Climate Change Threatens Wealth Creation In Developing Countries

Please note:  Included is a webcast of the Event: http://unfccc.streamlogics.com/unfccc/20051206/s1/1800/index.asp

Contacts: In Washington:  Kristyn Ebro  +1-202-458-2736

Kebro@worldbank.org
In Montreal: Sergio Jellinek +1-202-294-6232

Sjellinek@worldbank.org

MONTREAL, December 6, 2005―The most important asset of most developing countries – their land resources – is distinctly at risk from climate change, according to the new measure of wealth figures reported in the new World Bank publication, Where is the Wealth of Nations? Measuring Capital for the 21^st Century, officially launched at the United Nations’ Climate Change Conference (COP-11/MOP-1) in Montreal.

Current indicators used to guide development decisions – national accounts figures, such as Gross Domestic Product (GDP) – ignore depletion of resources and damage to the environment.  In Where is the Wealth of Nations, the World Bank offers new estimates of total wealth, including produced capital, natural resources, and the value of human skills and capabilities, which show that many of the poorest countries in the world are not on a sustainable path.

“A key result in ‘Where is the Wealth of Nations’ is that cropland and pastureland make up nearly 70 percent of the value of natural capital in low-income countries,” says Warren Evans, Director Environment Department, The World Bank, and adds, “The conclusion is clear – the most important natural asset for the poorest countries is agricultural soil. How these soils are managed and their productivity enhanced and maintained will have a critical impact on rural poverty and economic growth.”  

According to the new publication, “Excluding oil states, natural resources make up 25 percent of the total wealth of low income countries, much larger than the 16 percent share of produced capital.   By far the largest component of natural wealth in these countries is land.   It is precisely this wealth that is highly at risk from climate change.”

For example, a 2.5 degree C rise in average temperature could decrease the net returns to cropland by $16 billion each year in Sub-Saharan Africa – if this loss continued year after year, it would represent more than 50 percent of the current value of cropland in Sub-Saharan Africa, according to the report.

Wealth: Switzerland, Sweden, Denmark, and the US at the top … Ethiopia at the bottom

The publication offers a ranking of 120 countries according to total wealth, with tables highlighting the 10 wealthiest and the 10 poorest countries (see Annex).  As was revealed in the Conference edition of Where is the Wealth of Nations, launched at the UN World Summit in September, Switzerland heads the list of the top-ten performers, the other nine being European countries, the United States, and Japan. Sub-Saharan Africa dominates the bottom-10 list, with Ethiopia having the lowest level of total wealth.  Canada has the seventeenth largest level of total capital in the world. Natural resources represent ten percent of total wealth in Canada, owing to sub-soil resources and forests.

The 7^th Millennium Development Goal (MDG) – ensure environmental sustainability – calls on countries to “reverse the losses of environmental resources” by 2015. Achieving this goal has proven to be elusive for most countries, not least because of a lack of indicators of sustainable development.

“There is a shared sense of urgency about meeting the Millennium Development Goals,” added Evans. “However, it would be tragic if the achievements of 2015 are not sustained because soils have been mined, fisheries and forests depleted, and climate change erodes the assets of the poor.  Avoiding this outcome is the true seventh Millennium Development Goal.”

Where is the Wealth of Nations complements the report of the Millennium Ecosystem Assessment.   The MA played an important role in signaling the importance of environmental services to human wellbeing.   Where is the Wealth of Nations places an economic value on natural resources and argues that many of these values are underpinned by environmental services that may be at risk – for example, forest owners have no incentive to preserve watershed services that benefit water users; therefore, forests are overexploited and their worth unmeasured.

According to Atilio Savino, Secretary of Environment, Argentina, “Governments need to know the environmental costs so as to make informed decisions concerning development.   Frequently, we have difficulties in perceiving that the development policy cannot be broken away from the environmental policy.  It is only by the inclusion of the environmental dimension may we obtain an accurate measurement of the environmental cost of development, very often overlooked or undervalued.”

“This book,” he continued, “by considering the first assessments on the capacity of human resources, i.e. our capacity to work on our own welfare, together with natural resources, and by proposing as a conclusion that these are more important capitals than the assets produced or than finance, represents an enormous contribution to the policy of sustainable development.”

Savino added, “This theoretical and methodological construction allows then for the first time to use quantifiable factors to measure and weight the notion of sustainable development, which can be an ambiguous concept.”

The value of environmental services can be significant, according to the report. Recent research has highlighted the value of services provided by natural forests in the Mediterranean region. These services, including sustainable harvest of timber and fuelwood, forage, other non-timber products, and recreational uses, amount to up to $350 per hectare per year.

“Measuring the change in total wealth and the change in natural wealth,” said Kirk Hamilton, lead author of Where is the Wealth of Nations, “can contribute to a comprehensive measure of whether a development path is sustainable in the long term.  The indicators in ‘Where is the Wealth of Nations’ can guide countries toward a sustainable path.”

The World Bank has engaged proactively in promoting the use of market-oriented environmental services through a series of projects in Costa Rica, El Salvador, Mexico, and South Africa. These projects create markets for these services, where beneficiaries pay the owners of natural resources in order to preserve the flow of environmental services – providing a direct incentive to conserve natural resources.

For more information, see the website:

www.worldbank.org/environment

ANNEX

Total Wealth, 2000 ($ per capita and percentage shares)

Notes: All dollars at nominal exchange rates. Oil states are excluded. (OECD) Organisation for Economic Co-operation and Development

Source: Where is the Wealth of Nations, World Bank 2006

Table 2.1 Total Wealth: Top-10 Countries, 2000

Source: Authors.

Table 2.2 Total Wealth: Bottom-10 Countries, 2000