Economics of Climate Change in Kenya: Evidence from Sectoral Studies
Category: Climate change
By: Oscar Ochieng, Winnie Ogejo,
The year 2020 was marked by the COVID-19 pandemic, which has so far claimed the lives of more than 6 million people worldwide. The negative impact of Covid-19 has been compounded by other disasters such as hurricanes, drought and famine. In the East African region, a plague of locusts that destroyed vegetation due to their mobility exacerbated the drought situation. This begs the question, why did so many disasters occur in 2020? Aleksandra (2022) and Umair (2020) explored the relationship between disasters and climate change in the US and the UK. The authors note that a striking parallel between these two crises is that they have both resulted in loss of life that could have been averted through global efforts.
In Kenya, the locust infestation was foreseeable, because locusts are migratory pests and could easily spill over into neighbouring countries with Ethiopia already grappling with infestation. As nations shift focus to policies and spending targeted to mitigate the health impact of the pandemic, which was declared over on the 4th of May 2023 by the World Health Organization (WHO), climate change and its consequences should not be downplayed.
The future economic costs of climate change are uncertain. However, aggregate models indicate that the additional net economic costs, on top of the costs of existing climate variability, could be equivalent to a loss of 2.6% of GDP each year by 2030 in Kenya. This is largely due to the climate-sensitive nature of Kenya’s economy with the agriculture, water, energy, tourism, and wildlife sectors being of upmost importance. In the longer-term, after 2050, the economic costs of climate change in Africa and Kenya are estimated to rise, potentially very significantly. Under a stabilization scenario, the aggregate models report a 2ºC temperature rise target could avoid the most severe social and economic consequences of these longer-term changes. This emphasizes the need for climate financing and global mitigation.
On January 9th 2023, Kenya’s president delivered an executive order for the establishment of a State Department for Environment and Climate Change under the Ministry of Environment to underline the government’s commitment to protecting Kenya from the adverse effects of global warming. This order signals that taking action to adapt to and mitigate climate change is considered an issue of national interest.
The challenge however lies in Kenya’s approach to climate related investments. In 2018, Ksh. 243.3 billion (USD 2.4 billion) flowed to climate-related investments, one third of the finance needed annually. Slightly more than 79% of these funds were directed to the implementation of climate mitigation measures which is in stark contrast to the need, given that Kenya has an adaptation focused strategy. This presents an economic risk due to the cost of climate events such as drought and famine in the country. Climate finance disproportionally targets the renewable energy sector, while other key sectors, like agriculture, forestry and land use, transport, and water management, are underfunded. The National Treasury reiterates that the current financing disproportionately targets certain sectors that will only partially address climate issues and significant efforts will be needed to align all sectors.
Agriculture sector
The agriculture sector is central to Kenya’s economic growth, employment and poverty reduction, but productivity growth and value addition from the sector have been elusive. Agricultural sector is also the largest source of Greenhouse Gas (GHG) emissions in Kenya at 59%, with livestock related emissions accounting for more than 96% of that total. A study by Scientific Direct revealed that majority of Kenyan agriculture relies on rainfall, with only less than 5% under irrigation, and the sector has suffered from increasing variability in rainfall. Climate change poses an additional challenge to the prospects of the sector putting agricultural production and food security at risk through its impacts on water availability, incidence and intensity of animal and plant pests and diseases. The long drought has led to a contraction in agriculture output, underlining the vulnerability to climate-related risks and the need to increase resilience to climate change. Kenya’s agriculture sector contracted by 1.5% in the first half of 2022. The World Bank reports that while the sector contributing almost one-fifth of GDP, the sector’s poor performance pulled back GDP growth by 0.3%. The drought adversely affected outputs of the crops and livestock sub-sectors in the first half of 2022, which in turn reflected in dismal performance of Kenya’s key commodity exports including tea and horticulture. As at July 2022, the drought had left 3.5 million people food insecure in Kenya, a 13 percent increase since the February 2022 assessment.
Climate change poses an additional challenge to the prospects of Kenya’s agriculture sector. Kenya’s climate has been changing over recent decades, increasing the likelihood and intensity of extreme weather events (such as drought and floods). The economic cost of floods and droughts is estimated to create long-term fiscal liabilities of 2-2.8 % of GDP each year. Future climate change is expected to bear heavily on Kenya’s food and nutritional security with yield reductions of 40 – 45% expected for maize, rice, soyabean, coffee and tea by 2050, and increase in food prices by 75-90% by 2055. Poor households in both urban and rural areas spend the majority of their income on food and fuel. An increase in food prices, as a result of reduction in yields will therefore disproportionately affect the poor. This will in turn necessitate increase in social protection spending by government aimed at these households.
Health Sector
It is evident from a research study published by Environmental Epidemiology in 2021 that there exists a positive relationship between climate change and outbreak of infectious diseases. Pandemics are a threat to economic prosperity due to the huge costs required to address their impact. In Kenya, Ksh.9.2 billion was allocated towards Covid-19 vaccinations in FY 2020/21. The opportunity cost that would have been derived from this amount is that it was adequate to procure and distribute Antiretroviral drugs to the 78% of Kenyans on antiretroviral treatment for two financial years, purchase Special Insecticide Treated Mosquito Nets for the prevention of malaria, a leading cause of deaths in Kenya, which increased from 11,768 in 2020 to 12,011 in 2021. In addition, the money was sufficient to hire health specialists across the 47 counties as the study by National Library of Medicine in 2017 found, given that the country has major shortages in chest specialists, hospital physicians and emergency care nurses.
The severe drought has also driven the number of children facing acute malnutrition up by 9,539 in June 2022, with fears this will rise further if forecasts for another failed rainy season prove to be accurate. This will have cost implications since substantive investments will be required to treat stunted growth and investment in education to address grade repetition resulting from the same. This negative impact on education performance eventually affects social and economic productivity. The economic impact as a result, productivity loss was estimated at Ksh 352 billion (6.5% of GDP).
All is not lost as scenarios of potential savings also exist. The current estimated cost of implementing Kenya’s mitigation and adaptation actions stands at Ksh. 6,775 billion (USD 65 billion) for the period 2020-2030. This translates to Ksh. 677.5 billion annually, out of which only Ksh. 243.3 B representing 35.9%, was availed in 2018. The huge financing gaps means that it is critical for the spending to be focused on sectors with greatest impact. Investments in renewable energy are important, but this should not be done at the expense of other key sectors such as health, agriculture and transport as the trend shows.
If Kenya shifts to a lower carbon pathway, there are numerous advantages. To maximize the potential flow of carbon credits, actions must be taken by the government, the private sector and civil society. Specifically, plans for reducing carbon emissions ought to go beyond the power generation sector. The situation necessitates a larger emphasis on transportation and agriculture.
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Economics of Climate Change in Kenya: Evidence from Sectoral Studies
| Post date: Tue, May 16, 2023 |
| Category: Climate change |
| By: Oscar Ochieng, Winnie Ogejo, |
The year 2020 was marked by the COVID-19 pandemic, which has so far claimed the lives of more than 6 million people worldwide. The negative impact of Covid-19 has been compounded by other disasters such as hurricanes, drought and famine. In the East African region, a plague of locusts that destroyed vegetation due to their mobility exacerbated the drought situation. This begs the question, why did so many disasters occur in 2020? Aleksandra (2022) and Umair (2020) explored the relationship between disasters and climate change in the US and the UK. The authors note that a striking parallel between these two crises is that they have both resulted in loss of life that could have been averted through global efforts.
In Kenya, the locust infestation was foreseeable, because locusts are migratory pests and could easily spill over into neighbouring countries with Ethiopia already grappling with infestation. As nations shift focus to policies and spending targeted to mitigate the health impact of the pandemic, which was declared over on the 4th of May 2023 by the World Health Organization (WHO), climate change and its consequences should not be downplayed.
The future economic costs of climate change are uncertain. However, aggregate models indicate that the additional net economic costs, on top of the costs of existing climate variability, could be equivalent to a loss of 2.6% of GDP each year by 2030 in Kenya. This is largely due to the climate-sensitive nature of Kenya’s economy with the agriculture, water, energy, tourism, and wildlife sectors being of upmost importance. In the longer-term, after 2050, the economic costs of climate change in Africa and Kenya are estimated to rise, potentially very significantly. Under a stabilization scenario, the aggregate models report a 2ºC temperature rise target could avoid the most severe social and economic consequences of these longer-term changes. This emphasizes the need for climate financing and global mitigation.
On January 9th 2023, Kenya’s president delivered an executive order for the establishment of a State Department for Environment and Climate Change under the Ministry of Environment to underline the government’s commitment to protecting Kenya from the adverse effects of global warming. This order signals that taking action to adapt to and mitigate climate change is considered an issue of national interest.
The challenge however lies in Kenya’s approach to climate related investments. In 2018, Ksh. 243.3 billion (USD 2.4 billion) flowed to climate-related investments, one third of the finance needed annually. Slightly more than 79% of these funds were directed to the implementation of climate mitigation measures which is in stark contrast to the need, given that Kenya has an adaptation focused strategy. This presents an economic risk due to the cost of climate events such as drought and famine in the country. Climate finance disproportionally targets the renewable energy sector, while other key sectors, like agriculture, forestry and land use, transport, and water management, are underfunded. The National Treasury reiterates that the current financing disproportionately targets certain sectors that will only partially address climate issues and significant efforts will be needed to align all sectors.
Agriculture sector
The agriculture sector is central to Kenya’s economic growth, employment and poverty reduction, but productivity growth and value addition from the sector have been elusive. Agricultural sector is also the largest source of Greenhouse Gas (GHG) emissions in Kenya at 59%, with livestock related emissions accounting for more than 96% of that total. A study by Scientific Direct revealed that majority of Kenyan agriculture relies on rainfall, with only less than 5% under irrigation, and the sector has suffered from increasing variability in rainfall. Climate change poses an additional challenge to the prospects of the sector putting agricultural production and food security at risk through its impacts on water availability, incidence and intensity of animal and plant pests and diseases. The long drought has led to a contraction in agriculture output, underlining the vulnerability to climate-related risks and the need to increase resilience to climate change. Kenya’s agriculture sector contracted by 1.5% in the first half of 2022. The World Bank reports that while the sector contributing almost one-fifth of GDP, the sector’s poor performance pulled back GDP growth by 0.3%. The drought adversely affected outputs of the crops and livestock sub-sectors in the first half of 2022, which in turn reflected in dismal performance of Kenya’s key commodity exports including tea and horticulture. As at July 2022, the drought had left 3.5 million people food insecure in Kenya, a 13 percent increase since the February 2022 assessment.
Climate change poses an additional challenge to the prospects of Kenya’s agriculture sector. Kenya’s climate has been changing over recent decades, increasing the likelihood and intensity of extreme weather events (such as drought and floods). The economic cost of floods and droughts is estimated to create long-term fiscal liabilities of 2-2.8 % of GDP each year. Future climate change is expected to bear heavily on Kenya’s food and nutritional security with yield reductions of 40 – 45% expected for maize, rice, soyabean, coffee and tea by 2050, and increase in food prices by 75-90% by 2055. Poor households in both urban and rural areas spend the majority of their income on food and fuel. An increase in food prices, as a result of reduction in yields will therefore disproportionately affect the poor. This will in turn necessitate increase in social protection spending by government aimed at these households.
Health Sector
It is evident from a research study published by Environmental Epidemiology in 2021 that there exists a positive relationship between climate change and outbreak of infectious diseases. Pandemics are a threat to economic prosperity due to the huge costs required to address their impact. In Kenya, Ksh.9.2 billion was allocated towards Covid-19 vaccinations in FY 2020/21. The opportunity cost that would have been derived from this amount is that it was adequate to procure and distribute Antiretroviral drugs to the 78% of Kenyans on antiretroviral treatment for two financial years, purchase Special Insecticide Treated Mosquito Nets for the prevention of malaria, a leading cause of deaths in Kenya, which increased from 11,768 in 2020 to 12,011 in 2021. In addition, the money was sufficient to hire health specialists across the 47 counties as the study by National Library of Medicine in 2017 found, given that the country has major shortages in chest specialists, hospital physicians and emergency care nurses.
The severe drought has also driven the number of children facing acute malnutrition up by 9,539 in June 2022, with fears this will rise further if forecasts for another failed rainy season prove to be accurate. This will have cost implications since substantive investments will be required to treat stunted growth and investment in education to address grade repetition resulting from the same. This negative impact on education performance eventually affects social and economic productivity. The economic impact as a result, productivity loss was estimated at Ksh 352 billion (6.5% of GDP).
All is not lost as scenarios of potential savings also exist. The current estimated cost of implementing Kenya’s mitigation and adaptation actions stands at Ksh. 6,775 billion (USD 65 billion) for the period 2020-2030. This translates to Ksh. 677.5 billion annually, out of which only Ksh. 243.3 B representing 35.9%, was availed in 2018. The huge financing gaps means that it is critical for the spending to be focused on sectors with greatest impact. Investments in renewable energy are important, but this should not be done at the expense of other key sectors such as health, agriculture and transport as the trend shows.
If Kenya shifts to a lower carbon pathway, there are numerous advantages. To maximize the potential flow of carbon credits, actions must be taken by the government, the private sector and civil society. Specifically, plans for reducing carbon emissions ought to go beyond the power generation sector. The situation necessitates a larger emphasis on transportation and agriculture.
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There is a big global debate on tariffs, their effects, and who pays for them, creating misconceptions. The broader trade strategy premised on Tariffs reflects a worldview rooted in 19th-century mercantilism, emphasizing protectionism and an aggressive use of tariffs.[1] The misconception that tariffs aren’t taxes stems from several factors. Framing plays a significant role. Tariffs […]
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