Using CBA/EbA appraisal outcomes in programmedesign and budget proposals

With Case Study of Chao Phraya River Basin Flood Management Infrastructure Program

Glenn Stuart Hodes, Climate Policy & Finance Specialist UNDP Bangkok Regional Hub

For example, designing a flood management system or reducing emission of methane in rice paddy require planners & economists to design and implement new measures

Key Challenge for Thailand

Policy direction, plan, and strategy at both national and sectoral levels are in place

BUT…..

“How can we actually mainstream the climate change objectives into sectoral programmes and projects?”

Key Challenges for Thailand

Few programmes are dedicated solely for Climate Change; Climate Change is usually a second consideration!!

How to Approach: key stages

1. Develop policy and strategy (e.g. CCSPA II)

2. Develop priority actions (e.g., apply MCA)

3. Design/Retool programmes and projects using appraisal methods (e.g., CCBA, CBA, eBA, CEA)

4. Develop budget and financial proposals (ongoing)

5. Develop M&E Frameworks

6. Field Test

7. Adjust overall plans with ‘reality check’

• Vulnerability Assessment & Adaptation Plans

• Applied Valuation & Cost Benefit Case Studies

• Monitoring practices to measure impact

• Training

National Level

LocalLevel

• Stock take of planning & budgeting processes

• Identifying entry points

• Methods (e.g., MCA, ebA, CCBA)

• Case studies

• Lessons learned applied to sector adaptation plan & guidance

• Training

Supporting Thailand to Integrate Agricultural Sectors into National Adaptation Plans (NAPs) - Implementation Logic

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Start

2

การอนุมตังิบประมาณ (Budget Adoption)

1

การจดัท างบประมาณ(Budget Preparation)

3

การบรหิารงบประมาณ(Budget Execution)

4

การควบคุมและตดิตามประเมนิผล(Budget Control &

Evaluation)

กระบวนการงบประมาณ (Review of Budget Cycle)

จาก CCA -> การจดัท าค าของบประมาณปี 2560

7มูลนิธสิถาบนัวจิยันโยบายเศรษฐกจิการคลงั

Bottom-Up Approach to Climate Budgeting

MoAC

Budget Submission

Planning Agencies

Budget/Finance Agencies

Climate Change Focal Point

Key Line Departments

The reveal

The reforms

The integration

Budget tagging, budget guidelines and call circulars Improving how to

allocate, track and justify budget resources

UNDP Supported Actions to Date

1. Capacity building on CC-CBA, and walking stakeholders through mainstreaming entry points as part of budget cycle. NAP-AG supported stock take found only 1 dept in MOAC was systematically using CBA.

2. Multi-Criteria Analysis (MCA) indicators and a database being set up as a tool for screening and prioritizing the action plan and programmatic areas.

3. Strengthening project design and appraisal processes to integrate CC into budgeting guidelines.

Climate budget reforms in Thailand – bigger context

10

1. ความสอดคลอ้งกบันโยบายรฐับาล

2. ประชาชนไดป้ระโยชนจ์ากโครงการ

3. เหมาะสมตามแผนบูรณาการ 3 มติิ

4. วเิคราะหค์วามเหมาะสมของโครงการ

- เหมาะสมเป็นพนัธกจิของหน่วยงาน

- สอดคลอ้งกบัศกัยภาพของหน่วยงาน

- วเิคราะหค์วามครอบคลุมงบประมาณ

- วเิคราะหปั์ญหา อปุสรรค และขอ้สงัเกต

5. ความพรอ้มในการด าเนินการของโครงการ

CCA Guideline

จาก CCA -> คูม่อืการจดัท าค าของบประมาณ

มูลนิธสิถาบนัวจิยันโยบายเศรษฐกจิการคลงั

Extracting Results from CBA to Proposals

• Indicate whether and what kind of analysis done to justify project formulation/go-ahead. Is it worth cost of full FS? What are alternative options/land-use choices?

• Use in project proforma for investment projects✓ outline set of activities undertaken to achieve predetermined

objectives within set timeframe.

• OUTPUTS/DELIVERABLES KEY LINK CBA to BUDGET✓ Think/value additional cost and benefits in terms of these:

# of farmers, fishermen receiving extension service; # of ha with additional irrigation, # of new drought resistant seeds; # m3 of additional biogas, etc.

• Three Key Metrics BOB wants to see (at least 1)✓NPV (must be positive in absolute value)✓BCR (must be > 1.0 to be convincing)✓IRR (most important when comparing alternatives)

• BOB will also want to see detailed costing and investment estimates

Climate Change Appraisal

Adaptation/mitigation costs

and benefits

Benefit-Cost Ratio

without Climate Change

Benefit-Cost Ratio with

climate change

Climate Change Risks

CBA for Climate Appraisal: Key Steps

© UNDP, 2015. “Climate Change Benefit Analysis Guidelines for Thailand”

Mitigation vs. Adaptation

• The basic principles of CC appraisal are the same, but …

• Mitigation. Planning and budgeting driven by Marginal Abatement Cost or Cost Effective Analysis that shows the cheapest way of delivering on GHG reduction goals. Sometimes are directly productive projects that pay for themselves over time, for example, kWs of energy savings

Mitigation II• Marginal Abatement Costs look at incremental net

costs (i.e., costs – benefits of incremental unit) divided by the total reduction in GHG emissions

• MAC Curve used to decide the ‘pass rate’ for achieving a set target emissions reduction

• Great care in units (eg tC or tCO2e)

• Costs should include all supporting costs, including all public and private and all managing institutions

• Costs and benefits are discounted, but GHG emissions are not (an odd convention, when early emission reduction should be prioritised)

Adaptation: forward planning• Adaptation. Are activities going to be affected by gradual

CC (ie temp, flood, drought, seasonality, sea-level)? • Most adaptation investment is capital development spending,

just with changing priorities/design/geographical targeting. Benefits are often broadly accrued (e.g. irrigation & water resource management)

• Some supporting activities may be solely dedicated (i.e. climate-smart seed research, institutional CB). These should probably not take more than 20% of sectoral CC resources.

✓ CBA would be particularly important to justify these as non-revenue generating investments i.e., not self-financing! CC happens slowly, so routine public services will adjust naturally, reflecting changed experience in recent years

• Climate Related Appraisal is for those policies/investments that have longer term implications …• Infrastructure with long term ‘locked-in’ features• Research that takes years and then longer to apply• Institution building – often underestimated

Model CBA Tree to Value Impacts and Costs

Example of Chao PrayaIrrigation Project

Context

1975 1983 1995 2002 20061942 20112010

8 yrs 12 yrs 7 yrs 4 yrs 4 yrs 1 yr33 yrs

Flood events in Chao Phraya river basin

25 river basins

The Great Chao Phraya river basin

Total area: 2.03 Mha

Flood risk:-Moderate [4-5 times/9yrs]

0.16 Mha (8% of total area)

- High [> 5times/9yrs]0.13 Mha (6.6% of total area)

พืน้ที่เสีย่งภยัน ้ำท่วม

เสีย่งต ่า (น า้ทว่ม1-3ในรอบ10ปี)

เสีย่งปานกลาง (น า้ทว่ม4-5ในรอบ10ปี)

เสีย่งสงู (น า้ทว่ม6-10ในรอบ10ปี)

Low risk

Moderate risk

High risk

Flood Risk Area

Economic areas: Industrial estates mainly in Ayutthaya, Saraburi

Urban areas: Bangkok, Nonthaburi, Pathumtani, SamutPrakarn

Town: Nakornsawan, Ayutthaya, Nonthaburi

Township

Agricultural area65%

City & Industrial

area28%

Others7%

Land use

Flood Diversion Scheme

1

2

3

Expansion of existing Chainat -Pasak Canals

Construction of new Rama VI diversion dams

Construction of new flood drainage canal

Installation of SCADA and telemetery

1

2

3

CBA – Baseline Situation

Metric Figure

Cost $ 3,257 Million

Benefit $ 410 Million / yr(from reduced/avoided loss and/or damage)

EIRR 14.52 %

NPV $ 404 Million

Benefit-to-Cost Ration 1.22

CBA – With CC

Climate Change

Data

• Is there any relationship between previous floods and CC?

• What is the probability of a major flood occurrence? What is its frequency?

FS

• What will be CBA when CC is incorporated into existing FS?

Indirect benefit

assessment

• What are indirect benefits?

• Why do we need to consider these?

Existing FS Baseline

Values of water Costs of water

Ecosystem service value

Non-market value to human capital

Net benefits from indirect use

Net benefits from return flows

Value to water users

Eco

logi

cal E

con

om

ic V

alu

e

Eco

no

mic

Val

ue

Mar

ket

Val

ue

Diminishment of Ecosystem Services

Economic Externalities

Opportunity Cost of Water

Capital Charges

O&M

Eco

logi

cal E

con

om

ic C

ost

Eco

no

mic

Co

st

Sup

ply

C

ost

Quantifying Other Benefit Streams

1. Direct benefits from avoided a loss and damage as a result of the drainage canal/flood diversion in East.

• Property damage, accidents, road blockages, etc.

• FS uses data from consulting firm.

2. Indirect health benefits• Reduced stress/trauma from psychological effects

• Contingent Valuation Method (CVM) used, not the actual market value. Surveys used to indicate WTP.

Modeling: Flood Risk Analysis

Streamflow simulation (IMPACT-T data)Near Future (2040-2059) vs. Far Future (2080 – 2099)

at station C.2, Nakhon Sawan

Representative Concentration PathwaysRCP 4.5 and RCP 8.5

Flood risk: Result (base year = 1995)- considered Return Period as index

Return Period without CC

Return Period with CC

43 years

3-7 years

CBA – With CC

Flood Damage and Loss (M USD)

Flood Area (Ha)

Without Climate Change

734 265,774

With Climate Change (Changes of ReturnPeriod)

1,826 341,938

Direct Benefits: Damages and Losses

Indirect Benefits: Anxiety & Stress reduction

43 years

3-7 years

Damage

Contingent Valuation

Method (CVM)

Before & After

Metric Figure

Cost 63,180 Million Baht

Benefit 77,307 Million Baht

EIRR 14.52%

NPV 14,126 Million Baht

B/C ratio 1.22

Shorter Investment Return Period

Damages & Losses

Anxiety & Stress

Baseline With CC

Metric Figure

Cost 63,180 Million Baht

Benefit 294,973 Million Baht

EIRR 43.91%

NPV 231,793 Million Baht

BCA 4.67

Broad Conclusions & General Lessons1. Climate-related appraisal methods and budget guidelines are evolving in

Thailand. Watch this space! MoAC leadership is appreciated. Piloting work that UNDP, GiZ and MOAC/RID/DWR have done provide a model way forward.

2. Mainstreaming CC in appraisals will lead to better policy choices, institutional co-ordination (because of cross/multi-sectoral reality of CC impacts) and a qualitatively strengthened NAP & NDC process.

3. Mainstreaming needs champions and pilot programs at sector and line department level. Good practice to engage Bureau of Budget early on in the budget formulation processes.

4. Co-benefits in terms of CC adaptation/GHG mitigation can be addressed in budgeting process as part of routine appraisal of programs.

• CC Appraisal for programmes and investment decisions should build upon existing techniques. It should not be a major analytical burden to MOAC/RID/DWR/MONRE

• Important to do it during project/programme design, so that it can influence design, even if more qualitative

• Estimating Costs Far Easier than Benefits

• Knowing and being clear about how CC would generally affect a project is as important as estimating the values

• Accept that some estimates will be rough and will act as indicators for monitoring/management. Timeframe key.

• Some key rules of thumb provide a good starting point (e.g. a doubling of flood/drought return periods)

• Use a combination of techniques and attempt to also ‘triangulate’ results with various studies

Disaster

Drought

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