Are the risks and uncertainties as constraints to investing in climate-smart innovations a red herring? Financial cost-benefit analysis evidence from 11 countries in Africa and Asia

IF 5 2区 环境科学与生态学 Q1 ENVIRONMENTAL SCIENCES
Stanley Karanja Ng’ang’a , Devinia Princess Akinyi , Evan Hartunian Girvetz
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The analysis revealed a range of net present values (NPV) associated with the innovations, from US$ 508 to US$ 38,793 (2020 dollars). The internal rate of return (IRR) varied between 20 % and 490 %. Sensitivity analysis affirmed the financial profitability and minimal risk of the studied innovations. Considering the influence of discount rates, a reduction of 50 % and 100 % in the discount rate resulted in an average NPV increase of 20 % and 35 %, respectively. The NPV was found to be most sensitive to changes in yield, followed by the discount rate. Measures and incentives aimed at providing access to capital at lower or subsidized rates were identified as potential drivers for increasing adoption rates. Monte Carlo simulation demonstrated that the adoption of these innovations is worthwhile, with a low risk of capital loss. To facilitate the widespread adoption of promising CSA practices, governments should support strategies that minimize risks faced by smallholder farmers. 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Abstract

Climate-Smart agricultural (CSA) practices such as drought resistant varieties, water saving techniques etc. have gained considerable attention due to their potential to address climate change impacts. However, uncertainties remain regarding their financial profitability and risk implications across diverse conditions, which may contribute to low adoption rates. This study conducted a comprehensive cost-benefit analysis using data from 11 countries to assess the financial viability of these practices. The analysis revealed a range of net present values (NPV) associated with the innovations, from US$ 508 to US$ 38,793 (2020 dollars). The internal rate of return (IRR) varied between 20 % and 490 %. Sensitivity analysis affirmed the financial profitability and minimal risk of the studied innovations. Considering the influence of discount rates, a reduction of 50 % and 100 % in the discount rate resulted in an average NPV increase of 20 % and 35 %, respectively. The NPV was found to be most sensitive to changes in yield, followed by the discount rate. Measures and incentives aimed at providing access to capital at lower or subsidized rates were identified as potential drivers for increasing adoption rates. Monte Carlo simulation demonstrated that the adoption of these innovations is worthwhile, with a low risk of capital loss. To facilitate the widespread adoption of promising CSA practices, governments should support strategies that minimize risks faced by smallholder farmers. Additionally, efforts to enhance climate adaptation at scale should be coupled with financial and policy support. This study underscores the importance of evidence-based analysis in guiding decision-making and emphasizes the need for continuous support and resources for CSA implementation.
Practical implications
Having evidence-based cases on the benefits and costs of climate change adaptation is crucial for decision-making, particularly in the agricultural sector. This information serves as a valuable starting point for policymakers and practitioners to choose efficient climate adaptation options, especially for smallholder farmers. It provides a strong justification for adopting and scaling up these options, while also motivating policymakers to allocate more financial resources to adaptation, particularly in developing countries.
In any investment decision-making process, it is crucial to consider risks and uncertainties. Taking these factors into account helps guide the decision-making process and enables a deeper understanding of the external environment dynamics. By factoring in risks and uncertainties, investors can gain confidence in achieving positive returns while minimizing the likelihood of financial losses. Additionally, policymakers can better comprehend the perspectives of smallholder farmers and make informed decisions about which climate adaptation strategies to adopt and which ones to avoid.
The present study presents a robust methodology for evaluating the risks and uncertainties related to investing in climate adaptation strategies. This methodology holds considerable significance within the scientific community and academia. Moreover, it provides an opportunity for other researchers to adopt and apply the methodology to various sectors, particularly in the context of cost-benefit analysis in developing countries. Doing so allows for continuous improvements and fosters constructive criticism and discussions among researchers. This collaborative approach contributes to advancing knowledge and understanding in the field of climate adaptation and strengthens the collective effort to address the challenges of climate change effectively.
Addressing global hunger and achieving food security are critical goals in the fight against hunger. Key areas of focus include agriculture and sustainable approaches to increase food production. However, the risks posed by climate change necessitate a shift towards enhancing adaptation efforts in developing countries. This study offers valuable information that is highly relevant to stakeholders. By leveraging this information, policymakers can develop effective policies that provide support and assistance to smallholder farmers who face resource constraints. This, in turn, helps cushion them against the challenges posed by climate change and facilitates their long-term resilience and sustainability.

Abstract Image

将风险和不确定性作为投资气候智慧型创新的制约因素,这是在转移注意力吗?来自非洲和亚洲11个国家的财务成本效益分析证据
气候智慧型农业(CSA)实践,如抗旱品种、节水技术等,由于具有应对气候变化影响的潜力,已经获得了相当大的关注。然而,在不同条件下,它们的财务盈利能力和风险影响仍然存在不确定性,这可能导致采用率低。本研究利用来自11个国家的数据进行了全面的成本效益分析,以评估这些做法的财务可行性。分析揭示了与创新相关的净现值(NPV)范围,从508美元到38,793美元(2020年美元)。内部收益率(IRR)在20%到490%之间变化。敏感性分析证实了所研究创新的财务盈利能力和最小风险。考虑到贴现率的影响,贴现率降低50%和100%分别导致平均净现值增加20%和35%。NPV对收益率的变化最为敏感,其次是贴现率。旨在以较低或有补贴的利率提供获得资本的机会的措施和奖励被确定为提高采用率的潜在驱动因素。蒙特卡罗模拟表明,采用这些创新是值得的,具有较低的资本损失风险。为了促进有前途的CSA实践的广泛采用,政府应支持将小农面临的风险降至最低的战略。此外,加强大规模气候适应的努力应辅以资金和政策支持。本研究强调了循证分析在指导决策中的重要性,并强调了为实施CSA提供持续支持和资源的必要性。实际意义关于气候变化适应的收益和成本的循证案例对于决策至关重要,特别是在农业部门。这些信息为决策者和从业者选择有效的气候适应方案提供了宝贵的起点,特别是对小农而言。它为采用和扩大这些选择提供了强有力的理由,同时也激励决策者为适应分配更多的财政资源,特别是在发展中国家。在任何投资决策过程中,考虑风险和不确定性是至关重要的。考虑到这些因素有助于指导决策过程,并能够更深入地了解外部环境动态。通过考虑风险和不确定性,投资者可以获得获得正回报的信心,同时最大限度地减少经济损失的可能性。此外,政策制定者可以更好地理解小农的观点,并就采取哪些气候适应战略和避免哪些战略做出明智的决策。本研究提出了一种评估与投资于气候适应战略相关的风险和不确定性的可靠方法。这种方法在科学界和学术界具有相当重要的意义。此外,它为其他研究人员提供了一个机会,使他们能够在各个部门采用和应用这种方法,特别是在发展中国家进行成本效益分析的情况下。这样做可以持续改进,并促进研究人员之间的建设性批评和讨论。这种合作方式有助于增进对气候适应领域的认识和理解,并加强有效应对气候变化挑战的集体努力。解决全球饥饿问题和实现粮食安全是战胜饥饿的关键目标。重点领域包括农业和增加粮食生产的可持续方法。然而,气候变化带来的风险要求我们转向加强发展中国家的适应努力。这项研究提供了与利益相关者高度相关的有价值的信息。通过利用这些信息,决策者可以制定有效的政策,为面临资源限制的小农提供支持和帮助。这反过来又有助于缓解气候变化带来的挑战,促进它们的长期复原力和可持续性。
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来源期刊
Climate Risk Management
Climate Risk Management Earth and Planetary Sciences-Atmospheric Science
CiteScore
8.20
自引率
4.50%
发文量
76
审稿时长
30 weeks
期刊介绍: Climate Risk Management publishes original scientific contributions, state-of-the-art reviews and reports of practical experience on the use of knowledge and information regarding the consequences of climate variability and climate change in decision and policy making on climate change responses from the near- to long-term. The concept of climate risk management refers to activities and methods that are used by individuals, organizations, and institutions to facilitate climate-resilient decision-making. Its objective is to promote sustainable development by maximizing the beneficial impacts of climate change responses and minimizing negative impacts across the full spectrum of geographies and sectors that are potentially affected by the changing climate.
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