The Economics of Climate Change in the United Republic of Tanzania

Abstract

Key Messages  Tanzania currently suffers high economic costs due to extreme events  Tanzania’s economy is very dependent on the climate, because a large proportion of GDP is associated with climate sensitive activities, particularly agriculture.  Current climate variability, i.e. extreme events such as droughts and floods, already lead to major economic costs in Tanzania. Individual annual events have economic costs in excess of 1% of GDP, and occur regularly, reducing long-term growth and affecting millions of people and livelihoods.  A key conclusion is that Tanzania is not adequately adapted to the current climate. The country therefore has a large existing adaptation deficit which requires urgent action.  Climate change will lead to potentially high future economic impacts  Future climate change could lead to large economic costs. While uncertain, aggregate models indicate that net economic costs could be equivalent to a further 1 to 2 % of GDP/year by 2030.  There are potential threats from climate change to coastal zones (sea-level rise), health, energy supply and demand, infrastructure, water resources, agriculture and ecosystem services, with potentially high impacts and economic costs across these sectors.  The combined effects of current climate vulnerability and future climate change are large enough to prevent Tanzania achieving key economic growth, development and poverty reduction targets, including the planned timetable for achieving middle income status.  Adaptation can reduce these impacts, but requires significant levels of funds  Adaptation can reduce the impacts of climate change but it has a cost. Significant funding is required to address the existing adaptation deficit, as well as to prepare for future climate change.  An initial estimate of immediate needs for building adaptive capacity and enhancing resilience against future climate change is US$100 – 150 million per year. However, additional funding is needed to address current climate risks, with a conservative estimate of an additional US$500 million per year (but probably more). Addressing these current risks and the current adaptation deficit is essential in reducing future impacts and building resilience to future climate change.  The cost of adaptation increases rapidly in future years. By 2030, financing needs of up to US$1 billion per year are reasonable, and potentially more if further accelerated development is included.  The study has considered potential priorities to advance adaptation. There is a need to plan robust strategies to prepare for the future, rather than using uncertainty as a reason for inaction.  Accessing adaptation funds will require the development of effective policy, institutions and mechanisms.  A more sustainable, low carbon pathway would be in Tanzania’s self interest  The current use of energy in Tanzania is leading to economic, social and environmental impacts. The high reliance on unsustainable biomass use is leading to the removal of forests, while the increasing dependence on fossil fuels is leading to fuel price shocks and inflation, affecting the balance of payments and leading to air pollution (indoors and outdoors).  The analysis has also considered energy and emissions for Tanzania, consistent with planned development. Emissions of greenhouse gases (GHG) could double between 2005 and 2030.  Increases in emissions will be necessary for Tanzania’s growth, and given its development status, there is no suggestion that future emissions should be constrained. However, the emissions growth above is related to a specific development pathway that has increased dependence on fossil fuel use and unsustainable use of natural resources. This will lead to higher fuel costs, greater fuel imports, higher air pollution and increased congestion. Indeed, these factors are likely to reduce future economic growth and development.  There is an alternative growth strategy, based around low carbon options, that would be more sustainable, and which would have the considerable benefit of providing potential carbon financing.  The study has found a large number of ‘no regrets’ options that would enhance economic growth, improve sustainability, and reduce carbon emissions, whilst also allowing access to international credits. Many of these options re-enforce existing objectives, but through the low carbon focus, it would provide a source of finance to fund the transition.  There are also emerging opportunities from new sources of finances, such as for forestry (REDD+) and from emerging linkages between adaptation and low carbon projects. The study has investigated how to enhance the opportunities for Tanzania.  Tanzania needs to get ready and act now A number of priority areas are set out in the report. In terms of translating these into concrete action, a number of specific next steps are recommended:  Tanzania should further build it’s national climate change strategy, towards climate resilient and sustainable / low carbon growth. An integrated strategy will encourage synergies and reduce conflicts, and ensure that Tanzania can take advantage of opportunities from the international negotiations.  The national policy should be linked to sectoral objectives, with effective mainstreaming mechanisms for implementation, monitoring, reporting and verification. However, as well as the current plans, there is a need to include this in longer-term strategy up to and beyond 2030, including in revising the Vision objectives and supporting intermediate objectives and policy, as well as cross-sectoral policy. To support all of these areas, there is an urgent need to build capacity, with mechanisms, institutions and governance systems.