Faaiqa Hartley

From climate risk to resilience: Unpacking the economic impacts of climate change in Kenya

Substantial model variability exists regarding the likely meteorological impact of climate change on Kenya, particularly with respect to future precipitation levels. Significant regional differences are expected, largely due to Kenya’s diverse climate profile. Overall, temperatures are projected to increase while future precipitation levels are highly uncertain. Climate change is expected to significantly affect coastal areas, including because of sea level rise risks, stronger winds, and an overall warmer and drier climate. This will likely harm important ecosystems, including wetlands, mangroves, and coral reefs. Some models project that arid and semi-arid areas may become drier and hotter, which would exacerbate preexisting water scarcity and agricultural challenges for the already vulnerable communities living there. That said, these projections are not corroborated by all models. The climate change impact on other areas, particularly south and west of Mount Kenya, could generally be positive, as it would provide even better conditions for agriculture. The key climate change risk for Kenya is from extreme events, in particular droughts and floods. The frequency and intensity of such events is likely to increase because of climate change. They also often lead to adverse knock-on effects, such as soil erosion, land degradation, and pest breakouts. Overall, Kenya’s updated Nationally Determined Contribution (NDC) (2020) estimates that between 2010 and 2020, adverse climate change-related events led to annual socioeconomic losses of 3–5 percent of total gross domestic product (GDP).

A climate change modelling framework for financial stress testing in Southern Africa

Central banks play a critical role in the economy, with policy levers that influence and are influenced by climate change. An important part of central bank interventions is conducting climate-related stress tests and scenario analysis to increase awareness in the financial sector of the effects of climate change, improve the integration of climate-related risks into financial companies’ decisions, identify important data gaps, and start building capacity to develop more advanced and accurate climate scenarios. These exercises, however, are a challenge to central banks and financial companies because of their complexity and the new data and tools required for scenario development and analysis. The development of scenarios for climate-related stress testing requires the integration of different model frameworks to assess the impacts of climate change, translate these impacts into macroeconomic scenarios, and evaluate the subsequent financial sector outcomes. This integration requires multidisciplinary skills such as the joint work of energy system modellers, climate scientists and macroprudential experts. This paper provides an overview of the modelling frameworks available for assessing climate change impacts in South Africa, covering both local and global models. This should assist financial institutions and regulators with developing partnerships to build scenarios and assess the impact of climate-related risks. Gaps in current models and modelling for financial stress testing are also identified as considerations for future research.

Climate change and the green transition in South Africa