15.01.2014

Making public investment climate-proof

In Peru, an IKI project is supporting the government in the development of a climate change assessment for public investment projects.

Located in the heart of the Andean highlands, the Cusco region captivates with its diverse landscapes: high rocky mountains, deep gorges, green valleys, savannahs and rainforests. It is also home to the world-famous Incan city of Machu Picchu. 'A large part of the population in this region works in the agricultural or tourism sector,' explains Edwin Mansilla, the region's deputy minister of the environment. 'But climate change is a major challenge for us. The heavy rainfall leads to landslides and flooding, which carry high price tags for the state and the people.'

All in all, climate change is costing the country dearly. According to estimates made by the Andean Community in 2008, it could cost Peru's economy around USD 10 billion by the year 2025. Increased rainfall accompanied by longer periods of drought, higher temperatures and stronger storms could lead to damaged infrastructure, decreased revenues from sensitive sectors of the economy like agriculture, fisheries and tourism, as well as the emergence of new diseases. It becomes clear that climate change is not just an environmental policy issue, but also impacts the country’s overall development. Mansilla describes the challenge: 'in addition to targeted projects aimed at adapting to the impacts of climate change, we therefore need to consider climate change as a cross-cutting issue and integrate it into all public investment projects.' Public authorities are therefore faced with the question of how they can make their investments 'climate-proof'. How do policy guidelines need to be designed so that public investment projects include climate change considerations within their planning and take corresponding adaptation measures?

Good planning is everything

In Peru, the National Public Investment System (Sistema Nacional de Inversión Pública – SNIP) controls all investment projects by state and local institutions. It specifies what public institutions must take into account when they plan investments and evaluate their feasibility. Thus far, climate change and its impacts have not been considered in this setting. A project of the International Climate Initiative (IKI) is working with Peru's Ministry of Economy and Finance and its Ministry of Environment to improve the regulatory system in this regard. The project is being implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, which is also working on other IKI projects in Peru.

In two pilot regions, the project partners selected economic sectors in which there should be partial testing of risk management criteria, taking climate change scenarios into consideration during the planning process for new public investment projects. Cusco chose the economically-important tourism and irrigation sectors, and Piura on Peru's northern coast also selected investment projects in the irrigation sector. Under the project's guidance, an analysis was first conducted of the risks associated with climate change in the areas where investment projects are planned. This included, for example, an assessment of the extent to which increased rainfall or longer periods of drought would create the necessity for alterations to the irrigation system. Appropriate adaptation measures were then identified on this basis. Subsequently, the project partners conducted cost-benefit analyses in order to compare the cost of the adaptation measures, and the financial losses that can be avoided in the future.

The findings generated by the pilot projects ultimately contributed to the development of official guidelines for considering climate change in public investment projects in the tourism and irrigation sectors. These supplement the existing SNIP guidelines. Now an updated handbook for project planners, covering risk management terminology and concepts in the context of climate change, is also available to the Ministry of Economy and Finance. In 2014, together with the Ministry, the project wants to establish a specialised training programme for project planners regarding the correct application of the new concepts and guidelines.

Convinced by the impacts

At the outset of the project, many of the authorities in the pilot regions were still sceptical. After all, additional criteria could render project planning and execution more complicated and costly. But they were quickly convinced by the new approach: 'In the beginning, we didn't pay much attention to the issues of climate change and risk management, which were just empty words for us. As project planners, in fact, we were rather against these things,' explains Eulogio Huamán about his team's work; he is responsible for planning irrigation projects in Cusco. 'But over time, we gained more knowledge about these topics, for example how to integrate and quantify risk management and climate change adaptation measures in irrigation projects. Now all of the irrigation projects that we are planning consider climate change in their risk analysis, identify adaptation measures, and calculate their profitability.' To date, Huamán's team has independently drawn up four investment projects based on the new guidelines. One project, for example, is now planning to stabilise irrigation infrastructure in critical zones that could face landslides due to heavy rainfall. In addition, local farmers are being encouraged to use cold-resistant plant varieties that can also withstand occasional frost. Training activities on risk management and adaptation are being planned for the farmers.

An approach for the entire country

Edwin Mansilla hopes that the pioneering work being done in Cusco and Piura will benefit the country over the medium and long term: 'Today, we are drafting the guidelines that will one day be used by the entire country via the SNIP.' At the end of October 2013, the Ministry of Economy and Finance officially announced the new guidelines for the tourism sector. Across the region, climate proofing is now an integral part of all public investment decisions within this sector, and authorities will be able to lower expenses over the long-term and reduce economic losses. The resources that will be freed up in this manner can subsequently be used in other areas to further boost the country's economic development.