Aside From Battling Climate Change, We're Not Doing Enough to Adapt to It

Credit ratings agencies must evaluate the impact of climate change on urban local bodies and reassess their access to cheap credit.

Last week, a dust storm raged over Uttar Pradesh and Rajasthan, killing over 100 people and raising concerns over extreme weather events and their causal links to anthropogenic climate change.

There have been two major types of policy responses to climate change: mitigation and adaptation. Mitigation addresses the root causes and focuses on reducing future greenhouse gas emissions, while adaptation seeks to lower current risks posed by the effects of climatic change. Even if we successfully reduce emissions over the next decade, adaptation will still be necessary to deal with the short- to medium-term risks associated with carbon emissions released over the last century – including protecting ourselves against freak weather events like dust storms.

Other measures include building defences to protect against sea-level rise, deploying early warning systems against cyclones, revising building codes, diversifying crops, installing micro-irrigation systems and increasing penetration of weather insurance.

Costs of delaying adaptation

According to an HSBC report published in March 2018, India is among those nations considered most vulnerable to the effects of climate change. The highest risks are concentrated among low-income groups living in houses that are more easily damaged by wind and water hazards during extreme weather events.

Nearly 54% of India faces high to extremely high water stress. There will be increased pressure on water resources as climate change disrupts weather patterns and prolongs dry periods. This stress will also have far-reaching implications on India’s food security.

Climate change has also the potential to reverse India’s achievements in reducing diarrhoea-related deaths, further widening the class divide: children living in poor, rural areas and urban slums develop a higher risk of morbidity due to diarrhoeal diseases.

Labour productivity is also in the firing line, with one study estimating that a maximum temperature of 37º C can result in over 101 million work-hours lost nationwide.

The severity of extreme climatic events can be mitigated through a process of prevention and relief. The focus of central and state governments has been on palliative adaptation and not preventive. This approach is myopic because preventive adaptation would mitigate the adverse impact probability, thus reducing the need for palliative action. Preventive adaptation also ensures that palliative adaptation is more effective in the way it utilises resources. It has been estimated that up to 65% of climate risks can be mitigated by deploying preventive measures.

The state of Odisha is a case in point. The 1999 cyclone that struck Odisha killed 9,843 people. However 14 years later, when the equally powerful Cyclone Phailin swept through the area, only 47 people died. This reduction in disaster mortality owed thanks to improvements in disaster risk-management implemented by the state government. After 1999, Odisha had established a state disaster management authority, built cyclone shelters, deployed early-warning systems and erected embankments to protect against storm surges and coastal flooding.

However, such measures have been the exception, not the norm, in India.

Some adaptation measures like increasing access to education and healthcare facilities will overlap with existing development programmes. But holistic adaptation goes beyond to include measures that will address additional risks brought on by climate change. A preliminary assessment by the Council on Energy, Environment and Water, IIT Gandhinagar and IIM Ahmedabad found in 2015 that India will have to invest Rs 24.3 lakh crore every year by 2030 to implement adaptation actions. The study noted that total government spending on capacity development in India has grown consistently over the last decade; Rs 6.2 lakh crore was spent in 2013 alone.

The National Adaptation Fund for Climate Change (NAFCC), established by the Government of India in 2015, aims to support concrete adaptation activities. As of today, 26 projects have been approved at a total cost of Rs 648.9 crore, and of which Rs 315.3 crore has been released. This is woefully inadequate given the size of our country and the challenges it faces.

Urban India has been largely ignored vis-à-vis adaptation efforts. Climate resilience and risks associated with climate change have failed to find mention in ‘smart city’ proposals approved by the Centre. If we don’t invest more in climate-resilient infrastructure, natural disasters have been estimated to cost cities $314 billion (Rs 21.2 lakh crore) worldwide every year post-2030, up from about $250 billion today.

Changes at the urban local level

Given these numbers, why has climate-change adaptation been so ignored?

It is not just the government that has overlooked the importance of investments in climate resilient infrastructure. The private sector is just as guilty. Infrastructure project finance often does not account for future climate risks as part of risk assessment. The private sector’s comprehension of climate risk is still at a nascent stage.

The first step is to incorporate climate risk management into the planning stage itself. A “reverse impact assessment” should also be carried out to ascertain the impact of climate change on a project in the medium to long term. The prevailing environment impact assessment framework, under the Environment (Protection) Act, 1986, does not allow for this.

The second step will be to enhance the ability of all stakeholders to raise funds to finance adaptation projects. It has been noted that early investments in preventive adaptation measures are likely to be cheaper and more effective than palliative adaptation, such as complex disaster relief efforts following an event.

It is not feasible for cities to depend solely on transfers from state or central institutions to fund projects aimed at addressing climate risk. Instead, they must rely on alternative sources of revenue. Municipal bonds are an effective way to raise capital for climate adaptation projects. The primary constraints in developing a municipal bond market are lack of information in the public domain on fiscal performance, debt and contingent liabilities – and governance issues.

The need of the hour is to galvanise accounting reforms at local bodies to assess credit worthiness. Of the 4041 urban local bodies (ULBs) in India, only 94 have obtained a credit rating; of these 94, 39 cities have credit ratings that are below investment grade. This is a major barrier to securing affordable financing on the international market or to issue bonds to fund adaptation projects.

It is pertinent that credit ratings agencies such as Moody’s and Standard and Poor, which have been evaluating the impact of climate change on the sovereign rating of a country, do the same while evaluating the credit worthiness of ULBs and reassess their access to cheap credit.

Nibu Pullamvilavil is an alumnus of the Indian School of Business and former LAMP Fellow, 2015-16.