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Assessing the economic impacts of climate change in Nepal

Project Reference: AAAS-0011

Previous studies, and common sense, tell us that development in Nepal is already being affected by climate change. Economic growth is dependent on the agricultural sector, which is sensitive to variations in the climate. Extreme events, such as glacial lake outburst floods, threaten lives and livelihoods.

However, the Government of Nepal (GoN) recognised that a more comprehensive picture of the economics involved in climate change is required. In their 2011 National Climate Change Policy they included as a specific objective the “assessment of losses and benefits from climate change in various geographical areas and development sectors by 2013”

A project supported by CDKN has quantified the costs involved, allowing the GoN to highlight both within Government and beyond, that climate change is an economic and development issue of the highest priority.

The assessment process was carried out over two years in partnership with the GoN and an expert local-international team of  IDS-Nepal, Practical Action Consulting (PAC) Nepal, and the Global Climate Adaptation Partnership (GCAP). The project was led by a Government Steering Committee, chaired by the Ministry of Environment, Science and Technology and officials and experts from the line ministries.

Overall Approach:

The recent climate change literature on vulnerability, impacts and adaptation has adopted a new framework, highlighting the need to focus on early time periods and consider uncertainty. As such this study starts with current climate variability, and then assesses future climate change, taking account of uncertainty. It uses an iterative adaptive management framework, while recognising that an analysis of climate risks and adaptation responses needs to be assessed against the context of national development objectives and sectoral plans, and needs to consider socio-institutional issues as well as technical options. This leads to the analysis of impacts and adaptation responses as a dynamic and evolving process, requiring different types of activities over time.

It is not, however, possible to address all of these issues – across all time periods – using a single analytical method or model. A comprehensive coverage can be achieved by combining various lines of evidence and different methodological assessments. This study has broken the analysis into a series of building blocks (work-streams) that collate the following evidence base:

Work-stream 1 assesses the costs of current climate variability in Nepal in the agricultural, hydro- electricity and water-induced disaster sectors, using risk assessment methods. For adaptation, it focuses on addressing short-term climate variability by building capacity and “no and low regret” options (i.e. options which make economic sense whether or not future climate change occurs).

Work-stream 2 looks at the risks to current development policies over the short-medium term in Nepal (to 2030), building a current and future investment and financial flow analysis and estimating the potential costs of adaptation to mainstream resilience.

Work-stream 3 looks at the longer term impacts and economic costs of climate change in Nepal (i.e. for around 2050) using scenario-based impact assessment with climate projections and impact models. For adaptation, the focus has been on identifying the early actions required (in the short-term, i.e. the next decade) to plan for the longer-term challenges identified, taking into account the high uncertainty.

The information from these three work streams is brought together to assess the overall impact and economic cost of climate change in Nepal over time, and to develop an iterative adaptation pathway.

The study engaged and consulted with a wide range of stakeholders. The project reported to a Government Steering Committee, which met at key points during the study. This ensured enhanced capacity, joint ownership of the project outputs, and confirmed the integrity of the national context. Furthermore, a series of stakeholder events and workshops were held with a diverse group of stakeholders. These were complemented with technical working group meetings at key points during the project. All tasks were undertaken by local and international teams working together, and a series of training and information- sharing activities were held for local researchers and government officials. Finally, the project undertook a needs assessment in the Government of Nepal, and on the basis of this, designed and held a major 3-day training session with Government officials on the methodology and approaches for assessing the economic impacts of climate change, as well as to information on how this information can be used for adaptation strategies and wider planning.

Read the Inception Report and Implementation Plan  and introductory presentation to learn more about the methodology and approach taken.


The Economic Impact Assessment confirmed Nepal’s vulnerability to the effects of climate change. Current climate variability and extreme events are already causing major impacts and economic costs in Nepal, estimated to be equivalent to an annual cost of 1.5 to 2% of GDP.  Looking forward, the future economic costs of climate change in Nepal could be very large, equivalent to an additional 2 to 3% of current GDP/year by mid-century. Responding to these climate-related risks involves decision-making in a changing environment due to the uncertain effects of climate change.This study estimates the potential impacts and economic costs of climate change for three major risk areas – agriculture, hydroelectricity and water-induced disasters – and identifies climate compatible development options to address these.

Agriculture: the study on agriculture focuses on the three main crops grown in Nepal – maize, wheat and rice, using a crop model. The analysis found potentially high impacts in the Terai region, especially for rice and wheat production, but a varied pattern in the hills and mountains, including some potential benefits. By the 2070s, net agricultural losses in Nepal are estimated to be the equivalent per year of around 0.8% of current GDP, or US$140 million/year in current prices. The impacts were much more severe in years of extreme rainfall variability.

Hydroelectricity: the analysis of the future impacts linked a hydrological model to a power plant and energy system model in order to understand how climate change affects dry season flows and reservoir storage recharge, and thus future electricity generation and plant investment profiles. The analysis found that the future effects of climate change on the hydroelectricity sector are potentially large but uncertain, varying by climate projection, river catchment and over time. To consider uncertainty, two alternative climate models were used. One of these models projected a decrease in dry season flows, increasing the capacity needed from the system to meet demand by an additional 2,800 MW by 2050, which increased sector investment costs by US$2.6 billion from now to 2050 in present value.

Water-induced disasters: the analysis of the future impacts of climate change on water-induced disasters focused on the change in intensity and frequency of high flow events and associated floods.  The analysis found an increased risk of flood damage costs with climate change, including a higher risk of larger events. Overall, the direct annual economic costs of climate change on water-induced disasters at a national level were estimated to be an additional US$100–200 million/year or equivalent to 0.6–1.1% of current GDP per year by mid-century in current prices.

In response to these risks, the study developed an iterative adaptation pathway that starts with current climate variability and then considers future climate change and uncertainty. The study identified immediate options to address the current adaptation deficit, with a focus on ‘low and no regret’ options.

Many of these options are included in existing policies and programmes, or have been identified as priorities for early adaptation. A priority is to scale these up and address the barriers to wider implementation. The study identified that a major increase in investment is needed in the three areas assessed, estimated at US$2.4 billion by 2030 (present value). The next step is to build detailed sector investment plans to mainstream implementation.


The following knowledge products document these results in more detail:

Full Technical Report

Summary for Policy-Makers

Briefing note: English and Nepali

A video produced by the project team also highlights some of the key findings, and covers the launch in Kathmandu in April 2014.

The project team have shared some of the learning from the process in various blogs, including Prof. Govinda Nepal, Member, National Planning Commission, and CDKN’s Elizabeth Gogoi and Ram Chandra Khanal


CDKN funding: £350,000

Project Manager: Elizabeth Colebourn, CDKN Asia

Image courtesy of CCAFS Nepal @ flickr creative commons

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