modalitiesAgroforestry and community forestry projects should be specified as eligible for simplified modalities Simplified emission reduction credits calculated using standardized reference emission rates for agroforestry and forestry activities in specific locations, determined and verified by independent bodiesSimplified emission reduction credits calculated using standardized reference emission rates for agroforestry and forestry activities in specific locations, determined and verified by independent bodies Similar for soil carbon sequestrationSimilar for soil carbon sequestration

17. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 17 4.Adequately dealing with permanence issue of carbon sequestration Ton-year approach: Payment for mass-time units of carbon avoids the need for "locking up" land in forest land uses for prolonged periods because credits are calculated according to carbon storage durationTon-year approach: Payment for mass-time units of carbon avoids the need for "locking up" land in forest land uses for prolonged periods because credits are calculated according to carbon storage duration –Reduced risk of project failure as a result of management problem or natural disaster –Enables greater participation by local communities on CDM projects –Larger areas under project –Increasing overall GHG benefits and proportion of benefits accruing to local communities Measures to Reduce Transaction Costs

18. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 18 Example: Chicago Climate Exchange Agricultural Soil Carbon Offsets  Simple, standardized rules for issuing credits for agricultural carbon emission reduction and soil sequestration  Offset projects involving less than 10,000 mt CO 2 equivalent per year register and sell through Offset Aggregator  Eligible projects include continuous conservation tillage and grass planting 5-year contractual commitment to continuous no-till or strip till (conservation tillage) on enrolled acres5-year contractual commitment to continuous no-till or strip till (conservation tillage) on enrolled acres Tillage practice must leave at least two-thirds of the soil surface undisturbed and at least two-thirds of the residue remaining on the field surfaceTillage practice must leave at least two-thirds of the soil surface undisturbed and at least two-thirds of the residue remaining on the field surface CCX contracts issued for conservation tillage at a rate between 0.2 and 0.6 metric tons CO 2 per acre per year based on carbon sequestration ability of the soilsCCX contracts issued for conservation tillage at a rate between 0.2 and 0.6 metric tons CO 2 per acre per year based on carbon sequestration ability of the soils

19. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 19 ADB’s Carbon Mitigation Approach  Clean Development Mechanism Facility (CDMF), Carbon Market Initiative, Asian Pacific Carbon Fund Assists developing member countries (DMCs) to source funds for emission reductions;Assists developing member countries (DMCs) to source funds for emission reductions; Helps DMCs to process CDM requirements for identified projects; andHelps DMCs to process CDM requirements for identified projects; and Provides information and advice on emerging carbon marketsProvides information and advice on emerging carbon markets  Offers project co-financing facility, carbon credit marketing programs, and technical support for project preparation and implementation of CDM- eligible projects

20. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 20 ADB’s Carbon Mitigation Approach  Seeks to correct the general lack of financial and technical capacity in governments, regulatory authorities, and private sector  Provides capacity building, due diligence, documentation, and implementation support  Expansion and greater emphasis on agricultural and forest carbon could have large payoffs

21. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 21 Investing in Climate Change for the Poor  Climate change policy can create new value- added for pro-poor investment  Increases profitability of environmentally sustainable practices  Need to streamline measurement and enforcement of offsets, financial flows, and carbon credits for investors  Enhance global financial facilities and governance to simplify rules and increase and manage funding flows for mitigation in developing countries