20231220-IMF-Republic_of_Palau_Selected_Issues_31页_916kb

Summary of Climate Change in Palau: Policy Options and Strategies

Core Content

This document provides an analysis of climate change impacts and policy options for Palau, focusing on adaptation and mitigation strategies. It outlines the economic and social implications of climate change and suggests ways to integrate climate considerations into Public Financial Management (PFM) systems. The analysis is based on the latest climate projections and economic models, emphasizing the need for strategic and efficient adaptation measures.

Main Points

Climate Change Impacts

• Temperature Rise: Palau has experienced a warming trend since the 1950s, which is expected to continue even with global mitigation efforts. By 2050, temperatures are projected to rise by 1.1°C above the 1985–2014 average.
• Precipitation: There is no significant trend in annual total precipitation, but future scenarios suggest a small and uncertain increase. Palau has one of the highest annual mean temperatures and total annual precipitation globally.
• Sea-Level Rise: Sea levels are expected to rise by 8–18 cm by 2030 and 23–48 cm by 2070 under current emission trends. This poses a significant risk to coastal areas.
• Ocean Acidification: Increased CO₂ levels are causing ocean acidification, which may lead to coral bleaching and negative effects on biodiversity, fisheries, and tourism.
• Tropical Cyclones: There is low confidence in projections about the frequency and strength of tropical cyclones, but models suggest future storms may be stronger globally.

Adaptation Strategies

• No Adaptation: Without adaptation, the cost of sea-level rise could reach 4% of GDP annually by 2040.
• Full Protection: Involves building barriers to prevent inundation, but this is costly and may not be optimal due to periodic storm impacts.
• Efficient Adaptation: Combines protection and planned retreat, which could reduce the overall cost of sea-level rise to 1% of GDP annually by mid-century.
• Planned Retreat: Involves relocating population and capital away from vulnerable areas, which is less costly but requires long-term land use planning.

Cost-Benefit Analysis (CBA)

• CBA is a useful tool to evaluate the costs and benefits of adaptation strategies, especially in countries with limited experience.
• The Netherlands has a long tradition of using CBA for flood risk management, which could be a model for Palau.

Equity and Efficiency

• Adaptation policies must consider distributional effects and ensure a just transition.
• Government intervention is crucial in cases where adaptation has large externalities, such as coastal protection and infrastructure resilience.
• Efficient water pricing schemes can promote conservation and reduce the scale of supply-side interventions.

Climate-Related Public Investment

• Adaptation costs can be significantly reduced by focusing on cost-effective measures and delaying those that are only beneficial in worst-case scenarios.
• The cost of climate change-related investments was estimated at $500 million (about 194% of 2020 GDP) in 2015, highlighting the need for strategic investment planning.

Key Information

• PFM Integration: "Greening" PFM systems can support climate-sensitive policies. Key areas for integration include budget decision-making, fiscal risk management, project selection, and climate reporting.
• Renewable Energy: Palau aims to increase its renewable energy share to 45% by 2025 and improve energy efficiency by 35%. A new solar farm is expected to raise renewable generation to 20%, but more investment is needed to meet the 2025 targets.
• Carbon Pricing: Palau has high effective carbon prices on diesel and gasoline, but a moderate carbon tax could help reduce GHG emissions and encourage renewable energy adoption.
• Revenue Recycling: This can improve political acceptability and reduce the impact of higher fuel prices on vulnerable communities.
• PFM Roadmap: Palau is currently developing a PFM Roadmap for the next five years, which offers an opportunity to incorporate climate considerations into its fiscal systems.

Policy Recommendations

• Integrate climate considerations into PFM systems to ensure efficient and effective adaptation and mitigation.
• Focus on cost-effective and equitable adaptation strategies, such as planned retreat and targeted investments in infrastructure.
• Promote renewable energy and energy efficiency through continued investment and complementary policies.
• Use CBA and other economic tools to guide public investment and private adaptation.
• Develop a PFM Roadmap that aligns with the country's climate goals and fiscal capacity.
• Address market imperfections and policy barriers that hinder efficient private adaptation.