Download CRA Stern Dec06

DCC ROUNDTABLE ON ECONOMIC INSTRUMENTS FOR
CLIMATE CHANGE ADAPTATION
27 AUGUST 2008
Climate Change Adaptation Needs Actors and
Measured Benefits
Jack Pezzey
Fenner School of Environment and Society, ANU
Caveats
My first venture into economics of climate change
adaptation (CCA), though experienced in economics of
climate change mitigation (CCM)
Only 15 hours of reading went into this
Aimed at challenging assumptions and provoking
discussion, rather than accuracy
Agenda
Two hypotheses, with quotes from literature
Six examples of alternative government CCA policies
Survey of international, federal and state CCA documents
First hypothesis: "Paralysis of the passive",
with danger of crowding out
● In Oz policy documents on CCA, far too little thought given
so far to which actors are to do various CCA actions actions are to be done (by "we"), but who are "we"?
● Many answers should come from standard economic
analysis: government should do CCA (planned adaptation)
which gives public benefits, but should leave individuals
and businesses to do CCA (autonomous adaptation)
which gives private benefits
● Government spending on CCA with private benefits will
crowd out (prevent, at much higher cost) autonomous
CCA
Second hypothesis: Too little thought given
to measuring public benefits of CCA
● Too little thought given to what type of public benefits
expected from planned CCA, and whether they're big
enough to justify cost of CCA
● Generally true of CCA to maintain iconic Australian ways
of life
● Particularly true of CCA to maintain current patterns of
(human) population and population growth ─ because
avoids difficult but needed debates on which communities
will inevitably shrink, or must not grow, because of CC?
Statements from literature
● Fankhauser et al. (1999)
"...main role for government...to provide the right legal, regulatory and
socio-economic environment to support autonomous adaptation..."
"Providing the right incentives is therefore key..."
"...provision of public goods is also a typical area [for] government...."
● McKibbin & Wilcoxen (2003)
"role for government...is not to mandate...an amount of adaptation at
some point in the future ... Government needs to concentrate on
creating and preserving property rights and appropriately regulating
markets. It should focus on where public goods exist and where markets
may not produce the socially desirable outcomes. It should focus on
where there are serious coordination failures such as in federal and state
relations..."
Examples of alternative CCA policies
● Alpine ski industry
● Coastal development in Australia
● Biodiversity in the Alpine regions
● Agriculture in the Murray-Darling Basin
● Canberra January 2003 bushfire
● Federal immigration policy
Alpine ski industry
(a) Governments do nothing but provide best available
information from climatic research about the likely future
effect of CC on reducing skiable snow. Ski resorts adapt by
spending more on snowmaking, and passing on the costs
to skiers as higher prices. Skiing, and local employment
and population, gradually shrinks over: autonomous CCA.
(b) Because of a impression given to voters that it will
maintain rural population and employment despite CC,
government feels obliged to subsidise snow-making, at
ever-rising cost. Local employment and skier visitation
remains constant: autonomous CCA has been crowded out.
Coastal development in Australia
(a) Government requires all new homes to have flood insurance,
thus creating demand. Supply from insurers is enabled by risk
information publicly available. Builders choose not to build in
highest risk coastal areas, because buyers will not pay required
insurance premiums. Future floods in coastal areas cause less
damage because no new homes in the riskiest areas:
autonomous adaptation.
(b) Government assures all homeowners will receive compensation
if flooded, thus crowding out insurance demand. Builders build
new homes irrespective of flood risk; future floods inundate
thousands more homes than under (a); compensation costs to
taxpayers are enormous.
BUT does CC uncertainty make some climate risks uninsurable?
Biodiversity in the Alpine regions
Rare plants and animals in Australia's alpine region clearly
have public value, which justifies some taxpayer spending
on research into what CCA actions might be possible
However, some (fairly cheap, economic) research into the $$
scale of such values may inform $$ scale of expensive,
scientific research.
Seems likely that for some species nothing will be possible,
and extinction is unavoidable; if so, should be explicit, since
then need to end some hopeless lines of research.
Agriculture in the Murray-Darling Basin
(a) Government provides nothing more than the best available
climatic information. Industry declines even faster than now
(→ more than 1.5%/yr popn declines over last 5 yr in 13
local govt areas in W NSW): pure autonomous CCA.
(b) Government gives disguised subsidies, e.g. assistance for
(no longer) Exceptional Circumstances, or for investment in
more water-efficient irrigation systems (Wong 2008b).
Because subsidies disguised, less incentive to make them
efficient in aim of slowing autonomous population decline.
(c) As (b), but govt explicitly states iconic value of MurrayDarling farming populations → better value subsidies?
Canberra January 2003 bushfire
● Would less homes have been burnt if more CCA planning,
both within and between NSW and the ACT, had led to
delegation by the ACT of its firefighting authority to NSW
under certain climatic conditions?
● Were data on fire risks in streets next to pine plantations
available to insurance companies? Would they have led to
higher insurance premia, and thus pressure from Duffy
residents to have the plantation removed?
● Or were conditions of January 2003 bushfire essentially
unforeseeable, because of CC?
Federal immigration policy
● Immigration is main source of popn. growth in fastest-growing
areas like Sydney Basin and S.E. Qld, & could greatly
worsen water shortages as CC reduces supplies.
● So surely a need to debate immigration policy in context of
CCA. But nothing on DIAC website; no mention of CC at all
● Suggest reason for lack of debate is over-reporting of
benefits of immigration, in two main ways:
reporting effect on total not per person economic output;
failing to distinguish (+ve) effects on people who currently own
land and/or businesses from (-ve) effects on those who don't
Quick, incomplete survey of CCA policies
● IPCC (2007, 4th Assessment Report, Working Grp II):
Very little on autonomous CCA, nothing on crowding out
● DCC (current webpage on How to adapt):
"businesses, governments and the community" are advised (without
differentiation) to "Plan early / Be systematic and strategic / Use the
best information / Be flexible"
No mentions of: autonomous CCA, crowding out, population
or immigration policy, or even link to:
● COAG (2007 Climate Change Adaptation Framework)
No mention of autonomous CCA, crowding out, or population/
migration other than as a force of nature
● NSW (webpage on Adapting to climate change):
No mentions of: roles and responsibilities, autonomous CCA,
crowding out, but there is a link to COAG CCAF
● ACT (webpage on Climate Change Policy - Our Challenge)
"We need...to adapt to the changes that will occur. This is a challenge the
whole ACT community must embrace." (the entire policy)
● QLD (2007 ClimateSmart 2050 document)
Focuses more on CCM; makes no mention of autonomous
CCA, crowding out, or human migration / population other
than as a force of nature.
● VIC (2008, A Climate of Opportunity document):
Substantial discussion of responsibilities, autonomous CCA:
"To effectively address climate change, all levels of government need to
establish shared goals, with a clear division of responsibility. ...
"Where there are private benefits, individuals and businesses are generally
best placed to manage some risks and therefore should take
reasonable steps to manage their exposure to climate change risks."
─ but many details of responsibilities and benefits TBA