Sebastian Orafaga Bii
Department of Economics
College of Education, Katsina-Ala
The economic impact of climate change is measured as the extent to which the climate of a given period affects social welfare in the period. Grim descriptions of the long-term consequences of climate change have given the impression that the climate impacts from green house gases (GHGS) threaten long term economic growth and development and hence future welfare. Adaptation to climate change is becoming increasingly important in the political and scientific debate. The reason for this is that climate change impacts are visible already today and will intensify in the next decades. The economic analysis of adaptation allows us to distinguish between autonomous adaptation by private agents on the one hand and collective adaptation measures by government entities on the other. The article posits that a differentiated adaptation strategy by consumers, producers, and policy makers requires more research into the climate impacts on different sectors of life in the Nigerian economy.
Key words: Climate change; adaptation; mitigation; market failure; vulnerability; Nigeria.
The economic landscape of most African countries depends essentially on the dynamics of climate change. Climate variability poses a significant challenge for most of Africa, particularly given the continent’s reliance on rain-fed agriculture. Key sectors driving their economic performance and livelihoods such as agriculture, forestry, energy, tourism, coastal and water resources, etc. are highly vulnerable to climate (Odusola and Abidoye 2010). This uncertainty is aggravated by global climate change. Uncertainty over future climate implies that economic damages vary widely across sectors, regions and climate scenarios.
Climate change has been defined by the Intergovernmental Panel on Climate Change (IPCC, 2007a,b), as statistically significant variations that persist for an extended period, typically decades or longer. It includes shifts in the frequency and magnitude of sporadic weather events as well as the slow continuous rise in global mean surface temperature.
There are three major causes of climate change. They include astronomical causes, i.e., variations in the obliquity of the ecliptic; the eccentricity of the earth’s orbit around the sun; precession of the equinoxes and the bombardment of the earth by extra-terrestrial objects. Others are volcanic eruptions and changes to the earth’s environment as a result of human socio-economic activities such as changes in the character of the earth’s surface due to man’s socio-economic activities, e.g., deforestation, damming of rivers to create artificial lakes, addition of energy to the atmosphere by man’s socio-economic activities such as combustion of fossil fuels like petrol, diesel, coal; and changes in the composition of the earth’s atmosphere by man’s socio-economic activities such as gas flaring, bush burning, emission of gases by automobile exhausts (Anyadike, 2010). All these have led to a buildup of carbon monoxide (C0), carbon (C) oxide (CO2), nitrous oxide (N2O), hydroflurocarbons (HFCS), perflurocarbons (PFCs) and sulphur hexafluoride (SF6). These gases are collectively termed green house gases (GHGS), because of their abilities to absorb terrestrial radiation from the earth and re-radiating the heat back to earth, thereby leading to a general increase in temperature known as global warming.
Climate change manifests itself with temperature increases, changes in precipitation, rise in sea levels thereby increasing the intensity of such natural hazards as storms, floods and drought, more seasonal peaks in river flow etc. Among many other manifestations, global warming and its aftermaths have exposed many local communities to greater environmental risks such as desertification, soil degradation, erratic rainfall patterns, heat stress, pests and diseases and other (Eboh, 2010). These are the direct primary effect of climate change. Even if efforts to reduce GHG emissions are successful, it is no longer possible to avoid some degree of global warming and climate change.
Climate change is a result of the externality associated with GHG emissions; it entails costs that are not paid for by those who create the emissions. It has a number of features that together distinguish it from other externalities:
(i) It is global in its causes and consequences;
(ii) The impacts of climate change are long-term and persistent;
(iii) Uncertainties and risks in the economic impacts are pervasive.
(iv) There is a serious risk of major, irreversible change with non-marginal economic effects (Stern Review; 2011).
These features shape the economic analysis as presented hereunder: it must be global, deal with long time horizons, have the economics of risk and uncertainly at its core, and examine the possibility of major, non-marginal changes.
This article analyses climate change generally, discusses the impact of climate change on Nigeria’s national development, considers adaptation to climate change, adopts a theoretical framework for adaptation which uses the economic paradigm of market failure and concludes and makes recommendations.
Climate Change Impacts
Climate change has been identified as one of the most daunting challenges facing the world in this century and it is particularly more serious in developing countries largely due to their geographic exposure, low incomes, greater reliance on climate sensitive sectors and weak capacity to adapt to the changing climate (Odusola and Abidoye, 2010). In Nigeria, the vulnerability of the overall economy and key sectors driving economic performance such as agriculture, forestry, energy, tourism, coastal and water resources to climate change has been acknowledged to be substantial (Pearce et al, 1996). Further warming, it is maintained, would seriously affect productivity.
Nigeria and most other developing countries have a large share of their economies in agriculture and forestry. They also tend to be in the low latitudes where the impacts to these sectors will be most severe. The low latitudes tend to be too hot for the most profitable agricultural activities and any warming will further reduce productivity. Up to 80 percent of the damages from climate change may be concentrated in low-latitude countries (Mendelsohn, 2009).
Some damages from climate change will not affect the global economy, but will simply reduce the quality of life. Ecosystem change will result in massive shifts around the planet. Some of these shifts are already reflected in agriculture and timber but they go beyond the impacts to these sectors. Parks and other conservation areas will change. Animals will change their range. Endangered species may be lost. Although these impacts likely lead to losses of non-market goods, it is hard to know what value to assign to these effects. Another important set of non-market impacts involve health effects. Heat stress may increase vector-borne diseases like malaria and schistosomiasis as well as water-borne diseases like cholera and dysentery. Malnutrition from the reduction in crop yields would increase the severity of these diseases (Anyadike, 2010). Health is closely linked to poverty, because, poverty precludes most people from access to healthcare facilities.
In Nigeria, in particular, the aspects of health that will be exacerbated by climate change include: increased cases of cataracts in the northern parts due to low cloud cover and greater intensity of solar radiation; increased cases of malaria and typhoid due to increased rainfall and temperature in southern parts of the country and increased cases of water-borne diseases such as cholera and dysentery due to urban flooding, improper disposal of wastes in the riverine areas and coastal towns.
As economic research on impacts has improved, the magnitude of projected damages from climate changes has fallen especially in the developed countries (Mendelsohn and Williams, 2005). The reason that damages have been shrinking is that the early studies (i) did not always take into account some of the benefits of agriculture, timber and tourism, (ii) did not integrate adaptation and (iii) valued climate change against the current economy. At least with small amounts of climate change, the benefits appear to be of the same magnitude as the damages. Only when climate change exceeds 2 degree Celsius are there net damages (Mendehsohn, 2009). Many early studies assumed victims would not change their behaviour in response to sustained damages. More recent studies have shown that a great deal of adaptation is endogenous.
Impact of Climate Change on Nigeria’s National Development
Global climate change is a threat that is already having initial tangible impacts upon humankind and nature today. However, countries that significantly contribute to climate change (industrialized nations in the north and China) do not suffer much from its effects because of their national advantages, namely wealth statuses, high adaptation strategies, high technologies, and stable polity. The incremental impact of a tonne of GHG is independent of where in the world it is emitted. But the volume of GHGS emitted globally is not uniform. Historically, rich countries have produced the majority of emissions. Though all countries are affected by climate change, they are affected in different ways and to different extents. Developing countries, including Nigeria will be particularly badly hit for three reasons: their geography, their stronger dependence on agriculture and because with fewer resources comes greater vulnerability (Stern Review; 2011). In addition these countries are characterized by the already existing high temperatures, and intermittently suffer from political instability and very corrupt regimes (Ozor, 2010). There is therefore a double inequity in climate change: the rich countries have special responsibility for where the world is now, and thus for the convergences which flow from this difficult starting point, whereas poor countries will be particularly badly hit (Agrawala, de Bruin, Dellink (2009).
Over the past few years, Nigeria has been beset by a lot of climate anomalies. Consequences of extreme climate events due to global warming have been so dramatic that there has been considerable and disturbing concern among government, institutions, entities and people in the country (Ozor,2010).
The variation in weather and climate has led to a lot of devastating consequences and impacts in various parts of the country. These include flooding in Lagos and other coastal towns, desertification in the northern states, erosion in the southern and some middle belt states, drought in the northern states, sea level rise, heat stress, pests and diseases, erratic rainfall patterns, land degradation, etc. The south-south geopolitical zone is mainly affected by sea level rise and deforestation-induced changes as well as south western zone; the south east by erosion, flooding and land degradation; north central by changes due to de-vegetation and overgrazing; north east by drought, desertification and heat stress as well as north west.
Besides the effects on ecology and biodiversity, the above mentioned effects of climate change have devastating effects on many vulnerable communities in Nigeria such as farmers, pastoralists, foresters, fisherfolks and hunters. Other observable impacts include low agricultural productivity, food insecurity, water stress, low and/or falling income, increased poverty, unemployment, resource conflicts, environmentally-induced migration, hunger and starvation, health related problems, violence, and the unlimited price – death. All these conditions impact negatively on Nigeria’s national development.
Agriculture which accounts for about 70 percent of Nigeria’s GDP is the most susceptible sector to climate change. This is attributed to the fact that climate change affects the two most important agricultural production inputs – precipitation and temperature (Deschenes and Greenstone, 2005). Climate change also indirectly affects agriculture by influencing emergence and distribution of crop pests and livestock diseases, exacerbating the frequency and distribution of adverse weather conditions, reducing water supplies and irrigation; and enhancing severity of soil erosion.
Adaptation to Climate Change
Societies are dynamic and they use all possible strategies to reduce the vulnerability to climate impacts. There are two kinds of responses to crisis that overlaps across the temporal scale, coping mechanisms and adaptive capacity. Coping mechanisms are the actual responses to crisis on livelihood systems in the face of unwelcome situations, and are considered as short-term responses (Berkes and Jolly,2001). Adaptive strategies are the strategies in which a region or a sector responds to changes in their livelihood through either autonomous or planned adaptation. Coping mechanisms may develop into adaptive strategies through time. The resilience or the robustness of coping mechanisms differ depending on the availability and access to resources and technology (Adger, Mendelsohn and Tol, 2003).
Climate change is a challenge to societies and economies around the globe. Basically, policy makers have two options: they can try to slow down and possibly halt climate change mitigation, or they can accept the change and let their economies at least partially adapt to it adaptation. Both strategies involve costs. On the one hand, carbon abatement requires the usage of new and comparably expensive technologies, e.g., renewable energy sources. On the other land, adjustments to effects of a changing climate require private and public resources, e.g., the use of air conditioning and the construction of flood protection systems (Dannenberg, Mennel and Sturm, 2012). Both strategies are not mutually exclusive: An optimal global policy should counter-balance mitigation and adaptation, minimizing the sum of costs caused by mitigation, adaptation, and residual damages.
Nordhaus (1991), Adger, (1999 and 2003) derive two conditions for such a cost minimum: first, the marginal costs of emissions reduction should be equal to the marginal benefit of emission reduction, i.e., the avoided marginal residual costs of climate change. Second, adaptation should be realized up to the point where the marginal benefits of adaptation are equal to the marginal costs of adaptation. There is a trade-off between both policy options at the global level: more emissions reduction makes less adaptation necessary and vice versa (Aklari, Menon and Rosenfeld 2009).
However, Dannenberg, et al (2012) note that this stylized global perspective has its theoretical pitfalls and practical limits. Accounting for costs of both mitigation and adaptation of climate change is an enormous scientific endeavour, involving branches of agricultural scientists, geologists, meteorologists, and economists. Uncertainties about future developments require a choice of risk evaluation. Aggregating costs is not innocuous – It means that distributional issues are neglected. Also, the viewpoint may not be appropriate for real world politics: as there is no benevolent king enforcing a global cost benefit analysis any mitigation effort will depend on the outcome of international negotiations between sovereign nations which are likely to pursue their particular interests in the implementation of climate policy. Finally, in the real world, as emphasized by Tol (2005), Dasgupta (2008) adaptation and mitigation are done by different people operating at different spatial and temporal scales. This hampers the theoretically possible trade-off between adaptation and mitigation.
Therefore, at the national level, adaptation policy can be treated as a field of action independent from mitigation policy that is determined on an international level. There are at least two main reasons for the shift in perception. First, climate change is already observable and given the inertia of the climate system, will inevitably intensify (IPCC 2007a and EEA 2008). In other words, even if the world will not warm more than 20c above pre-industrial temperatures, a target proposed by the EU (CEU 2004), adaptation is necessary. Secondly, due to the well-known free rider incentives in international negotiations on climate policy, the prospect for a binding agreement restricting world’s emissions sufficiently to halt climate change are at least uncertain (Helm, 2008). Consequently, adaptation is increasingly gaining weight on the political and scientific agenda.
Theoretical Framework for Adaptation
The IPCC (2007a,b) defines adaptation as the “adjustment in natural or human systems in response to actual or expected climate stimuli or their effects, which moderates harm or exploits beneficial opportunities”. The borderline between adaptation by private agents and adaptation by the government is set by the concept of market failures.
Efficient Private and Public Adaptation
Narrative economic theory rationalizes public policy intervention into private markets by market failure – In these cases the government can enhance economic efficiency by specific regulation. Another rationale for public policy is distributive justice: while there is no consensus about the value of equity in economics (nor society), economists study efficient redistribution for a given equity target and spots equity-efficiency trade-offs (Atkinson and Stiglitz, 1980). Government adaptation measures can be economically justified if they take the form of public goods or social insurance. Furthermore, climate change as well as adaptation policy can affect redistribution, thus leading to the need for adjustment of social policy (Dannenberg et al, 2012).
In considering adaptation measures under certainty, the provision of public goods is a typical case of a market failure (Bator, 1958) as their consumption value is not limited to a single consumer, free riding leads to under provision by private investors, in particular in the case of perfect public goods that are non-excludable and non-rival. A dyke sheltering an agglomeration from flooding is a central example. No individual in the agglomeration can be excluded from the increase in security provided by the dyke. This makes a tax-financed public investment in the dyke socially efficient.
If, in contrast, all benefits from reducing the damage of climate change (or from increasing benefits from it) accrue to an individual only, e.g., by air conditioning of his home, private provision is efficient and public intervention is not warranted. (Formally, individuals will equate marginal costs of the measure to marginal benefits, leading to a socially optional solution.) The argument holds not only for consumption of private households, but also for intermediary goods in production. Following the literature on adaptation, this form of adaptation is labeled autonomous, while adaptation undertaken by groups or public institutions will be called collective.
The efficiency of autonomous adaptation hinges on the assumptions of full information on climate change and competitive markets. The reason is that information has good public properties. Apart from producing and distributing information that help economic agents to better understand the nature and impact of expected climate change, the public goods provided as part of adaptation are infrastructure goods: either specific infrastructure of protection, such as dykes, or existing infrastructure such as roads, railway systems or energy networks, that have to be adapted to endure climate changes.
An important question for economic research concerns the optimal degree of provision of public goods under climate change. Theory provides us with Samuelson’s rule (1954): the sum of all marginal benefits from public adaptation should equal the marginal costs of public investment. Two points are important to note: first, the provision of a public good can become too costly in some cases. Second, public goods often have a local or regional character. A dyke usually protects a certain city, not a whole country – the local, not the national population is the beneficiary. In so far the construction of a dyke can alternatively be characterized as an example of collective adaptation: a group engaging in collective action where the marginal costs of the measure exceed the benefits for each individual, but the sum of marginal benefits is greater than marginal costs.
According to the theory of fiscal federalism (Oates, 1999), it is efficient to assign the task of providing the local public good to the local authorities and tax-payers. The construction of a dyke providing shelter to one city only accrues to municipal authorities and local taxpayers. This view on local public goods can be altered by negative externalities. Economists refer to the term externality or external costs if an economic transaction relatively or positively affects a party outside the transaction (not accounting for relative price change). In the case of local public goods, if their provision in one locality (i.e., collective adaptation of one group) has a negative impact on other localities (i.e., adaptation measures by other groups), uncoordinated actions by the localities (or groups) will be socially inefficient. For instance, building dykes by a local authority in order to prevent river floods up-stream may increase the risk of floods downstream. In a non-cooperative environment, an up-stream decision maker will not take into account the negative externality for the down-stream region generated by the dyke.
In that case planning by a central government can ensure the socially efficient outcome. In reality, conflicts of interest between political leaders of central and local authorities can well lead to inefficiencies. Moreover, adaptation measures sometimes may not be so easily disentangled, so any detailed study of a centrally planned adaptation measure has to take a possible crowding out of autonomous adaptation into account (Dannenberg et al, 2012).
One important public good in the discussion of climate change is information. The efficiency of market hinges on the assumption of full information among economic actors – asymmetries of information distort market outcomes. In the case of incomplete information, the efficiency of markets is not guaranteed. In the case of adaptation, this refers primarily to information about climate change – sellers and buyers of property, for example, should have the same information about the regional exposure to climate change risk.
Lastly, a final important role of a central government is the establishment of an institutional framework of property rights. Without a functioning property rights system, long-term investments which are crucial for several adaptation strategies will not take place, endangering both public and autonomous adaptation. The property rights to a water source that are the prerequisite for the construction of an agricultural irrigation system is one example.
In less developed countries, a large percentage of the population is dependent on climate-sensitive sectors and there is low capacity to develop and implement adaptation strategies. Based on the discussion, we conclude succinctly as follows:
– Climate change is a global phenomenon which has huge implications for local people (individuals), their communities and their environments and is impacting negatively on livelihoods, employment and sustainable economies of local people. These impacts of climate change are not evenly distributed.
– Agriculture which accounts for 70 percent of Nigeria’s GDP is a major victim of climate change impacts.
– Simultaneous measures should be taken at the household (micro) and national (macro) levels to mitigate the effects of climate change and manage adaptation mechanisms more efficiently and effectively.
– At the household (micro) level, it is necessary to increase education, enlightenment and training on more efficient agricultural methods. Adaptation policy to, say, indirect health effects encompasses threats of diseases promoted by warmer climate such as the tickborne encephalitis, the Iyme borreliosis, or solar radiation; and give advices for protection measures on the individual level.
– A major obstacle to action is lack of political will. Due to failure to understand the magnitude of the risks and the dangers of delay, failure to understand the attractiveness of the alternative paths and that these can combine growth, poverty reduction and climate responsibility and failure to understand what others are doing and a presumption it is very little.
Since the prospects for an effective international agreement on climate policy with binding emission reduction targets are uncertain and climate change impacts are becoming increasingly visible today, already, politicians and researchers attach more and more importance to the topic of adaptation to climate change. The economic analysis of adaptation, however, is still in infancy with a few economic studies covering specific aspects of adaptation.
This article takes a more general view of adaptation policy. It does not attempt to identify specific high-priority policy options for Nigeria, but rather analyses fields of action for policy makers and defines rationales and arguments for government intervention in adaptation processes. Thus the economic approach to adaptation encompasses the theory of market failures. Hence a normative and purely theoretical analysis is not sufficient but has to be accompanied by a positive analysis of current regulation. Nevertheless, cost efficient solutions should always be the starting point of a discussion before taking alternative strategies – adapted to the reality of a specific problem such as Nigeria – into consideration in order to identify and possibly limit efficiency losses that may come along with the pursuit of politically motivated objectives. For Nigeria, a coherent economic perspective on adaptation is still missing.
The article suggests the following measures to enhance better understanding and capability in dealing with climate change issues in Nigeria.
(i) Mainstreaming climate change adaptation into National Development strategy and budgets could promote proactive engagement on the formulation and implementation of climate change adaptation strategy.
(ii) A bill for the establishment of National Climate Change Commission (NCCC) in Nigeria with the sole mandate to deal with all climate change issues. Good policies are based on proper understanding of all issues surrounding the specific problem at hand.
(iii)Develop a national adaptation framework (NAF) for all the geopolitical zones in Nigeria.
(iv) Embracing emerging technologies such as biotechnology and nanotechnology. The use of specifically designed genetically modified organisms could be a way to increase the adaptive capacity of crops.
(v) The potential of regional or multiple countries approach to climate change adaptation is high due to possibility of economies of scale
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