Theme: 1. Adaptation

Topic Area: 1a. Investing in Climate Resilient Infrastructure

Background/Objectives:

Resilience is not an accident — it must be planned for and invested in. Traditionally, macroeconomic analysis evaluates programs and investments through the improvement of efficiency and optimized tradeoffs between competing uses by maximizing net present value (NPV), economic internal rate of return (EIRR), cost-benefit ratios, or by assessing outcomes through cost-effectiveness analysis. Climate change impacts on the water cycle challenge these assumptions. Such impacts are often complex and difficult to project with confidence, which often leads to economists discounting potential, uncertain, and/or distant climate impacts. The emerging practice of climate resilience suggests that efficient, optimized solutions may also be brittle and prone to systemic failure if key assumptions are violated or not tested for sensitivity. How can we show that approaches such as redundancy, robustness, and flexibility are critical components for ensuring broader water resilience and economic resilience?

Moreover, the process of investing at a macroeconomic level in resilience and adaptation presents a new series of challenges. How do we ensure that economic decision makers consider future risks related to water availability and shifts in seasonal variations, even when these impacts are associated with significant uncertainties? How should resilience be reflected in the economic structure? How do we ensure changes in key economic sectors in order to continue to provide essential services despite uncertain shocks and stressors? Can we manage shared water resources for energy, agriculture, healthcare, and the environment in ways that encompass the climate-dynamic and uncertain qualities of the water cycle?

Approach/Activities:

Through profiles illustrated through 13 national economic cases, a global team of government, MDB, academic, and NGO economists, finance specialists, and natural scientists have developed a set of recommendations for how we can manage economic systems for resilience, using water resources as a medium for coherence and efficacy.

Results/Lessons Learned:

Based on our analysis, most macroeconomic policies designed to promote climate resilience are taking a de-risking and sector-specific approach rather than looking at potential risks and synergies between sectors. Water resources and water resilience have appeared as a key linkage, especially with centrality of shared water resources within and across sectors and the challenges in being able to project future water conditions with confidence. We believe that a number of countries are taking more strategic interventions to prepare national economies for emerging conditions, but that most of these approaches have been relatively narrow, requiring more systemic and decisive policies and management.

Niels Vlaanderen

Affiliation

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Translating Resilience into Macroeconomic Policy: A Global Study