Critical Investments in Key Sectors Can Help Lebanon Mitigate Climate Change Impact on Growth and Prepare for a Green Transition

BEIRUT – No-regret investments in key service sectors like energy, water, transport and solid waste are urgently needed in the short-term to mitigate the impact of climate change on Lebanon’s development path, according to a new World Bank report released today. Despite the country’s strained fiscal and institutional context, the cost of inaction is high. Critical investments with limited macro-fiscal impact can help spur growth.

The Lebanon Country Climate and Development Report (CCDR) maps out mounting climate risks to Lebanon and their potential impact on the country’s growth and development path. Building on quantitative modeling-based analytics, existing research and country diagnostics, and stakeholder consultations, the CCDR examines four sectors – Energy, Water, Transport and Solid Waste – as key pillars of a climate-responsive recovery. The report identifies policy actions and investments needed under two macroeconomic scenarios: a business-as-usual muddling through scenario which assumes continued stalling reforms, a tight fiscal space and shortage of private sector financing; and a reforms-based recovery scenario which assumes that macro-fiscal reforms will be adopted that will gradually ease financing constraints and increase fiscal space.

Lebanon is among the countries least prepared to face climate change, ranking second to Yemen in the MENA region and in the 161st position out of 192 countries globally in climate change readiness. At the root of this vulnerability is the country’s limited adaptive capacity, which has been further exacerbated by the ongoing economic and financial crisis. The latter has severely weakened Lebanon’s human, natural, and physical capital. It has also drastically compromised public finances, impeding the capacity to invest in mitigation measures and to prevent deterioration in public services in sectors like energy and solid waste and wastewater management thus accelerating environmental degradation.

Climate change in Lebanon will result in more frequent extreme weather events. Climate shocks are projected to affect Lebanon’s GDP and fiscal balance, and to increase the debt-to-GDP ratio. Overall, the climate change impacts covered in the CCDR are projected to reduce Lebanon’s growth potential by up to 2% annually by 2040 and impede service provision, especially in water. Climate change is projected to decrease water availability by up to 9% by 2040 (up to 50% during the dry season) and induce significant losses in key recovery-driving sectors, particularly agriculture and tourism with yearly losses projected to reach respectively up to US$250 million and US$75 million, threatening the livelihoods of a large portion of the population.

“Climate change poses a real threat to any country’s development prospects. Lebanon is no exception: the cost of inaction today will be too high for future generations,” said Jean-Christophe Carret, World Bank Middle East Country Director.”Given the limited fiscal space, institutional and development challenges, Lebanon needs to prioritize and sequence recommended measures and interventions in the energy, water, transport and solid waste sectors, reflecting their urgency, synergies, and trade-offs in responding to development and climate needs.”

According to the report, decarbonizing Lebanon’s power sector offers a triple dividend: reducing economic costs by 41%, lowering emissions by 43% and improving macro-fiscal outcomes through lower fuel imports. Expanding renewable energy will not only reduce costs and meet growing demand but will also slow emissions generation and create more job opportunities. In the water sector, building climate-adaptive capacity is essential to increase water security through additional storage capacity, increased water use efficiency, and restoring resilient water services. Beyond the power and water sectors, promoting electrification of public transport and improving solid waste management present opportunities to advance the development and climate agendas simultaneously.

Increasing Lebanon’s capacity to adapt to climate shocks depends on how quickly it recovers from its current crisis and invests in adaptation measures, especially in the water, agricultural, tourism, and transport sectors. The Lebanon CCDR assesses the impact of an urgent financing envelope of U$770 million that responds, in the short term (2024-26), and under any scenario, to partial yet critical needs in the four sectors. Macroeconomic modeling of the impacts of the priority investment package showed that it would not place debt on an unsustainable footing. Mobilizing private sector financing can help enhance the fiscal and debt dynamics reducing the government’s share of total investment spending.

In the longer term, the CCDR also estimates that Lebanon will need to invest approximately US$7.6 billion between 2024 and 2030 in the four key sectors covered in the report to align its recovery with cost-effective climate action. The capital-intensive energy sector alone would require approximately US$4 billion in investment to diversify the generation mix toward cleaner, affordable renewable energy sources and to switch from liquid fuel to natural gas.

The report also underscores the important of empowering Lebanon’s private sector, improving governance, and adopting a whole-of-society approach to climate change as critical elements for Lebanon’s green recovery.

World Bank Group Country Climate and Development Reports: The World Bank Group’s Country Climate and Development Reports (CCDRs) are new core diagnostic reports that integrate climate change and development considerations. They will help countries prioritize the most impactful actions to reduce greenhouse gas (GHG) emissions and boost adaptation while delivering on broader development goals. CCDRs build on data and rigorous research and identify main pathways to reduce GHG emissions and climate vulnerabilities, including the costs and challenges as well as benefits and opportunities from doing so. The reports suggest concrete, priority actions to support the low-carbon, resilient transition. As public documents, CCDRs aim to inform governments, citizens, the private sector, and development partners and enable engagements with the development and climate agenda. CCDRs will feed into other core Bank Group diagnostics, country engagements, and operations to help attract funding and direct financing for high-impact climate action.