THEME [6] [ENV.2008.4.2.3.1. Rethinking globalisation in...

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

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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


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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


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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,


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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.


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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


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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.


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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.


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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,


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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


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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:


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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.


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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


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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


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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


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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


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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.


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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


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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.


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


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:

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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].


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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.

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INTERNATIONAL ORGANIZATION FOR MIGRATION 2009. Temporary and Circular Labour Migration: Experiences, Challenges and Opportunities. Research into Migration

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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,


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Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway,

Poland, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden,

Switzerland, Turkey, United Kingdom

Cooperating State: Israel

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