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Risk management approaches to address adverse effects of climate change - Economic diversification
Economic diversification may be defined as a process in which a growing range of economic outputs are produced.

The role of economic diversification in climate change adaptation
Sectors such as  tourism, agriculture, fisheries, forestry and energy production are all sensitive to the adverse effects of climate change.  The negative impacts of climate change on these sectors are of concern to all countries, especially for those whose economies are primarily driven by climate sensitive sectors.  In this context it is imperative for all countries to diversify their economies either by expanding climate sensitive sectors or by promoting adaptation measures that increase resilience within the sector.  Economic diversification is also a key component of sustainable development as it will assist countries in reducing poverty and generate employment in the long run.

Sectors vulnerable to climate change
economic diversificationEconomic diversification strategies have been employed in a wide range of sectors, with particular emphasis on those sectors many developing countries traditionally rely on as a main source of income.  This section sketches some of the possible approaches to economic diversification in three sectors:

  • Tourism: tourism is critical in fostering further economic growth in developing countries, generating a large share of worldwide employment with particular significance in Small Island Developing States.  Climate change impacts threaten to undercut reveneus generated through tourism.
  • Agriculture: agriculture will be impacted by climate change in all countries.  However, those countries with a low level of economic diversification and a comparatively strong reliance on agricultural products and exports will be most severely impacted.
  • Energy: energy production will also be impacted by climate change.  Expanding the portofolio of energy production forms, such as increasing hydro or water production, is one of the options described below to increase resilience.

A. Tourism

Tourism is seen worldwide, particularly in developing countries as a vehicle to generate employment as well as foster economic growth.  Worldwide, the sector employs over 200 million people, approximately 8 % of global employment. 
SIDS are highly dependent on the revenues generated by the tourism sector and tourism related activities.  However the sector is highly sensitive to the adverse impacts of climate change and global warming.  Such climatic impacts on the sector include increased temperatures, precipitation changes, biodiversity loss, sea level rise, disease, changes in travel costs and destination choice, economic impacts, coastal erosion, and the intensification and frequency of weather related extreme events. 
Given the importance of the tourism sector to address poverty reduction  and foster economic growth in many SIDS, there is an urgent need to adopt social, economic and climate responsive policies that will encourage sustainable tourism.  Such adaptation measures include diversifying a tourism portfolio of a country in order to increase their adaptive capacity to the anticipated changes in the climate. Other measures are targeted at restoring tourism driven products, such as coral reefs, fishing, beach nourishment and mangroves.  The case study of Belize is presented below highlighting efforts taken by the government of Belize to respond to the adverse effects of climate change within the sector.  

Tourism diversification in Belize
Stakeholder engagement: Ministry of tourism, business owners and managers.
Background: Belize economy is highly driven by tourism. The sector generates approximately 17% of its GDP and indirectly supports other sectors from inter-industry trade.  However the sector is extremely vulnerable to the adverse effects of climate change.   The threat of rising sea levels, increased temperatures, tropical storms and hurricanes, coral bleaching and over fishing, all of which are associated with climate change, have affected large number of people visiting the country as well as the tourism employed population within Belize.  These findings are supported by a survey conducted in 2006 by the Ministry of tourism which assessed the vulnerability of climate change on the tourism sector as well as examined adaptation strategies to revive the products that drive tourism within the country.
Progress made and still on going: As of 2005, the government of Belize has been targeting policies that focuses on reducing the exposure of the tourism sector to the impacts of climate change.  Such measures include the construction of sea walls to stem coastal erosion, mangrove rehabilitation, beach nourishment and greater emphasis towards disaster preparedness planning.   Efforts will also be taken to preserve coral reefs, reduce agricultural pollution and place fishing quotas off the coast of Belize.
The government of Belize is preparing to modify marketing strategies to promote inland attractions for tourists in order to further diversify the tourism portfolio.  These strategies include the promotion of Mayan archaeological sites, limestone caves and tropical rainforests.  Greater emphasis will also be made on raising public awareness of the vulnerability to climate change as well as the impacts of climate change on the business plans and strategies.
Lessons learned: Tourism is a key sector in driving the economy of Belize.  However, it is extremely vulnerable to the adverse affects of climate change.  To date the government of Belize has initiated several adaptation activities to respond to the growing threat and recover tourism dependant products and the tourism employed sector. However, high levels of public debt that has consumed greater portions of the national economy and limited access to capital have constrained the capacity of the country to support and initiate costly and sustainable adaptation measures to revive the tourism sector.

B. Agriculture

The adverse affects of climate change on agriculture have become a major concern for all countries.  The length of the growing season and the type of crop grown are both affected by changes in temperatures.  Climate change will also modify the availability of water, which will have a profound effect on agricultural productivity.  Poorer countries with predominantly rural economies and low levels of agricultural diversification will be at most risk.
Adaptive approaches to minimize the adverse effects of climate change on agriculture, include initiating reforestation and afforestation activities, improving irrigation efficiency, conserving soil moisture through appropriate tillage methods.
Another adaptation strategy taken by farmers is crop diversification that has proven to be one of the most popular farm level responses to climate variability and change.  Several countries have successfully made efforts to initiate crop diversification activities.  These include: Mozambique , India , Sri Lanka  and Canada .  The case study of Kenya is presented below.

Crop diversification in Kenya
Stakeholder engagement:  The government of Kenya, farmers, Global Environmental Facility (GEF) and the World Bank.
Background:  The Kenyan economy is highly dependant on agriculture, it is one of the country’s main economic activity.  Between 1996-2000 agriculture contributed 24.5% of the total Gross Domestic Product (GDP), and accounts for approximately 70% of the country’s export earnings.  Maize is Kenya’s most stable crop, however coffee, tea, and sugar cane are also grown and sold commercially.  The agricultural sector however, is extremely vulnerable to the adverse effects and impacts posed by climate change, especially during the summer season.  A reduction in water availability triggered by higher temperatures during the summer months (March - May) have greatly reduced crop yield and as a result reduced net crop revenue, leaving the Kenyan economy vulnerable.
Progress made and still ongoing:  The growing threat of the adverse impacts of climate change on the agricultural sector has prompted the government of Kenya to initiate economic diversification adaptation strategies at both national level and micro level.  Such initiatives taken by the government to promote crop diversification at a national level include the removal of agricultural subsidies, encouraging land use zoning and introducing differential land tax systems for promoting crop diversification. At a local level, farmers are encouraged to diversify their crop portfolio to increase their adaptive capacity to climate change.
A survey was carried out in 2006 by the World Bank/GEF and interviewed 800 farmers from different climatic farming zones in Kenya.  The study focused on the potential impacts of climate variability and climate change on farmer households and agricultural  production.  The purpose of the survey was to also identify micro-level adaptation strategies adopted by farmers to significantly reduce the vulnerability of the sector and their associated livelihoods to the anticipated future impacts of climate change.  Such strategies included the diversification and intensification of crop production, changes in land use and well as altering the timing of operations that were adopted to address the long-term climatic variations such as increased temperatures and a moisture reduction.  The most popular adaptation measure adopted by farmers was crop diversification, which was adopted by 37% of the households, followed by tree planting 16%.
Lessons learnt:  Kenya has an agriculture driven economy.  However, the sector and the country’s economy is highly sensitive to the adverse affects of climate change. In the last decade the government has been playing a critical role in initiating and encouraging polices targeted at farmers to diversify their crops to adapt to the anticipated effects of climate change. According to a GEF/ World Bank study in 2006 the main constraints for the farmers to the government policies has been lack of information about short-term climatic variations, lack of knowledge of appropriate adaptations, lack of credit or savings or lack of appropriate seeds.

C. Energy

The energy sector is highly sensitive to the adverse effects of climate change. Climate change is expected to affect both the supply of and demand for energy production.  Energy diversification can be seen as an adaptation measure to increase resilience within the energy sector in responding to the anticipated impacts of climate change.  One approach would be to further expand the portfolio of energy sector (adopting new forms of energy production such as solar, wind and hydro power).
Solar power is one of the attractive options for energy diversification because one billion people currently reside in areas suitable for its utilization.  Concentrating solar power plants (CSP systems) has proved to be cheaper than photovoltaic technology, and fossil fuel back-up or heat storage guarantees sustain power.  New technological concepts, such as the integrated solar combined cycle, direct steam generation and molten salts for heat storage and continuous power production, are in place already.  Wind energy is already a major energy resource in some countries like Morocco, Egypt and Oman.  Geothermal power is available in Turkey, the Islamic Republic of Iran, Saudi Arabia and Yemen.  There is a huge potential for harnessing energy from water and biomass resources in Egypt, Iraq, the Islamic Republic of Iran, and Turkey.
Climate change could also affect the supply of and demand for energy produced from renewable sources of energy, as was highlighted in Albania’s first national communication to the United Nations.  Approximately 80% of Albania’s energy is generated by hydropower.  However, this form of renewable energy is extremely vulnerable to the anticipated decrease in precipitation rates associated with future climate projections.  The World Bank together with the Albanian government conducted a workshop in 2009 in Tirana.  The purpose of the workshop was to understand the potential risks and management of the adverse effect of climate change on the energy sector.

Related UNFCCC events
Report on the technical workshop on increasing economic resilience to climate change and reducing reliance on vulnerable economic sectors, including through economic diversification. Note by the secretariat. FCCC/SBSTA/2009/7