WESTERN AND CENTRAL AFRICA SENEGAL EXECUTIVE SUMMARY World Bank Group Country Climate and Development Report West Bank and Gaza Country Climate and Development Report i October 2024 © 2024 The World Bank Group 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA), collectively known as The World Bank Group, with external contributors. The World Bank Group does not guarantee the accuracy, reliability or completeness of the content included in this work, or the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon. 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WESTERN MIDDLE EASTERN AND EAST AND AND NORTH AFRICA CENTRAL AFRICA SENEGAL EXECUTIVE SUMMARY World Bank Group Country Climate and Development Report October 2024 Senegal © shayes17 / iStock 01 West Bank and Gaza Country Climate and Development Report Executive Summary Climate action offers an opportunity to safeguard development gains and accompany the ambitious transformation Senegal is embarking on to achieve its objective of reaching middle income status in the next decade. While the country was among the fastest growing economies in Sub-Saharan Africa (SSA), poverty reduction was slow, vulnerabilities persisted, and inequalities increased. In addition, overall productivity remained low, with lagging structural transformation, high informality, and low job creation. To attain its middle-income goal, Senegal must initiate a series of reforms for a productive, sustainable, and inclusive growth model with climate considerations at the center, given the country’s high vulnerability. Senegal’s high climate vulnerability is caused by the country’s coastal exposure and reliance on natural resources for food, jobs, and growth (partly a consequence of its slow structural transformation). With temperatures soaring, precipitation expected to decrease, and erosion threatening 75 percent of the coastline at term, Senegal’s population and assets are under high risk. The poorest are particularly vulnerable, with 55 percent of total households teetering on the edge of poverty because of recurrent shocks. Without action, annual economic losses could reach 3–4 percent of gross domestic product (GDP) as soon as 2030 and further increase to 9.4 percent by 2050, wiping away years of per capita income growth and eroding any potential human capital accumulation. Overall, climate change could push more than two million Senegalese into poverty by mid-century. Building resilience and leveraging the low-carbon economy will help Senegal realize its growth ambitions, contributing to a more productive, sustainable, and inclusive development pathway. The macroeconomic analysis for this Country Climate and Development Report (CCDR) finds that adaptation measures in selected sectors could bring GDP gains of about 2 percent by 2030, and between 0.5 and 1 percent afterwards (for climate financing needs of about 0.9 percent of GDP in the period to 2030 and 0.1 percent afterwards). Adaptation could also reduce poverty, with 45 percent less people pushed into poverty by climate change compared to no adaptation action. In addition, emissions reduction could reach 20 million tons of CO2 equivalent (MtCO2e) per year over the period to 2050, from interventions in forestry, improved cooking services, urban transport, waste management, and energy production. West Bank and Gaza Country Climate and Development Report 1 The energy transition provides an opportunity to meet both development and climate objectives, exceeding Nationally Determined Contribution (NDC) targets and putting the country well on track for net zero by 2050. However, significant risks remain, linked to delays in the deployment of, and financing availability for, renewable energy generation and domestic gas. Senegal’s formidable renewable energy potential (chiefly around solar) offers the lowest cost generation option to meet rising energy demand while accelerating decarbonization. At term, the country could play a leading role in decarbonizing the region through export opportunities and bolster resilience across the regional grid. In the short term, given constraints to the fast deployment of renewables, the transitional use of domestic gas will help phase out expensive and high‑emitting coal and heavy fuel oil (HFO) generation, while balancing the electricity system and lowering the cost of electricity. Climate action will require a financing of US$8.2 billion over 2025–30 (in present value, at 6 percent per year), or 4.5 percent of discounted cumulative GDP over the same period, and US$10.6 billion over 2031–50 (in present value terms), or 2.0 percent of discounted cumulative GDP over the same period. Water security, sustainable (urban) transport, and the energy transition account for the largest share of these financing needs. Importantly, climate action is expected to bring significant benefits over time, beyond climate adaptation and mitigation—including health or jobs, (as in the primary sector, with 155,000 jobs created, of which 80 percent in agriculture). Many benefits could not be properly estimated, implying that the returns from climate action might well be underestimated. Climate change is challenging Senegal’s development aspirations. Despite emerging as one of the fastest growing economies in SSA over the past decade thanks to enhanced international competitiveness and favorable external conditions, Senegal has seen limited progress towards achieving inclusive growth as economic performance remained characterized by a slow pace of poverty reduction and persistent inequalities. The country’s growth model was mostly investment- led, augmented by significant foreign direct investment (FDI) in natural resource extraction. As such, the benefits of growth did not trickle down to the population, make a sustained dent in poverty reduction, or succeed in reducing inequalities. In addition, the population’s vulnerability to shocks remains high, as the majority of households (55 percent) are just one shock away from falling into poverty. Rising uncertainty, overlapping crises, and exposure to climate risks accentuate existing vulnerabilities and threaten the achievement of sustainable social and economic development. External shocks and rising global uncertainties weigh heavily on growth prospects. The global economic shocks that followed the onset of the COVID-19 pandemic, Russia’s invasion of Ukraine in 2022, and the conflict in the Middle East have led to tightening financing conditions, rising uncertainties, heightened geopolitical tensions, and a slowdown of global economic recovery. The global context, coupled with rising domestic political uncertainty and regional instability, led to a deceleration of growth in Senegal from 6.0 percent over 2014–19 to 3.8 percent over 2020–23, exacerbating structural vulnerabilities. Senegal’s exposure to external shocks revealed the persistence of underlying key constraints to achieving productive, sustainable, and inclusive growth. Low and declining productivity, untapped human capital, and a high level of informality because of a constrained business environment and low access to finance are both the result and source of the slow pace of structural transformation of the economy. To achieve its ambitious vision to reach middle income status in the next decade, and to progress toward a productive, sustainable, and inclusive growth model, Senegal will need to embark on a series of bold reforms. It will be crucial that such a reform agenda is built on the awareness that action is needed on multiple and interdependent fronts, with resilience at the center of any policy aimed at changing the current status quo. For instance, building resilience in agriculture is key to achieving transformation of the sector for food sovereignty, growth, and job 2 West Bank and Gaza Country Climate and Development Report creation, and investing in human capital development is central to building the skills required for the new green jobs. Therefore, climate action offers an opportunity to not only safeguard development gains but also to accompany the country’s ambitious transformation journey. Senegal’s coastal exposure and reliance on natural resources for economic activities, jobs, and livelihoods— as a consequence of slow structural transformation of its economy—make the country particularly vulnerable to climate change. Climate change is a reality for Senegal, which is already experiencing rising temperatures, erratic rainfall and higher water stress, more prevalent weather hazards, and sea level rise. A year of drought costs US$500 million and annual flood damages around US$100 million. Coastal erosion is responsible of losses equivalent to 3.3 percent of GDP. Depending on the global decarbonization effort, temperatures are predicted to rise between 1.9°C to 4.5°C by 2090, compared to 2005 levels, with higher temperatures and more temperature extremes projected over eastern and southern Senegal. In the meantime, precipitation is expected to decrease amid very high variability and concern for water stress. Sea level rise will continue, and overall, 75 percent of the coastline will be at risk from erosion. Coastline recession could reach 0.5 m to 2.0 m per year. Most risks identified are not new in the context of Senegal but are likely to be amplified as climate change intensifies. Overall, there are four main sources of climate vulnerability, further aggravated by poverty levels: y Exposed coastal zones. Half of Senegal’s population and two-thirds of its GDP are at risk of accelerating sea level rise, which will intensify coastal erosion, flooding, and salinization of water and land. In Dakar alone, the population at risk of coastal flooding by 2050 will increase by 20–30 percent and related economic damages by 30 percent. y Natural capital under pressure. Primarily rainfed, low productivity agriculture is particularly vulnerable, putting at risk food sovereignty, the jobs of almost one-third of the population, and the livelihoods of many (including two-thirds of the poor ). Key exports from fisheries and agriculture (17 percent of exports in value) are under threat, as well as revenues from the mostly coastal tourism sector (9 percent of GDP). y More prevalent natural hazards. Extremes such as floods, droughts, and wildfires are on the rise, and they will be responsible for loss of life, destruction of property and infrastructure, disruption to economic activities and loss of income, as well as displacement of people. Without adequate planning, urban centers will not be able to cope with rapid expansion and the influx of rural migrants, locking cities into configurations that are vulnerable (for example, flooding and urban heat islands), polluted (for example, low air quality, inadequate waste management, and lagging water quality), and high-emitting (for example, congestion). y Worsening health status of populations. Climate change will accelerate the water availability and pollution crisis and aggravate the sanitary condition of populations, mostly due to heat stress, vector-borne diseases, impact of disasters and their aftermath, and decreasing food security. y Climate change impacts are magnified by high levels of poverty and inequality. The poor often live in fringe areas and their assets are thus more exposed to hazards, with less resources to protect and restore them. Their income is more at risk as climate change can disproportionally increase morbidity and mortality. They are also more vulnerable to spikes in staple prices potentially induced by climate change. West Bank and Gaza Country Climate and Development Report 3 Box ES.1. Selected Climate Change Impact Channels Modeling The modeling framework is based on the Macro-Fiscal Model (MFMOD) developed by the World Bank to estimate and forecast key macroeconomic aggregates (gross development product or GDP growth, inflation, government revenues, and so on). It is also coupled with microsimulation tools for poverty analyses and the Electricity Planning Model (EPM). MFMOD integrates climate change considerations and policy options as follows: • 10 contrasted climate change scenarios to cover uncertainty as to the global decarbonization effort and to the climate system response to forcing • 7 selected impacts channels to capture relevant sources of vulnerability in: agriculture and natural resources (rainfed crops and soil erosion); infrastructure and services (sea-level rise and storm surges, inland flooding, and damages to roads and bridges); and human capital (labor heat stress and human health) • 2 economic scenarios to 2050: baseline growth pathway and climate policy (both adaptation and mitigation). Climate inaction is costly while climate action will bring benefits. Recent global crises have emphasized the crucial need for accelerating structural change and fostering innovation to reach a more inclusive and resilient growth model. Climate change will challenge this path and jeopardize Senegal’s ambitious development vision. Senegal’s Long-Term Vision (LTV) 2050 aims to make the country prosperous through an integrated, inclusive, resilient, and low-carbon economy. This will require sustained high growth levels driven by higher productivity growth and continued physical and human capital accumulation. It will also require accelerated structural change and innovation for resilience and low-carbon transition. However, this ambitious goal will be increasingly challenged and potentially jeopardized by the impact of climate change. Without adaptation efforts, average annual GDP losses are projected to increase over time to reach up to 9.4 percent of GDP by 2050 (figure ES.1), with most of the impact channeled through a reduction in already historically low productivity levels. Climate change will also tip the balance over an increasingly vulnerable population, exposing most households in the country to poverty and eroding any potential human capital accumulation. Climate change will lessen—and potentially reverse—the pace of poverty reduction, increasing the level of poverty in 2050 by up to 6.9 percentage points and pushing more than two million Senegalese into poverty every year between 2040 and mid-century . Inequality and spatial disparities will also worsen. The increase in the urban poverty rate will be less than half of the rise that is expected to occur in rural areas. By 2050, the rural poverty rate is expected to increase between 7.1 and 10.3 percentage points, while urban poverty is expected to grow between 3.0 and 4.4 percentage points. 4 West Bank and Gaza Country Climate and Development Report Figure ES.1. Cost of Inaction over Time (% Deviation in GDP from the Baseline) GDP at constant market prices (% deviation from the baseline) 0.00 -1.00 -2.00 -3.00 -4.00 -5.00 -6.00 -7.00 -8.00 -9.00 -10.00 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 DryHot WetWarm Source: World Bank 2024, based on macrofiscal model (MFMOD) simulations. The time for action is now. Senegal is at a crossroad and the country should leverage efforts needed to mitigate the impact of climate uncertainty to not only accelerate growth but also to direct the structural transformation of its economic model towards a more resilient and low-carbon path. The direction policies take at this juncture will determine success in securing a prosperous future. Achieving a resilient growth pathway will require decisive action across key economic segments while leveraging the demographic dividend of the country by protecting and investing in human capital accumulation. It will also require mindfulness of the risks linked to this transition, be they related to a delayed arrival or availability of the resources, which will present the country with trade-offs or reprioritization in terms of investment needs, or to the dangers of locking in a path destined to remain carbon-heavy rather than investing in a climate- resilient economy. The discovery of oil and gas reserves in the country holds the potential to boost GDP growth and accompany the energy transition. It will allow the phasing out of expensive and high-emitting generation capacity while renewable energy generation capacity is deployed. This, in turn, will balance the electricity system and lower the cost of electricity. The exploitation of oil and gas resources also presents governance challenges associated with the management of hydrocarbon revenues (especially with respect to fiscal discipline and spending efficiency) and the equitable redistribution of the benefits to improve societal well-being (especially by not distracting from development priorities). Climate-resilient, low-carbon development growth can reduce annual economic losses and bring significant benefits. The macroeconomic analysis for this CCDR (box ES.1) finds that adaptation measures in selected sectors are estimated to bring GDP gains of about 2 percent by 2030, and between 0.5 and 1.0 percent afterwards (for climate financing needs of about 0.9 percent of GDP in the period to 2030 and 0.1 percent afterwards). The modeling of adaptation in all sectors is not possible in the macroeconomic model used, implying benefits might be much larger (particularly on improved sanitary conditions). Adaptation and its benefits in four sectors are explicitly modeled: the primary sectors (agriculture, fisheries and aquaculture, and forestry) as well as disaster risk management (DRM) against floods. The agricultural sector is by far the one in which investment in adaptation will yield the most benefits, followed by fisheries and then forestry, reflecting the socioeconomic importance of these key sectors. Adaptation in 13 sectors is discussed in this CCDR. Adaptation will also reduce the number of people pushed into poverty due to climate change by 45 percent, compared to a situation with no adaptation action. This reduction is more substantial for rural areas (figure ES.2). West Bank and Gaza Country Climate and Development Report 5 Figure ES.2. Poverty Reduction over Time due to the Implementation of Adaptation Measures (Percentage Points Change Relative to a Climate Change Scenario without Adaptation 0 -2 -4 -6 2030 2040 2050 2030 2040 2050 2030 2040 2050 National Urban Rural Dry/Hot Wet/Warm Sources: Based on Enquête Harmonisée sur le Conditions de Vie des Ménages (EHCVM) 2018–2019 microdata and a consistent set of macroeconomic projections obtained. The CCDR recommends several measures to accelerate climate action and development across natural, built, and human capitals and facilitate the energy transition. The financing requirements of climate action as evaluated for this CCDR are relatively small compared to Senegal’s economy, and more importantly, they are expected to bring significant benefits over time, beyond climate adaptation and mitigation. The CCDR recommendations are prioritized along the sense of urgency (what is at risk and what are the social and economic implications), the level of complexity (from a technical point of view and from a political economy point of view), and ultimately, cost and fiscal space. Policy and technical assistance measures are short term (over the next two to three years). Large investments might be further prioritized and phased following a risk-based approach. The top short-term priorities across the sectors reviewed in the CCDR are displayed in table ES.1. The CCDR’s recommendations are based on a desk review of the country’s climate strategies and programs; the current policy dialogue between the government and the World Bank; original analytical work, including macroeconomic and energy modeling; the first phase of a climate change institutional analysis; a private sector green survey; the application of the World Bank’s Adaptation and Resilience (A&R) Diagnostic tool; and sectoral analyses, such as the Urban Climate Risk Analysis, the nature-based solutions (NBS) screening in urban and rural contexts, and a climate suitability analysis for forest formations. Issues covered in the CCDR as well as preliminary findings and recommendations were discussed during consultations held in October 2023 and May 2024 with representants from ministries and government agencies, academia and civil society, the private sector, and the development partner community. 6 West Bank and Gaza Country Climate and Development Report Table ES.1. Recommendations for Climate Action • Promote on-farm, climate-smart agriculture, combining climate-resilient varieties, sustainable land and water management, and agroecology Food • Support irrigation and water management at both community and commercial levels security and • Scale up commercial aquaculture environment • Pursue implementation of the Water Reform and Water Resource Management Reform Roadmap stability and diversify water sources while continuing universal sanitation access (urban) • Scale up forest management, including fire management, afforestation and reforestation (including mangroves), and community-based management Coastal • Adopt a coastal law to reduce the risk of improper development, coordinate interventions, and improve resilience knowledge and monitoring while investing in coastal defense in high-priority areas • Update disaster-risk management (DRM) policy and adopt a disaster risk financing (DRF) strategy Disaster risk • Conclude process to access the Global Shield Financing Facility management • Enhance climate and disaster risk information to better track losses, damages, and postdisaster (DRM) spending, and develop an artificial intelligence or AI-based platform to improve predictions, early warnings, and recovery efforts in urban areas • Introduce implementation decrees for the urban planning and construction code • Continue investment in resilient drainage and flood protection programs • Revise framework law on solid waste management, introduce implementation decrees, and establish Sustainable regulation and oversight bodies cities • Reformulate zoning and development policies to promote compact, mixed-use development in rapidly urbanizing areas • Improve urban transport by enhancing fuel quality, fuel efficiency, and vehicle import regulation, and accelerating freight and passenger fleet renewal and shift to public e-buses • Enhance the shock response capacity of the safety net system, including via awareness raising, early warning, climate proofing, and targeting of climate migrants • Strengthen integrated disease surveillance to inform climate-sensitive disease control Human • Invest in preschool education and improve the overall quality of schooling capital • Strengthen curricula at all levels to raise awareness on climate change and sustainability • Invest in climate-resilient and sustainable health and education infrastructure, including adapting norms for construction, operation, and building or rehabilitation of facilities • Introduce implementation decrees for the Electricity Code and the flaring and venting provisions of the Environment Code • Establish an enabling framework to accelerate expansion of renewable energy generation and promote Energy public-private partnership investments transition • Realize investments in the emergency plan for universal access to achieve its targets • Continue phasing-out energy subsidies while protecting the poor with a well-targeted social tariff and communicating on reform benefits • Formulate climate framework law with long-term objectives and coordination mechanisms • Strengthen budget planning by systematically integrating climate aspects • Establish a partial green credit guarantee for micro, small, and medium enterprises (MSMEs) Cross- cutting • Identify sustainability-linked bonds and loans based on the Sustainable Financing Framework enablers • Pursue the development of carbon market regulatory framework and infrastructure along with identification of potential projects and capacity building • Implement robust cybersecurity and data privacy measures and establish regulatory framework to guide the ethical development and deployment of AI Source: World Bank 2024. West Bank and Gaza Country Climate and Development Report 7 From a transversal, cross-cutting point of view, two important conclusions are emerging: First, actions and sectoral programs should not be considered in isolation as there are positive synergies among sectors— for instance, decarbonization in energy can accelerate modernization and mitigation in other sectors (for example, solar irrigation and electric public transport). Second, digital solutions are expected to play a major role across the board, facilitating access at reasonable cost to timely, connected, powerful, and intelligent applications (for example, easier monitoring of natural resources and interpretation of remote sensing information for counting trees or analyzing fire patterns; one-stop shop digital extension services easily communicating planting, irrigation, and harvesting advice to farmers; early warning systems (EWS) for natural hazards or air pollution easily reaching a large number of people; delivering support to targeted people via cellphones in the aftermath of a disaster; dematerializing and backing up administrative databases; managing and monitoring energy consumption easily and remotely). The financing requirements of climate action are large, but they are relatively small compared to Senegal’s economy (2.0 to 4.5 percent of cumulative GDP). They total US$8.2 billion over 2025–30 (in present value, at 6.0 percent per year), or 4.5 percent of discounted cumulative GDP over the same period. Achieving water security and developing sustainable (urban) transport represent the largest share in value, at 54 percent. After 2030, as decarbonization ambition rises, this number increases to US$10.6 billion over 2031–50 (in present value terms), which represent 2.0 percent of discounted cumulative GDP over the same period. Achieving water security, developing sustainable (urban) transport, and the energy transition represent the largest share in value, at 91 percent. While these financing requirements are high in terms of additional investment, especially Figure ES.3. Net Present Value of CA/ additional annual infrastructure expenditure, they OPEX of Climate Action and Corresponding are expected to bring significant benefits over time, Benefits, by Sector and Time Frame beyond climate adaptation and mitigation (figure ES.3). This is the case, for instance, in the primary 30 sector, where climate-smart interventions enhance production (crops, livestock, aquaculture, and 25 sustainable charcoal), with positive impacts on food security, revenues for workers and communities, 20 and job creation. Climate action also brings US$ billions important health cobenefits, such as from improved 15 water supply, sanitation, and hygiene (where health benefits alone account for 20 percent of capital 10 expenditures and operating expenditures or CA/ OPEX) or from improved air quality—indoor (where 5 health benefits from improved cooking services are about 10 times larger than CA/OPEX) or outdoor 0 CA/OPEX Benefits CA/OPEX Benefits (where measures to improve fuel quality, fuel 2025-30 2031-50 efficiency, and traffic bring health benefits that far Clean Cooking SWM outstrip the large upfront infrastructure CA/OPEX). Human Capital DRM and Coastal Protection In the context of the CCDR analysis, many benefits Energy Water Security could not be properly estimated, hence accounted Urban Transport Ag. Fish, and Forest for, implying that the returns from climate action are likely underestimated. Important benefits not Source: World Bank data 2024. valued include enhanced ecosystems services from forestry and NBS in coastal zone management Note: CA/OPEX = capital expenditures and operating expenditures (for example, water regulation and fish nursery); continuous water availability for different productive 8 West Bank and Gaza Country Climate and Development Report uses (valued for irrigation under agriculture but not in other sectors); health improvements and revenue from the sale of sorted material and compost and energy production for modern waste management; improved road safety and time savings from reduced congestion from urban transport investments; or the complex benefits and returns from improved human capital (for example, long-term benefits from education). Job creation has been estimated for some interventions, especially in the primary sector where activities in agriculture, aquaculture, and forestry could translate into 155,000 jobs (80 percent of which are in agriculture), highlighting the potential of these sectors to contribute fully to the transformation of the economy. The energy transition provides an opportunity to meet both development and climate objectives, exceeding NDC targets and putting the country well on track for net zero by 2050. However, significant risks remain, linked to delays in the deployment of, and financing availability for, renewable energy generation and domestic gas. Senegal’s formidable renewable energy potential (chiefly around solar) offers the lowest cost generation option to meet rising energy demand while accelerating decarbonization. At term, the country could play a leading role in decarbonizing the region through export opportunities and bolster resilience across the regional grid. In the short term, given constraints to the fast deployment of renewables, the transitional use of domestic gas will help phase out expensive and high-emitting coal and HFO generation, while balancing the electricity system and lowering the cost of electricity. Senegal’s energy sector has experienced tremendous growth in the past decade, serving as a catalyst for the country’s economic growth and shaping its role as a regional power hub. However, substantial investment is required to realize the ambitious energy transition, universal access, and climate change joint agendas. This will require lowering the cost of electricity, reducing dependence on fuel, and increasing the share of renewables. About 70 percent of installed capacity is fueled by coal or HFO, making Senegal highly exposed to fluctuating global fuel prices and leading to one of the highest electricity prices in Africa. National climate commitments target a reduction of emissions from the energy sector by 10 to 41 percent, contingent on significant investment support. Electricity accounts for 40 percent of energy emissions, mainly due to large HFO reliance, which has an emission factor 30 percent higher than gas. To meet growing demand and achieve universal access by 2025, considerable investments are needed to ensure sufficient, low-cost electricity supply. Although Senegal has one of the highest access rates in the region, there remains great disparity with much lower electrification rates in rural areas and among basic public entities like health centers and schools. While most access targets can be achieved through grid expansion, Senegal still needs to dedicate resources to adequately developing off-grid markets and providing regulatory support to reach all segments. Addressing clean cooking access is also crucial and requires greater investment and resources, with inaction estimated to cost US$7.9 billion per year due to adverse impacts on health, gender, and climate. While an LTV and sector decarbonization targets are still under development, the CCDR analysis suggests that rapid expansion of renewable generation while transitioning away from high-emitting HFO-based generation to natural gas offers the most cost-effective strategy, irrespective of decarbonization ambition. The CCDR also finds that this approach would allow Senegal to exceed its NDC targets. Senegal holds significant potential in its power sector, with substantial solar and wind energy potential domestically, access to hydropower through regional interconnections, and discoveries of offshore oil and gas reserves. Tapping into its excellent renewable energy resources offers the lowest cost generation option to meet rising energy demand while accelerating decarbonization efforts. Even in the absence of decarbonization goals, scaling up renewable energy capacity is the most cost-effective strategy for the sector and renewables could take over with the largest share of the energy mix by 2035 (or earlier if carbon constraints are considered) when prioritizing lowest cost options. Regional integration further enhances renewable energy deployment West Bank and Gaza Country Climate and Development Report 9 prospects, enabling export opportunities and bolstering resilience across the regional grid. However, the limitations to the pace of scaling up renewables and the importance of rapidly phasing down coal and HFO to lower production costs make natural gas–based production a strategic part of Senegal’s energy transition as the country shifts to become a fossil fuel producer. This shift provides an opportunity to accelerate the domestic transition, displace HFO use in power generation with lower-cost and lower-emitting domestic gas, balance the electricity system, and reduce the cost of electricity at a faster rate. The use of gas as a transition fuel in this context is not only consistent with national strategy but will allow Senegal to meet urgent energy demand in a context with no short-term renewable alternatives while helping to accelerate the transition to clean energy. Specifically, the analysis shows that under all scenarios—with or without decarbonization targets—production costs decrease at the same pace, indicating that decarbonization efforts do not place an additional burden or impact on efforts to reduce the price of electricity. However, it is critical for the energy transition that the structure of awarded contracts, new infrastructure investments, and the implementation of the gas-to-power strategy are flexible and consistent with the optimal long-term, low-cost power generation pathway (which favors renewables). It is also crucial that energy subsidies are phased out and an enabling environment created to maximize renewable energy penetration in order to mitigate lock-in and stranded asset risks and avoid undermining deployment of renewables, particularly as new technologies become more price competitive. As a nascent oil and gas producer, Senegal has a particular interest in producing at a low carbon footprint in an increasingly environmentally conscious market. It has the opportunity to do so through domestic gas with reduced emissions and without increasing costs. For newly developed assets, there is an opportunity to design and operate infrastructure to keep all production emissions (fugitive methane, flaring, and venting) to a minimum, thereby reducing the risk of stranded assets. In addition, Senegal’s amended environmental code (still missing its implementation decree) addresses routine flaring and venting of natural gas with penalties for noncompliance, but these provisions need to be operationalized, and fugitive methane emissions must be addressed as a critical next step. However, risks and uncertainties remain, linked particularly to persistent schedule delays (for example, in gas production, operating transport infrastructure for the domestic gas market and the gas-to-power facilities, and converting power plants to gas) as well as gas prices. The CCDR finds that Senegal could have a key role in decarbonizing the region by exporting low-cost and low emissions–generating domestic gas—notably from competitive renewable production sources—and by contributing to regional grid stability. Significant investments will be needed in the short to medium term to ramp up the deployment of renewable energy at scale and implement the gas-to-power strategy, which has been delayed. Sector policy and the regulatory framework have been strengthened in recent years to create an enabling environment for private sector participation in the sector, but there is a need for a cohesive, sector-specific mitigation and adaptation strategy with a clear investment plan, as well as improved coordination among key stakeholders to successfully mobilize financing and achieve climate commitments. Senegal’s energy transition should prioritize the following: improving sector governance (notably the diligent implementation of the least cost development plan and of the electricity code, and the development of a true social tariff while phasing out of subsidies continues); supporting renewables deployment and the transient gas-to-power strategy (in particular, by implementing competitive procurement processes for renewable energy projects to ensure competitive pricing); mapping renewables potential; implementing critical grid updates for renewables integration and building resilience; securing financing to develop the infrastructure needed to implement the gas-to-power strategy and ensure proper management of revenues; and fostering off-grid sector growth through centralized planning and coordination, establishment of clear roadmaps, and facilitation of financing and market development. These measures aim to ensure effective implementation of sector reforms, timely deployment of renewable energy with transient gas to power, and expansion of access to clean energy solutions, thus advancing both sectoral and climate objectives. 10 West Bank and Gaza Country Climate and Development Report Adaptation priorities identified in this CCDR focus on no-regret development interventions, which climate change only makes more critical. They essentially consist of delivering better development through investments that are already urgently needed , and in ensuring that these are rendered resilient under a wide range of possible climate change impacts for Senegal. Improved natural resource management is a priority for resilient economic activities, jobs, and livelihoods. Senegal © JordiRamisa / iStock Senegal’s natural base is rapidly eroding, given high human and economic pressures, inadequate management (for example, overfishing and deforestation), and mounting risks (for example, pollution and climate change). The NDC emphasizes the vulnerability of Senegal’s ecosystems and natural resources, which sustain the livelihood of 60 percent of the population. Against this backdrop, the CCDR considers the future of food security, water security, and environmental stability (focusing on forests). Climate change will further deteriorate food and nutrition security in Senegal through lower yields and crop failures, as well as negative impact on livestock (heat and water stress, pasture, and forage availability). Adaptation priorities include improving irrigation, coupled with promoting more efficient water resource management (for example, water harvesting and water saving practices); adopting at scale climate-resilient crop varieties (especially staple crops and horticulture); promoting NBS; developing modern, information technology–based extension services to promote climate-smart agriculture and practices; and promoting insurance schemes along with strengthening agriculture EWS. These interventions could yield a 20 percent production increase and a 26 percent income increase, and lead to 2.2 MtCO2e emission reductions over 10 years. The CCDR also considers fisheries and aquaculture, which stand to lose most from climate change, with significant impact on fishing communities and food security. Key priorities include accelerating aquaculture development, scaling up fisheries comanagement initiatives, and enhancing protection and restoration of coastal and marine ecosystems (including mangroves). West Bank and Gaza Country Climate and Development Report 11 Water security in Senegal is threatened by deteriorating water resources and poor management, and climate change will further compound these challenges. Senegal is already water-stressed today, and water withdrawals are projected to grow by 30 to 60 percent by 2035 (with 81 percent from irrigation), making water supply and sanitation and food sovereignty more difficult to achieve. Adaptation priorities for water management include: strengthening cross-sectoral and transboundary coordination and improving decentralization, in particular, to mandate that water availability be considered in all sectors at strategic and intervention levels and to improve water resource information (especially groundwater), resulting in managed competition among different uses, avoided overexploitation of shared aquifers, and reduced conflict risk; scaling up the development of small-scale storage; operationalizing water resource management at the decentralized level and finalizing the implementation of the rural water reform to provide safely managed water supply to all rural dwellers; prioritizing access to safely managed sanitation services; and leveraging circular economy principles to reduce emissions and protect water resources. Climate change will increase pressure on ecosystems and the services they provide, such as forests, which are critical to sustaining economic development and livelihoods and mitigating climate change. Forests experience considerable pressure, including from on-going climate change, leading to high mortality rates via hotter and drier conditions, droughts, and fires. The CCDR finds that humid forests could be largely replaced by tree and shrubland savannah type forest ecosystems with secondary effects on rainfall, potentially impacting other regions of Senegal and neighboring countries. Senegal is committed to the preservation and sustainable management of its forests. While there is encouraging progress, further efforts and resources are needed to scale up sustainable management and empower communities for healthy, resilient, and productive forests. Combating fires, supporting communities for their increased involvement in managing the forest resources they depend upon, and mobilizing new and innovative sources of finance (such as carbon finance) are important priorities to expand, protect, and improve forested areas. Investing in sustainable cities will drive economic growth while increasing resilience and reducing climate impact. With almost half of its population living in urban areas, Senegal’s level of urbanization (49 percent) is higher than the average for SSA (42 percent). Urbanization is driven by natural growth and migration from rural areas, caused in part by climate change impacts, such as droughts. Cities—which are the engine of growth—offer employment and investment opportunities, with improved living standards and better access to basic amenities. Due to inadequate planning and rapid informal development, urban areas are increasingly exposed to climate change and disaster threats, such as flooding, coastal erosion and sea level rise, heat waves, droughts, and poor air quality. Cities are also contributors of greenhouse gas (GHG) emissions. Dakar alone contributes to 25 percent of national emissions, with the capital’s emissions being led by transport (40 percent) and manufacturing and construction (34 percent). The CCDR underscores the urgency to take swift adaptation and mitigation measures to safeguard cities and regions against climate change. There are policies in place to guide climate action in the urban context (including the recently approved urban planning and construction code, still lacking its implementation decrees), but gaps persist, hindering risk-informed urban planning and territorial development. A holistic approach to urban planning and development is crucial for climate-smart, livable, and productive cities. Resilient urban planning and construction practices, better control over development, investments in drainage and coastal protection, improved operation and maintenance, and the use of NBS can reduce the risks of urban flooding and coastal erosion as well as help manage heatwaves and increasingly high temperatures. In this process, formalized land use and property rights can incentivize climate-smart investments and facilitate insurance coverage (and streamline payments post disaster). Coastal zone management needs better coordination and updated legal frameworks, starting with the adoption of a coastal law and the 12 West Bank and Gaza Country Climate and Development Report establishment of an agency in charge of coordinating interventions in coastal areas, supported by a marine and coastal observatory to improve knowledge on coastal areas, climate factors, and vulnerability. NBS, along with defensive works, are also required. A share of the revenues from upcoming offshore hydrocarbon production could help finance coastal and marine resilience activities, as is already the case for continental mining activities, which often support environmental conservation and community activities. Effective disaster response requires EWS and enhanced coordination among national agencies and regional organizations, as well as better flood forecasting. In the water sector, circular economy approaches, including diversifying water sources, rehabilitating infrastructure, and addressing challenges like wastewater reuse barriers or the high cost of desalination are essential for resilience. Investment in resilient transportation, guided by infrastructure analysis and provided with adequate resources for maintenance, is vital for urban mobility and economic growth. Senegal’s Sustainable Urban Mobility Plan aims to transform cities like Dakar into green, people-oriented spaces, with improved public transportation and active mobility options, including the construction of Africa’s first bus rapid transit (BRT) system. Senegal’s cities also need better performing waste management systems that can sustainably handle increasing volumes of waste. Digital innovations, like smart city solutions integrating the Internet of Things (IoT) sensors and AI analytics, are pivotal for urban climate resilience and sustainability, for instance, against coastal erosion and urban flooding challenges. These technologies enable real-time monitoring of environmental conditions and infrastructure management. Furthermore, digital storage of land information enhances resilience by safeguarding critical data for postdisaster recovery efforts, facilitating compensation or insurance processes. Geospatial and mapping platforms identify flood risks and vulnerable neighborhoods, guiding targeted interventions, while predictive analytics forecasts extreme weather events for effective preparation. Implementing low-cost mobile network–based text messaging solutions can significantly enhance disaster response and awareness. To fully harness the benefits of digital innovations and technologies while mitigating risks, it is essential to implement robust cybersecurity and data privacy measures and to establish a regulatory framework that guides the ethical development and deployment of AI. If no action is taken to safeguard human capital, climate change will inflict severe consequences on future generations. Senegal © piccaya / iStock West Bank and Gaza Country Climate and Development Report 13 Climate change poses a long-term threat to Senegal’s young population and exacerbates gender and income inequalities. Climate-related shocks have immediate impacts through school closures, reduced water and food availability, increased disease transmission, economic losses, damage to health and education infrastructure, and long-term consequences through reduced education, health, and nutritional outcomes of children. Climate change also strains health, education, and social protection systems, increasing demand for services while impairing the systems’ ability to respond. Climate change disproportionately affect poor households, which are typically dependent on agriculture and natural resources. Poor households have limited ability to protect themselves from climate shocks, leading to negative coping strategies that harm long-term productivity and economic prospects. Women and girls are particularly vulnerable, facing constraints such as limited access to finance and resources, lower income, and social pressures. They also bear a disproportionate responsibility for securing natural resources. Social protection systems play a key role in mitigating the impacts of climate change by building household resilience through regular safety net programs and economic inclusion programs and providing timely assistance to households affected by climate shocks. Strengthening Senegal’s adaptive social protection (ASP) delivery system will be important to enable efficient expansion of social protection to shock-affected populations. This includes establishing robust digitized payment mechanisms, improving data safety and interoperability of the social registry, creating on-demand registration options to address the needs of climate migrants, and improving early warning efforts and coordination with DRM stakeholders. Social protection systems also play an important role in building households’ resilience before a shock hits. As such, Senegal’s ASP system needs to keep investing in climate-smart economic inclusion programs and in raising climate change awareness among safety net beneficiaries. The impacts of climate change will also worsen the health status of the Senegalese population. Strengthening Senegal’s health system to mitigate the negative impacts of climate change will require investing in climate-resilient and sustainable health infrastructures and technologies as well as ensuring an equitable distribution of health professionals and prioritizing the deployment of newly recruited health workers to climate-vulnerable rural communities. Improving disease surveillance systems to monitor and detect changes in disease patterns associated with climate change will be required, as well as providing training and capacity building for healthcare workers to recognize, prevent, and respond to climate-related health risks, including vector-borne diseases, heat-related illnesses, and mental health impacts. Adapting the education sector for greater resilience to climate change will ensure learning continuity in the face of shocks but can also foster skills acquisition for jobs suitable for climate resilience. Strengthening education systems will require investing in preschool and bilingual education, improving teaching methods to stimulate students’ interest and deploy teachers strategically. It will also require a better mapping of climate risks to assess schools’ exposure, significant investments in climate-resilient infrastructure to ensure their safety and functionality in the face of climate hazards, and curriculum reforms to raise awareness by integrating climate change considerations. Investing in human capital is essential for creating jobs that are resilient to the impacts of climate change and that can accompany the transition. This includes skills for renewable energy, sustainable agriculture, climate-resilient infrastructure, and green technologies. Human capital investment fosters innovation and entrepreneurship, leading to the creation of new businesses and job opportunities in emerging sectors related to climate change adaptation. Finally, a well-educated and skilled workforce is better equipped to cope with the impacts of climate change, contributing to the resilience of communities and reducing vulnerability to climate-related shocks. 14 West Bank and Gaza Country Climate and Development Report To support these measures, cross-sectoral policy and institutional actions are required to help operationalize top-down goals and objectives into bottom-up strategies and actions, mobilize resources for their implementation, and increase private sector readiness. Senegal is a party to the Paris Agreement on climate change and has committed to both adaptation objectives and GHG emissions reduction in its NDC. The NDC, submitted in 2020, is increasing in ambition compared to the Intended Nationally Determined Contribution, submitted in 2015. The NDC commits to a 5.0–7.0 percent reduction in GHG emissions by 2025–30 (below business as usual), making additional efforts conditional on external support (23.7–29.5 percent emission reduction by 2025–30). The NDC, costing measures for a total of US$13 billion, centers Senegal’s climate adaptation actions on monitoring, natural capital, and human capital while it focuses climate mitigation actions on the diversification of the energy mix. With its outstanding potential for oil and gas exploitation, Senegal anticipates that its fastest growth of emissions will stem from energy-related activities and intends to curb it. Senegal is developing a comprehensive climate change framework with the upcoming LTV until 2050, a subsequent strategic roadmap for its operationalization through a Long-Term Low-Emission Development Strategy (LT-LEDS), and the planned NDC update in 2025. Leveraging its international NDC commitments, Senegal continues to work on integrating climate change considerations into the strategic planning of its governmental actions and subsequent legal framework. Yet, in the absence of an updated, comprehensive, cross-sectoral national adaptation plan (NAP), the government increasingly prioritizes adaptation and resilience in a sectoral approach, with adaptation plans expected in a range of sectors. Senegal also still lacks a comprehensive climate change law and regulatory framework to achieve its adaptation and decarbonization goals. To date, there is no legal requirement for public sector organizations to include climate change dimensions in their policies, planning instruments, or budget processes. The country has committed to strengthening the budget process (through costing and tagging the NDC commitments in the national budget) and public investment appraisal framework (encompassing public investment and procurement processes) to effectively reflect its climate objectives. Work remains to be undertaken to fully operationalize this process through implementing decrees and building cross-government capacity. In the spirit of a needed whole-of-government approach, responsibilities and mandates would benefit from clearer articulation, along with a functioning forum for political decision-making and fact-based arbitrage. While the top priority lies in a comprehensive climate legislation, this will need to be mirrored by a strong cross-government coordination mechanism for climate change. To establish a robust and efficient inter- institutional coordination mechanism, Senegal could strengthen existing institutional and organizational arrangements to further optimize climate change governance. While the Ministry of Environment and Energy Transition (METE) has oversight of the NDC implementation, the Ministry of Economy, Planning, and Cooperation (MEPC) and the Ministry of Finance and Budget (MFB) are in a unique position to accelerate climate action at the pace and scale needed by elevating the issue and facilitating cross-sectoral dialogue and coordination, influencing development planning by ensuring it is fully climate-informed, leveraging fiscal instruments to orient financial and investment flows, and mobilizing new and innovative climate finance. To best inform such an inter-institutional coordination mechanism, an effective cross-government measurement, reporting, and verification (MRV) system would generate accurate and regular updates on the government’s mitigation and adaptation actions, as well as technology transfer, climate finance, and institutional capacity building. Achieving Senegal’s ambitious NDC goals will require substantial participation by the private sector, both in developing climate solutions and participating in their financing. While some climate solutions are emerging, public policies on mitigation are yet to be widely understood. Sixty-two percent of private sector operators are not aware of the government’s policies to reduce GHG emissions. The water, mining, and energy sectors are the most aware. Awareness of climate risks is low, while exposure in West Bank and Gaza Country Climate and Development Report 15 some sectors is high. The private sector is best placed, through its role as producer and distributor, to drive the greening of the economy. While the trend of private sector implementing climate solutions is encouraging, it is critical to accelerate this progress by developing sector-specific and affordable financing instruments. Climate financing needs are colossal, much higher than current levels of climate-related investments and financial flows. Bridging the gap will require the active engagement of both public and private sectors to mobilize resources at scale and orient investment and consumption decisions towards climate-compatible outcomes. A healthy private sector that invests in climate-resilient solutions and promotes efficient use of resources is indispensable for climate action to take place at the pace and scale needed. The CCDR identifies several areas where the government can act as an enabler by providing incentives (for example, aligning carbon prices), strengthening the domestic financial sector, tapping into DRF, and piloting innovative instruments to mobilize additional resources (for example, sustainability‑linked bonds and loans). The CCDR estimates the financing needs of climate action at US$1.36 billion per annum over to 2030 (in present value, discounted at 6 percent per year). This does not include climate change damages, which can cause significant economic losses. In contrast to the needs, the climate financing received by Senegal per year on average between 2019 and 2020 was US$561 million, representing 41 percent of the average annual needs. Senegal can avail itself of various financing opportunities to address its joint development and climate needs, drawing from a range of fiscal, sovereign, market, and concessional sources, as follows: y Carbon finance and energy subsidy reform are two complementary means to strengthen and align carbon prices domestically. Carbon markets hold significant potential for Senegal and should be pursued, following the country’s Article 6 strategy around strengthening the policy and institutional framework and related infrastructure (for example, registry), as well as supporting capacity and developing project pipelines. Finally, the implementation of the roadmap for energy subsidies reform will allow for more targeted subsidies to the most vulnerable and the alignment of prices with international markets. Launching the long-planned communication campaign will help increase understanding of the reform’s benefits and facilitate acceptation. y The domestic financial sector, which includes commercial banks, microfinance institutions, and other nonbank financial institutions, also has a critical role to play in funding private sector resilience and low-carbon-related investments, particularly for small and medium enterprises (SMEs). In the short to medium term, efforts should focus on understanding portfolio exposure to climate risks and developing a green taxonomy (in a harmonized fashion with the Central Bank of West African States or BCEAO) to track and encourage sustainable financing as well as on rolling out climate finance products and services for enterprises, including credit lines or credit guarantee schemes, for appropriate financing and capacity building on climate action. Concessional resources (from bilateral or multilateral sources) should continue to be sought, for instance, to back revolving credit lines or offer partial green credit guarantees to leverage private finance. Significant capacity building efforts should be deployed to assist banks and microfinance institutions identify, assess, develop projects, and report on green financing opportunities for both adaptation and mitigation. 16 West Bank and Gaza Country Climate and Development Report y Short-run priorities for DRF include elaborating a national DRF strategy and completing access to the Global Shield Financing Facility. Medium-run priorities focus on consolidating existing national contingency funds, joining regional DRF programs, and expanding coverage at both sovereign (against flood risks) and household levels (via new insurance products). y Senegal’s Sustainable Financing Framework, approved in September 2023, will help catalyze private sector capital. Market and blended finance options that Senegal can explore include sustainability-linked bonds or loans, outcome-based bonds, debt for development swaps, and climate FDI. Short-term priorities include finalizing key performance indicators for the Sustainable Financing Framework and developing a pipeline of climate-smart projects for sustainability-linked bonds or loans, while medium-term priorities include identifying blended finance options with international partners to cover incremental needs, derisk investments, and mobilize climate FDI via green bonds or structured finance for large infrastructure projects, for instance. West Bank and Gaza Country Climate and Development Report 17 18 West Bank and Gaza Country Climate and Development Report 20 West Bank and Gaza Country Climate and Development Report