SEVENTH FRAMEWORK PROGRAMME
THEME [6]
[ENV.2008.4.2.3.1. Rethinking globalisation in the light of sustainable development]
Contract No. FP7‐ENV‐2008‐1 (227055)
GLOBIS Globalisation Informed by Sustainable
Development
Deliverable No: DXXX and DXXX Title: Report on COST Action Network workshop: the Economics of Environmental Migration Work package: XXX and XXX Author(s): Chad S. Boda, GLOBIS Project Assistant Date: 13 November 2012
Economics of Environmental Migration
2
Report on the COST Action Network workshop on the
Economics of Environmental Migration held 1 October
2012 in Paris, France
A report for the GLOBIS Project
Chad S. Boda
Economics of Environmental Migration
3
Contents Introduction: The Economics of Environmental Migration......................................................................... 4
The COST Action Network: ....................................................................................................................... 4
Session 1: What Needs to Be Done? ........................................................................................................... 6
1.1 Policy challenges and priorities ......................................................................................................... 6
1.2 Where is funding needed? ................................................................................................................. 7
1.3 A Perspective from the South: .......................................................................................................... 9
Session 2: Assessing the costs, sharing the burdens .................................................................................. 11
2.1 The Cost Assessment Model: .......................................................................................................... 11
2.2 Burden-sharing for migration policies: Lessons from asylum and refugee policies ........................ 12
2.3 Environmentally- induced migration: EU development funding ..................................................... 13
Session 3: Adaptation and Development................................................................................................... 15
3.1 The Green Climate Fund and Article 14f: ....................................................................................... 15
3.2 Migration, Remittances and resilience: A review of the evidence ................................................... 16
Session 4: Innovative Mechanisms ........................................................................................................... 17
4.1 Catastrophe Bonds and Modeling- Insurance modeling and mechanisms: ...................................... 17
4.1.1 Insurance Modeling:................................................................................................................. 17
4.1.2 Insurance mechanism: .............................................................................................................. 18
4.2 Derivative products and Climate Change ........................................................................................ 18
Conclusions: ............................................................................................................................................. 20
References: ............................................................................................................................................... 21
Appendices: .............................................................................................................................................. 23
Economics of Environmental Migration
4
Introduction: The Economics of Environmental Migration
Though there exists a vivid and important discussion regarding the governance of environmental migration, including its legal and normative aspects, little attention has
been paid to the issue of costs and finance, save, for example, the Asian Development
Bank which briefly discusses funding issues of climate-induced migration in its recent report on Addressing Climate Change and Migration in Asia and the Pacific (Asian
Development Bank, 2012, pgs 60-70). In light of Article 14f of the UNFCCC Cancun
Framework on Adaptation, which articulates the need for increased focus on “measures to enhance understanding, coordination and cooperation with regard to
climate change induced displacement, migration and planned relocation, where appropriate, at the national, regional and international levels” (UNFCCC, 2011, pg. 5)
(discussed in section 3.1), the need to develop a better understanding of the financial
aspects of environmentally induced migration is apparent.
On October 1, 2012, the IDDRI (IDDRI, 2012) SciencesPo in Paris, France, hosted
what was perhaps the first ever workshop focused primarily on the economics of environmental migration. The workshop aimed to address such pressing questions as:
How much would sensible planning and protection for environmental migration cost?
How could it be funded? Which policies would require funding? The workshop was initiated under the European Cooperation in Science and Technology (COST, 2012)
Action IS1101: Climate change and migration: knowledge, law and policy, and
theory, and gathered scholars, policy makers, and representatives from the private sector into a constructive discussion about the various economic aspects of
environment-induced human migration. This premier workshop was meant to foster knowledge on the economics of environmental migration as a first stepping stone for
the eventual creation of a Working Group on the issue.
The following report begins by briefly outlining the purpose and primary objectives of the COST network which initiated this (as well as other) migration focused
workshop(s). Next, it offers an overview of the primary topics, and specific cases, covered by the various presenters at the full day workshop (for the full agenda, see
appendix 1). The report also offers the main points of dialogue, as well as some
conclusions and recommendations, which emerged as a result of the presentations and subsequent discussions that took place at the workshop.
The COST Action Network:
European Cooperation in Science and Technology (COST) is “an intergovernmental European framework for international co-operation between nationally funded
research activities. It is the oldest European networking system in research,
Economics of Environmental Migration
5
established in 1971” (CEU, 2012). The network consists of 35 Member Countries and
one cooperating state (appendix 2). COST does not fund research itself; rather, it connects research teams in different countries working on specific topics, supporting
various activities including networking, conferences, short-term scientific exchanges and publications (ibid). The coordination activities are supported by the European
Union RTD Framework Program, the European Science Foundation, and the Council
of the European Union. Key features of the COST mission statement include (COST, 2012):
1. building capacity by connecting high-quality scientific communities throughout
Europe and worldwide; 2. providing networking opportunities for early career investigators;
3. increasing the impact of research on policy makers, regulatory bodies and national decision makers as well as the private sector.
The COST projects are referred to as “Actions”, and Action IS1101: Climate change
and migration: knowledge, law and policy, and theory, focuses primarily on environmental migration. Action IS1101 has five objectives:
to enhance and improve understanding of climate change and migration;
to furnish state and non-state actors with state-of-the-art empirical, theoretical,
legal and policy research on climate change and migration;
to inform national and international policy dialogue, such as the IPCC and
other policy initiatives;
to expand research capacity in the area of climate change and migration;
to establish a network of Europe-based social science researchers working on climate change and migration.
The expected beneficiaries of Action IS1101 include, for example, states (specifically those of the EU), NGOs, and IGOs (e.g. UNFCCC, IPCC, UNDP), and, through the
work of these beneficiaries, the individuals and communities most vulnerable to
Climate Change (COST, 2012). The following sections, derived directly from the presentations and discussion which took place at the COST workshop on October 1,
2012, in Paris, France, offer an over-view of the challenges and opportunities regarding the economics of the environment-migration nexus.
Economics of Environmental Migration
6
Session 1: What Needs to Be Done?
1.1 Policy challenges and priorities
Original presentation by: Francois Gemenne (IDDRI – SciencesPo)
The COST network (see above) is organized into numerous “Actions” which help
focus and guide its research coordination and cooperation agenda. Action IS1101, Climate Change and Migration, focuses primarily on three elements of the climate
change-migration nexus, namely knowledge, law and policy, and theory. Though
migration has become a relatively “hot topic”, there is “a striking lack of the economic issue” being discussed in academic and non-academic circles. Addressing
issues of costs and benefits related to environmental migration is essential if policies
and plans are to be developed and implemented that equitably distribute costs and benefits for both migration sending and receiving countries and their affected
communities.
Generally speaking, there are two broad categories of the economics of environmental
migration: assistance in times of crisis and facilitation before crisis. Within these
broad categories are many unanswered questions; for example, do people choose to migrate because they fail to adapt to a changing environment, or in order to adapt to
such changes? Answers to such fundamental questions are crucial for developing effective migration policies and funding mechanisms. However, currently those
working on the economics of migration/adaptation do not effectively communicate
with one another, leaving knowledge gaps which the COST workshop on the economics of migration seeks to address; for example, between academia, policy
makers, the banking sector, insurance sector, etc. With better communication comes
better understanding, which can benefit all levels of decision making and ultimately provide greater benefits to the migrants themselves. Both Japan’s Fukushima Daiichi
nuclear power plant emergency in March of 2011, and the aftermath of Hurricane Katrina in New Orleans, Louisiana, U.S.A in 2005, offer sobering examples of the
consequences of a lack of understanding and preparation regarding the costs of mass
migration in times of crisis and underscore its urgency.
Several aspects of migration that have been historically considered could potentially
take on new roles in the light of environmentally-induced migration; for example, in
the past, remittances from migration have been viewed as a development tool, but
their role in adaptation is unclear and in need of further understanding. Likewise,
various forms of insurance undoubtedly have an important role to play, but that role is
still in need of identification. Banking and credit systems are also seen as having an
Economics of Environmental Migration
7
important role to play, specifically regarding their influence on those individuals and
communities, often the poorest and most vulnerable, that cannot migrate in times of
crisis and whom need to be a major focal point of environmental migration research
and policy.
The COST workshop intends to address and contribute to policy development that
helps migrants, both before and after migration, by specifically addressing questions
of the cost of developing and implementing a sustainable migration policy in
particular regions and states. Some dimensions considered in this workshop include
urban planning, social benefits, insurance mechanisms, and migration facilitation to
name a few. The following sections offer summaries of the various topical
presentations offered at the COST workshop on the economics of environmental
migration, including the constructive discussions and debates that emerged as a result
of these topics.
1.2 Where is funding needed?
Original presentation by: Dina Ionesco (International Organization for Migration)
The International Organization for Migration (IOM) has, since 1951, been committed
to contributing to migration knowledge and policy, holding the belief that orderly and
humane migration benefits both migrants and society (IOM, 2012a). From an IOM
perspective, where is funding needed when it comes to environmental migration? In
short, funding is needed everywhere, but there are priorities and funding gaps to be
identified. Though it remains clear that some funding is available, identifying what
and where this funding can be acquired is of immediate importance. For starters, the
framing and understanding of climate migration has a direct impact on funding
provisions and policy development. For example, when we talk of environmental
migration, it is implicit that the environment is in some way driving migration, but
this occurs both internally within states and internationally between states. These two
scenarios require different funding and policy instruments to deal with the potential
costs and benefits of the sending and receiving communities and states. The same
applies for issues of forced versus voluntary migration, or long term versus short term
migration.
Economics of Environmental Migration
8
There are several policy areas of migration which have differing funding needs, gaps,
and include migration to varying degrees. These include:
Emergency and Humanitarian Policy-
o This includes the assistance and protection of people in an immediate
response to crisis. Increased funding is needed in this area, as huge (and
increasing) numbers of people are displaced by environmental events
ever year (for example in 2010 and 2011). The funding availability needs
to include, but move beyond, health, shelter, protection, logistics, early
recovery, etc., which all have very specific funding needs. Long term
funding is the primary issue regarding this policy area.
Disaster Risk Reduction and Integrating Human Mobility-
o This includes efforts to reduce the exposure to hazards and decrease
vulnerability. Funding for Disaster Risk Reduction (DRD) exists already,
but the integration of human mobility is lacking. There are specific
funding needs regarding various DRR components, e.g. early warning
systems, which need to be addressed.
Migration and Adaptation-
o This includes considering migration as part of the solution and helping to
facilitate migration, e.g. via bi-lateral agreements, both internally and
internationally. Some funding mechanisms do exist in this area; for
example, the Global Environment Facility. However, none of the
existing adaptation funds provide funding to activities with a migration
dimension. National level adaptation plans are also a key challenge for
funding, specifically regarding the loss and damage aspects of migration.
In this regard, the private sector (e.g. insurance providers) may play a
key role.
Migration and Development-
o This includes long-term development strategy planning. Factoring
migration into development planning (e.g. via development aid funding,
remittances, labor migration, etc) is a key component of such plans, but
they generally do not include environmental migration specifically.
Economics of Environmental Migration
9
Environmental Migration and Security-
o This includes the protection of human rights, crisis and conflict
prevention, stability instruments, policies for internally displaced people,
etc. However, making the link to environment is difficult and acts as a
constraint to securing funding.
Migration is cross-cutting, particularly the long-term management of forced and
facilitated migration. Though these five abovementioned areas exist, and there is
funding available, funding is primarily needed to bring these various areas together.
For the IOM, the primary objective is the management of environmental migration;
for example, by preventing forced migration, providing assistance and protection to
affected populations, creating durable solutions, and facilitating migration as an
adaptation strategy. As a means to this end, there is a need for comprehensive funding
mechanisms, not solely single topic funds.
The IOM’s own development fund, which began in 2001, is on track to acquire 10
million USD by 2013, primarily to facilitate capacity building in migration
management and to develop a handbook on integrating migration into adaptation
strategies and planning (IOM, 2012b). There was also an IOM migration emergency
funding mechanism established in 2011 which seeks to raise 30 million USD over
time to better facilitate orderly and humane migration in times of crisis.
1.3 A Perspective from the South:
Original presentation by: Rathana peou van den Heuvel (ULAB/ BCAS, Dhaka,
Bangladesh)
What does the economics of environmental migration look like from a “Global South”
perspective? To start, it appears that there is a serious lack of empirical data from
which to draw conclusions regarding environmental migration. Specifically, not
enough is known to effectively identify who are environmental migrants and who are
not, how environmental migrants affect different areas, and so on. As a result, there is
a risk of migration researchers and policy makers falling victim to “environmental
determinist” models, rather than relying on empirical evidence and understanding.
Currently, migration researchers and policy makers do not have “knowledge”, per se,
Economics of Environmental Migration
10
but rely heavily on discourses, assumptions, etc., to inform their understanding of the
phenomenon of environmental migration.
There is a need for more qualitative research, as well as evidence based policy
recommendations, which consider and incorporate what migrants themselves are
thinking. Furthermore, due to the aforementioned constraints, it may be impossible to
determine the current number of people displaced or forced to migrate because of the
effects of the changing climate. To facilitate better understanding, it has been
suggested that Asia be a focal point for future research, primarily because Asia is
projected to be among the most heavily impacted continents by climate change.
There is serious complexity involved in migration, specifically related to the
individual migrants themselves. Migrants can be categorized as being seasonal or
permanent, internal or international, etc. and the characteristics of climate induced
migrants can differ greatly, including the decision making processes of migrant
families and communities (e.g. the influence of money versus social capital). There is
also a misconception that the poor are the most likely to move and that migration is a
“failure of adaptation”; rather, it seems that the extreme poor migrate less and, once
having migrated, are less likely to return to their place of origin. Due to such
complexities and misconceptions, there is a need for improved indicators to judge the
reasons and quantities of flows of environmentally-induced migration (and other
causes).
To conclude, there are several importance aspects to be considered when conducting
environmental migration research and policy making. The categorization of
environmentally-induced migrants is significant, as it influences how migrants are
viewed by both sending and receiving communities and affects the direction and
quantity of possible funding. Also, there is a need to re-place internal migration within
the phenomenon of international labor migration, and understand the conflicts and
synergies of these different coping strategies. Furthermore, the framing of remittance
mechanisms as a climate change adaptation strategy should be critically assessed and
further research undertaken to facilitate better understanding of such a strategy.
Analysis of various intervention strategies and how environment-induced (e.g.
climate) migrants are included in poverty alleviation programs are also in need of
consideration and better understanding. Finally, evaluation of the impacts of micro-
finance institutions on the resilience and adaptive capacity of environment-induced
Economics of Environmental Migration
11
migrating individuals and communities are of significant importance and should be
considered in future environmental migrant research and policy making.
Session 2: Assessing the costs, sharing the burdens
2.1 The Cost Assessment Model:
Original presentation by: Jonathan Hill (Fount Ltd)
When it comes to dealing with current and potential future environmental migration,
serious questions regarding the quantification and distribution of costs and burdens
are in need of attention. From a business/banking perspective, the potential costs of
environmental migration can and should be quantified; but how? To start, there are 4
basic categories of costs associated with migration:
Money for goods and services: including relief efforts, transportation, data
collection/research, advocacy, etc
Economic losses: including opportunity costs, lost productivity, abandoned
property/real estate, etc
Social, cultural, and personal mental illness: including loss of
culture/language, separating families, etc
Risk and uncertainty: including the future projection of uncertain events,
uncertain timing, etc
From a banking perspective, it is important to model risk and uncertainty as a cost in
order to quantify the full potential costs of environmental migration and make
decisions, investments, and policies accordingly. Insurance mechanisms have largely
been used in various areas to account for the costs of uncertainty, with individuals or
families paying a set price to protect themselves from uncertain risks to their private
capital. In this regard, it is important to understand the insurance interface,
particularly in the context of environmental migration itself.
Another significant aspect of assessing the costs of environmental migration is
accurate modeling of refugee costs. Generally, assessing the costs of environmental
refugees follows the simple equation:
Economics of Environmental Migration
12
total cost = accommodation expenses + administrative costs + lost productivity
Cost modeling is generally done by looking primarily at historic data, as future
projections can be very difficult to accurately produce. In the above equation, the cost
of lost productivity is often considered the major factor, not the cost of
accommodation of refugees, as it can have significant implications for the sending
communities who have been drained of their productive capacity, as well as the loss
of productive contribution to national and global markets. Importantly, when making
such calculations, there is a serious need for high quality data which benefits
numerous factors of the cost modeling process and outcomes. High quality data
largely relies on adequate funding for collection and analysis. In addition, it is widely
recognized that funding is important to the protection of Human Rights; without
funding, it becomes increasingly difficult to enable people to make decisions that
improve their condition. Thus, accurate cost modeling is imperative for the protection
and realization of human rights in the context of environmental migration.
Finally, there is a need to revisit the current system of quantifying migration costs.
First, migration is not always primarily a cost, as is the case with lost productivity,
which should be taken into consideration in modeling exercises. Also, the cost of
inaction, so far largely neglected, should be considered when modeling the costs of
various migration scenarios. Furthermore, the relationship between various adaptation
costs and the costs of environmental migration is not well understood and is in need of
more research. Lastly, the predicted impacts of various environmental migration cost
scenarios on policy and development considerations in both the receiving and sending
countries should always be a significant part of the decision making process.
2.2 Burden-sharing for migration policies: Lessons from asylum and
refugee policies
Original presentation by: Eiko Thielemann (London School of Economics)
In discussions concerned with the burdens associated with migration in various
countries, states tend to over-estimate the perceived burden load in hopes of
increasing their financial “piece of the pie”. These discussions are also typically
focused on the host (receiving) countries and not the origin (sending) countries.
Economics of Environmental Migration
13
Further questions have been raised regarding whether the focus should be on absolute
or relative costs/burdens of migration. There are significant differences in the absolute
number and relative number of asylum seeking applicants between countries, which
have implications for the cost distribution/burden sharing of host countries. However,
in the light of such burden-sharing debates, there is growing concern about the
extreme difficulty of assessing the costs/burdens of migration, and more so that such
efforts may be futile.
Regardless of existing concerns, several approaches to burden sharing are currently
utilized; these include regulatory harmonization (e.g. sharing policies), financial
compensation (e.g. sharing money), and relocation (e.g. sharing people). There are
also a variety of burden sharing mechanisms. Such mechanisms are distinguished by
their distributional rules (e.g. hard or soft) and their dimensionality (e.g. single or
multi-dimensional). Some examples of such mechanisms include binding rules (hard
rules with a single dimension), explicit compensation (hard rules with multiple
dimensions), voluntary pledging (soft rules with one dimension), and implicit trades
(soft rules with multiple dimensions).
Additionally, these burden sharing mechanisms each have pros and cons; for example,
hard and multi-dimensional burden sharing mechanisms can have greater
effectiveness, but each raise concerns over issues with non-voluntary relocation, how
to incentivize likely “losers” in migration exchanges, whether financial compensation
is sufficient, and the possibility of commodifying forced migration. Such concerns, as
well as other problems related to collective action, make it much more difficult to
organize and implement an international response to migration of all sorts, particularly
environmentally induced migration.
2.3 Environmentally- induced migration: EU development funding
Original presentation by: Markus Sperl (EU, DG, DEVCO)
When it comes to transnational level policy regarding environmentally induced
migration, the European Union (EU) does not indicate a clear position. However,
currently the European Commission is preparing a “future staff working paper on
climate change and migration” to better incorporate environmental migration into its
Economics of Environmental Migration
14
policy framework. In addition, the EC “Agenda for Change” (European Commission,
2011b), a document focused on increasing the impact of EU development policy,
includes climate change adaptation and the need to strengthen community resilience.
There have also been calls for the EU to promote regional labor mobility in the Global
South and to seek to maximize the development impact of increased migration.
So far, the EU’s global approach to migration and mobility has been focused around 4
pillars: legal migration, irregular migration, migration and development, and
international protection. It also stresses what it calls “aid effectiveness principles”
including clear ownership (e.g. for partner countries), efficient payment (e.g. from
donors to partner countries), strategy harmonization (e.g. between donors),
management focused on results, and mutual accountability (e.g. between donors and
partner countries). The EU also utilizes key geographical and thematic development
instruments; for example, European instruments for democracy and human rights.
More than half of the EU development instruments are geographic, for example, the
instrument for pre-accession assistance (IPA) (European Union, 2012a), European
neighborhood policy instrument (ENPI) (European Commission, 2011a), European
development fund (EDF) (European Union, 2007a), development cooperation
instrument (DCI) (European Commission, 2012a). However, such geographic
instruments are accompanied by a lengthy process of dialogue, assessment, project
development, etc. Though thematic instruments have tended to become less over time,
so far they have been largely centered on investments in people, migration and
asylum, environment and natural resources, food security, non-state actors and local
authorities.
The EC has developed a thematic fund called the Global Climate Change Alliance
(GCCA) (European Union, 2007b) which could be a possible source of environmental
migration funds in the future (see, for example, the Bangladesh Climate Resilience
Fund 2011-2015; GPRB, n.d.). The EC has also developed the Thematic Program on
Migration and Asylum (European Commission, 2012d) with the objective of
supporting third world countries in their efforts to better manage migration flows. One
example project from this thematic program is the Temporary and Circular Labor
Migration Project (International Organization for Migration, 2009). Other relevant
funds include the EC humanitarian funding through ECHO (European Commission,
2012c), Directorates-General home affairs, the 7th framework (FP7) program for
Economics of Environmental Migration
15
research (European Commission, 2012b), and the Instrument for Stability (IfS)
(European Union, 2012b). With these examples in mind, it is clear that several EU
funding sources exist, but there is a need for explicit targeting of funds, particularly
regarding environmental migration. Also, the EU is taking many relevant actions, but
the need to prioritize climate change and migration within and between EU countries
is of growing importance.
Session 3: Adaptation and Development
3.1 The Green Climate Fund and Article 14f:
Original presentation by: Koko Warner (UNU-EHS)
There are many unanswered questions regarding population movement in the context
of climate change; in this respect, Article 14f of the Cancun Adaptation Framework
(as discussed in the Introduction) was significant in numerous ways. First, it
established migration in the context of climate change as a phenomenon to be
managed. It also represented a paradigm shift by acknowledging that adaptation may
require societal transformation over the long-term. Furthermore, the article helped
legitimize the need for funding regarding climate induced migration and discussed
various policy options (e.g. adaptation committees, green climate fund, national
adaptation planning processes, loss and damage, etc). It has also been recognized that
the implementation of the principles of article 14f is important for development
cooperation.
In connection with the green climate fund and article 14f, there is a matrix of possible
activities related to climate change and migration, comprised of three categories: 1)
the level of action (e.g. international, regional, national); 2) the type of action (e.g.
enhancing understanding, coordination, and cooperation), 3) the type of human
mobility (e.g. climate induced displacement, migration, planned relocation). Also,
there were several adaptation relevant institutions that emerged from COP 16 in
Cancun related to the Cancun adaption framework (e.g. national adaptation planning)
and finances (e.g. Adaptation Committee Green Climate Fund). In light of these
advances, in the future there is a need to further enhance understanding (e.g. via
specific research), coordination (e.g. via policy coherence and guiding principle), and
cooperation (e.g. via focusing on function, addressing specific common concerns, and
Economics of Environmental Migration
16
funding pilot projects and reporting back) regarding strategies for climate change
adaptation, migration, and development.
3.2 Migration, Remittances and resilience: A review of the evidence
Original presentation by: Flore Gubert (IRD, DIAL)
With increasing attention being given to climate change induced migration, there are
many questions regarding the role of migration as an adaptation strategy; however,
environmental migration more broadly is not necessarily a new phenomenon (e.g. pre-
historical, pre-colonial, etc). Migration in the context of environmental change is not
totally voluntary or totally forced and isolating the specific climate stimulus for
migration is difficult. Still, the ability to migrate can enhance the capacity of
individuals and communities to adapt to a changing environment. One of the most
significant aspects of the economics of migration is the important role played by
remittances. These roles are generally discussed in the context of two broad
categories: ex post “private insurance” or ex ante “risk preparedness”.
Remittances, as ex post private insurance, can act as a safety net for receiving
individuals/communities and amounts to twice the volume of official development
assistance, with financial flows typically increasing after natural disasters (see Yang,
2008). Generally speaking, such remittance flows, in combination with formal aid,
can help cover most of the costs associated with natural disasters (see Clarke and
Wallsten, 2003; Yang, 2007; Gubert, 2002). Such evidence suggest that remittances
can be efficient insurance mechanisms; however, such mechanisms are vulnerable to
disruption during disasters and increasing remittances in emergencies is not always
possible as a disaster may make it necessary for remitters to come home and assist in
the post-disaster relief efforts. Such aspects of migration remittances have important
implications for action in disaster risk reduction (see Savage and Harvey, 2007).
Remittances, as ex ante risk preparedness, can substantially reduce the loss of human
life and vulnerability associated with natural disasters (see Mohapatra et al, 2010).
Such ex ante remittances may have important benefits, such as influencing financial
investments, increase community access to information, increasing human capital,
among others (see Deshingkar, 2012; Hecht and Saatchi, 2007). However, both the ex
Economics of Environmental Migration
17
ante and ex post roles played by migrant remittances, there are limitations to be
considered. First, the effectiveness of remittance-based insurance is highly dependent
on how agents perceive actual risks, as well as expectations of the likelihood of
assistance in post-disaster periods. Also, there is the threat that, if migrants leave with
scarce skills/human capital, migration may actually reduce the developmental impact
of remittances.
Over-all, migration and remittances as an insurance mechanism is neglected in the
economic literature even though its role is crucial, especially for those who do not or
cannot move during times of crisis. Proper interventions are needed to increase the
efficiency of remittances and should be further developed to this end.
Session 4: Innovative Mechanisms
4.1 Catastrophe Bonds and Modeling- Insurance modeling and
mechanisms:
Original presentation by: Mathieu Choux- (AXA Group: Risk Management)
4.1.1 Insurance Modeling:
In recent years, there has been an increasing curiosity in the role various innovative
mechanisms can play regarding the economics of environmental migration; for
example, the modeling of natural catastrophes and insurance. Catastrophe (CAT)
modeling is of growing interest largely due to an increase in losses and volatility
regarding natural disasters around the globe. This is largely associated with drivers
like demographic growth and increases in exposure of affected communities.
Interestingly, insurance penetration has also increased and it is becoming widely
accepted that the Climate Change signal can no longer be excluded from an insurance
modeling perspective.
When modeling catastrophe losses, it is important to recognize the limitations of the
historical based approach traditionally taken by actuarial modelers. The application of
such historical based models to natural events suffers from central limitations such as
sparse observations, characteristics of non-stationary hazards, and the likely under-
estimation of extremes which can lead to unreliable projections of environmental risk.
Economics of Environmental Migration
18
A solution to this issue may come from an exposure based approach to catastrophe
modeling. In the exposure based approach, catastrophes are broken into 3 categories
for insurance modeling: the Hazard Module, the Vulnerability Module, and the
Financial Module, which supposedly can help account for some of the limiting factors
associated with historical based approaches. Complementarily, academic climate
models are increasingly used in insurance risk models, for example, to better estimate
the impacts of future climate on weather extremes.
4.1.2 Insurance mechanism:
In the world of insurance mechanisms, there is a need for alternatives to traditional
reinsurance, which has proven problematic in the past. Suggested alternatives have
come from capital market based mechanisms, for example catastrophe bonds. These
bonds are comprised of several features, namely the ceding company, a collateral
solution, a special purpose vehicle, and investors, and are primarily used to alleviate
some of the risk faced by insurance companies regarding the possibility of major
catastrophes that cause damage that exceeded the premiums paid by insurance policy
holders. Another example comes from catastrophe derivatives, which are instruments
that transfer the risk of exposure synthetically (discussed in section 4.2 below). The
utilization of catastrophe bonds is growing, largely due to the desirable properties of
such an insurance mechanism, i.e. higher return on investment, lower volatility, and
the diversification of asset classes. They are also not connected to other financial
risks, so they work well to diversity investment portfolios
4.2 Derivative products and Climate Change
Original presentation by: B. Bauduin (Derivative products practitioners – Investment
Banking)
Other innovative funding mechanisms that may play a role in funding/insuring
environmentally induced migration are derivative products. Two key financial
concepts related to derivative products are derivative instruments, which relates to the
contract between two parties which specifies conditions under which payments are to
be made between the parties, and a hedge, which is an investment position intended to
offset potential losses that may be incurred by a companion investment. Though these
derivative products are common-place in protecting financial investments in highly
Economics of Environmental Migration
19
developed countries (e.g. the U.S.A.), their role in funding/insuring against
environment related catastrophe (e.g. via climate change) is less clear. When such
products are used, the primary benefit for the end-user comes from hedging their
investment. With such hedging, the end user is protected against a financially
impacting event that could not be predicted, such as extreme weather events. The
challenge, however, comes from the need to structure such a derivative product in a
way that attracts investors on the other side of the contract.
There are many unanswered questions regarding the potential usefulness and
effectiveness of such derivative products. It has been suggested that innovations in the
developed nations, which already commonly use derivative products to off-set
financial risks in volatile markets, will lead the rest of the world in developing similar
risk management mechanisms. Such innovations are particularly important for
environment-related financial risks; thus far, innovation in developed economies is
being driven by already effective changes in the climate. The “weather excuse”,
commonly used in the past to legitimize avoidance of investment in volatile
environment-related markets, will no longer be valid as it becomes clear that financial
instruments exist that can mitigate the day-to-day volatility that weather currently
presents. This changing recognition could have important implications for the
development and implementation of such innovative financial instruments like
derivative products.
There are, however, several problems faced by such innovative financial mechanisms.
For example, the implementation and effectiveness of such mechanisms rely on pre-
conditions that are not met by many poor countries (e.g. stable government,
functioning financial/global markets, climate data availability, accountability, etc).
Such major obstacles need to be adequately addressed in order to reduce the risk of
such financial mechanisms exacerbating existing social and economic problems.
Questions have been raised about how smaller-scale versions of these "insurance"
mechanisms could be implemented, drawing on examples from micro-credit and
micro-insurance schemes. Included in these smaller-scale versions are community
based insurance mechanisms, some of which may even involve non-monetary capital
exchange. Both the potential barriers to implementation of these innovative financial
mechanisms and more context-appropriate options are in need of further development
before their applicability can be adequately assessed and their potential benefits
realized.
Economics of Environmental Migration
20
Conclusions:
This report has offered an over-view of the primary topics covered at the COST
Action Network conference on the economics of environmental migration, the first
ever event specifically addressing the topic. Drawing on the discussions and findings
presented at the conference, there are many directions in which researchers, policy-
makers, and private sector stakeholders could/should go related to the prevention,
facilitation, and/or addressing of post-ante environmentally induced migration. It is
clear that these ideas are interconnected and it is recommended that future workshops
address the issue of integration/separation of these various aspects.
Based on the presentations and discussions of this COST Network workshop, it is
obvious that numerous financial instruments are available; however, it is unclear
whether new money and finances need to be made available to achieve the desired
goals, or if is this possible from existing funding mechanisms/funds. Types of existing
funds include state-level, bi-lateral, and multi-lateral funds, as well as migrant based
funding such as remittances. Each of these unique funding mechanisms raises its own
set of important questions; for example: Who should pay? Are the payment conditions
fair/ equitable? How can financial instruments that have proven useful in developed
countries be transferred effectively to developing countries?
Also, the act of financing migration through market mechanisms assumes that the
market will produce wealth, but this raises issues (both ethical and practical) of the
possibility and/or desirability of accruing financial gain from environmental disasters.
Some argue that financialization of environmental risk represents a paradigm shift that
seeks to characterize disasters as having possible benefits rather than solely costs, but
what those benefits could be is indistinct. There is further confusion regarding
whether migration represents a cost or an investment, which may be circumstantial,
but is non-the-less important. There also remains a big question of burden-sharing:
Who pays? Who bares the premium for insuring environmental risk? This raises
important issues of responsibility; some have advocated for clearly defined
responsibilities, which differs greatly from other climate change related financial
schemes.
Regardless of the uncertainty surrounding the economics of environmental migration,
the issue is growing in urgency, as environmental change is getting worse and, as a
Economics of Environmental Migration
21
result, more and more people are going to be displaced. There is also urgency
regarding the progress of international climate change negotiations to better establish
a direction and securing of future funding. If this is neglected, maybe funding will go
to places that are easier to fund, while skipping areas that are difficult or “un-sexy” to
fund, environmental migration included.
References:
ASIAN DEVELOPMENT BANK 2012. Addressing Climate Change and Migration in Asia and the Pacific: Final Report. Mandaluyong City, Philippines: Asian Development Bank.
CEU. 2012. Council of the European Union: COST [Online]. Available: http://www.consilium.europa.eu/policies/cost.aspx?lang=en.
CLARKE, G. R. G., WALLSTEN, S.J. 2003. Do Remittances Act Like Insurance? Evidence from a Natural Disaster in Jamaica. Development Research Group: The World Bank.
COST. 2012. COST: European Cooperation in Science and Technology [Online]. Available: http://www.cost.eu/.
DESHINGKAR, P. 2012. Environmental risk, resilience and migration: implications for natural resource management and agriculture. Environmental Research Letters, 7, 1-7.
EUROPEAN COMMISSION. 2011a. European Neighbourhood Policy: Funding [Online]. European Union. Available: http://ec.europa.eu/world/enp/funding_en.htm [Accessed November 11 2012].
EUROPEAN COMMISSION 2011b. Increasing the impact of EU Development Policy: an Agenda for Change. Brussels.
EUROPEAN COMMISSION. 2012a. Development Co-operation Instrument (DCI) [Online]. Available: http://ec.europa.eu/europeaid/how/finance/dci_en.htm [Accessed November 11 2012].
EUROPEAN COMMISSION. 2012b. FP7: the future of European Union research policy [Online]. Available: http://ec.europa.eu/research/fp7/index_en.cfm [Accessed November 11 2012].
EUROPEAN COMMISSION. 2012c. Humanitarian Aid and Civil Protection (ECHO) [Online]. Available: http://ec.europa.eu/echo/index_en.htm [Accessed November 11 2012].
EUROPEAN COMMISSION. 2012d. Migration and asylum thematic programme [Online]. Available: http://ec.europa.eu/europeaid/how/finance/dci/migration_en.htm [Accessed November 11 2012].
EUROPEAN UNION. 2007a. European Development Fund (EDF) [Online]. Available: http://europa.eu/legislation_summaries/development/overseas_countries_territories/r12102_en.htm [Accessed November 11 2012].
Economics of Environmental Migration
22
EUROPEAN UNION. 2007b. Global climate change alliance (GCCA) [Online]. Available: http://europa.eu/legislation_summaries/development/sectoral_development_policies/r13016_en.htm [Accessed November 11 2012].
EUROPEAN UNION. 2012a. Instrument for Pre-Accession Assistance (IPA) [Online]. Available: http://europa.eu/legislation_summaries/agriculture/enlargement/e50020_en.htm [Accessed November 12 2012].
EUROPEAN UNION. 2012b. Instrument for Stability (IfS) - EU in action [Online]. Available: http://eeas.europa.eu/ifs/index_en.htm [Accessed November 11 2012].
GPRB. n.d. Bangladesh Climate Change Resilience Fund [Online]. Available: http://www.cleancookstoves.org/resources_files/bangladesh-climate-change-1.pdf [Accessed November 11 2012].
GUBERT, F. 2002. Do Migrants Insure Those Who Stay Behind? Evidence from the Kayes Area (Western Mali). Oxford Development Studies, 30, 267-287.
HECHT, S. B., SAATCHI, S.S. 2007. Globalization and Forest Resurgance: Changes in Forest Cover in El Salvador. BioScience, 57, 663-672.
IDDRI. 2012. IDDRI: SciencesPo [Online]. Available: http://www.iddri.org/.
INTERNATIONAL ORGANIZATION FOR MIGRATION 2009. Temporary and Circular Labour Migration: Experiences, Challenges and Opportunities. Research into Migration
IOM. 2012a. International Organization for Migration: Home Page [Online]. Available: http://www.iom.int/cms/en/sites/iom/home.html.
IOM 2012b. IOM Development Fund Spring 2012 Newsletter. Geneva: International Organization for Migration.
MOHAPATRA, S., RATHA, D., SILWA, A. 2010. Outlook for Remittance Flows 2011-12: Recovery After the Crisis, But Risks Lie Ahead. Washington DC: World Bank.
SAVAGE, K., HARVEY, P. 2007. Remittances during crisis: implications for humanitarian response. In: HPG. (ed.) Briefing Paper 26. Overseas Development Institute.
UNFCCC 2011. Report of the Conference of the Parties on its sixteenth session, held in Cancun from 29 November to 10 December 2010. Cancun: United Nations.
YANG, D. 2008. Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002. Journal of Economic Analysis and Policy, 8.
YANG, D., CHOI, H. 2007. Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines. World Bank Economic Review, 21, 219-248.
Economics of Environmental Migration
23
Appendices:
1. COST Workshop Agenda (Highlighted Participants did not attend)
The Economics of Environmental Migration COST Workshop, Sciences Po Paris, 1 October 2012
Room Goguel, 56 Rue des Saints-Pères, 75006 Paris (5th floor) Programme
9.00 Welcoming of participants 9.30 Session 1: What Needs to be Done? Chair: Theresa Thorp (University of Utrecht) Introduction: Policy challenges and priorities: F. Gemenne (IDDRI – Sciences Po) Where is funding needed: Dina Ionesco (IOM) A Perspective from the South: R. peou van den Heuvel (ULAB / BCAS, Dhaka) 11.00 Coffee break 11.30 Session 2: Assessing the costs, sharing the burden Chair: Alice Baillat (CERI – Sciences Po) A cost assessment model: J. Hill (Fount Ltd) Burden-sharing for migration policies: E. Thielemann (LSE) European funds: Markus Sperl (EU, DG DEVCO) 13.00 Lunch 14.00 Session 3: Adaptation and Development Chair: Pauline Brücker (IDDRI – Sciences Po) The Green Climate Fund and Article 14f: K. Warner (UNU-EHS) Market instruments for Adaptation: A. Michaelowa (UTH Zürich) Remittances, Development and Adaptation: F. Gubert (DIAL - IRD) 15.30 Tea break 16.00 Session 4: Innovative mechanisms Chair: Aurélie Sgro (ICMPD) Micro-credit: Md. Altaf Hossain (ULAB, Dhaka) Cat bonds and modelling: Mathieu Choux (AXA) Derivative products: B. Bauduin (Derivative products practitioner – Investment Banking) 17.30 Wrap up: Next steps and recommendations 18.30 Wine-tasting reception
2. COST Member Countries and Cooperating State(s):
Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus,
Czech Republic, Denmark, Estonia, Finland, former Yugoslav Republic
of Macedonia, France, Germany, Greece, Hungary, Iceland, Ireland,
Economics of Environmental Migration
24
Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway,
Poland, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden,
Switzerland, Turkey, United Kingdom
Cooperating State: Israel