The 21st Century climate challenge

human rights of the Inuit. The aim was notto seek damages but rather redress, in theform of leadership in mitigating dangerousclimate change.Low human development trapsHuman development is about expandingfreedom and choice. Climate-related risks forcepeople into trade-offs that limit substantivefreedom and erode choice. These trade-offs canconstitute a one-way ticket into low humandevelopment traps—downward spirals ofdisadvantage that undermine opportunities.Climate shocks affect livelihoods in manyways. They wipe out crops, reduce opportunitiesfor employment, push up food prices anddestroy property, confronting people with starkchoices. Wealthy households can manage shocksby drawing upon private insurance, using theirsavings, or trading in some of their assets. Theyare able to protect their current consumption—‘consumption smoothing’—without runningdown their productive capacities or erodingtheir human capabilities. The poor have feweroptions.With limited access to formal insurance,low income and meagre assets, poor householdshave to adapt to climate shocks under moreconstrained conditions. In an effort to protectcurrent consumption, they are often forced to sellproductive assets, compromising future incomegeneration. When incomes fall from already lowlevels, they may have no choice but to reducethe number of meals they eat, cut spending onhealth, or withdraw their children from schoolto increase labour supply. The coping strategiesvary. However, the forced trade-offs that followclimate shocks can rapidly erode human capabilities,setting in train cycles of deprivation.Poor households are not passive in theface of climate risks. Lacking access to formalinsurance, they develop self-insurance mechanisms.One of these mechanisms is to buildup assets—such as livestock—during ‘normal’times for sale in the event of a crisis. Another isto invest household resources in disaster prevention.Household surveys in flood-prone urbanslums in El Salvador record families spendingup to 9 percent of their income on strengtheningtheir homes against floods, while also usingfamily labour to build retaining walls andmaintain drainage channels. 26 Diversificationof production and income sources is anotherform of self-insurance. For example, ruralhouseholds seek to reduce their risk exposure byinter-cropping food staples and cash crops, andby engaging in petty trade. The problem is thatself-insurance mechanisms often break down inthe face of severe and recurrent climate shocks.Research points to four broad channels or‘risk multipliers’ through which climate shockscan undermine human development: ‘beforethe-event’losses in productivity, early copingcosts, asset erosion of physical capital and asseterosion of human opportunities.‘Before-the-event’ losses in productivityNot all of the human development costsof climate shocks happen after the event.For people with precarious livelihoods inareas of climate variability, uninsured riskis a powerful impediment to increasedproductivity. With less capacity to managerisk, the poor face barriers to engage inhigher-return but higher-risk investment. Ineffect, they are excluded from opportunitiesto produce their way out of poverty.It is sometimes argued that the poor arepoor because they are less ‘entrepreneurial’ andchoose to avoid risky investments. The fallacy inthis view lies in confusion between risk aversionand innovative capacity. As households movecloser to extreme poverty they become riskaverse for a very good reason: adverse outcomescan affect life chances at many levels. Operatingwithout formal insurance in areas of high riskexposure—such as floodplains, drought-proneregions or fragile hillsides—poor householdsrationally choose to forego potentially higherreturn investments in the interests of householdsecurity. Farmers may be forced to makeproduction decisions that are less sensitive torainfall variation, but also less profitable.Research in Indian villages in the 1990sfound that even slight variations in rainfalltiming could reduce farm profits for the poorestquartile of respondents by one-third, whileClimate-related risks forcepeople into trade-offs thatlimit substantive freedomand erode choice2Climate shocks: risk and vulnerability in an unequal worldHUMAN DEVELOPMENT REPORT 2007/2008 83