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Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
The Economics of
Presentation
Title
Climate Change
Adaptation
Bangkok 2012
Robert Mendelsohn
Yale University
Policy Questions
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What is adaptation?
What is the objective of adaptation?
What should be done?
When should they occur?
Where should they be done?
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
What is adaptation?
• Change in behavior in response to climate
change.
• Examples: alter infrastructure, use air
conditioning, change to heat-loving crops,
alter water management, control new
diseases
• Not reduction in greenhouse gas emissions
as the primary objective- that is mitigation
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Autonomous Adaptation
• Autonomous
– private decision for private benefit
– self interest to perform
– will be done without policy
• Examples:
– Farmer shifting from crops to animals
– Forester changing timber species
– Household installing and using cooling
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Public Adaptation
• Adaptations that benefit many (jointly
consumed)
• Market will struggle to produce
• Requires government to act
• Examples
– Conservation
– Flood control planning
– Technical change
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Reactive Adaptation
• Wait until climate changes and then adapt
• Ideal for short run decisions- use cost benefit
analysis
• Because reactive adaptation depends on
observed weather, climate change is certain
• Requires decision maker to be up to date
about the climate
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Planned Adaptation
• Make decision now before climate changes
• Necessary for long run decisions such as
capital investments
• Drawback is that local climate change is
uncertain
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Objective of All Adaptation
• Maximize net benefits (benefits minus costs)
given that local climate has changed
• Match to local climate change impacts
• Not “climate proofing”- some damages will
persist- don’t spend $2 to get rid of a $1
problem
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
What Economic Tool to Use?
• Project analysis requires a cost benefit study
weighing alternatives of project design
• Large scale analyses for entire sectors
requires market analyses to see how entire
economic system is affected
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Example of Project Analysis:
Cost Benefit
• Suppose a low dam costs $1 billion, a high
dam costs $1.5 billion and with current
climate, a low dam has benefits of $1.2
billion and high dam of $1.6 billion- low dam
is better with $200 million net gain
• With future wetter climate, suppose benefit of
low dam rises to $1.3 billion and benefit of
high dam rises to $2 billion- high dam now
better option with $500 million net gain
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
System Wide Change:
Market Analysis
• Suppose adaptation involves farmers shifting from
maize to fruit (more heat loving)
• At current prices, many farmers would switch as
climate warms
• However, as supply of maize falls, maize price rises
and as supply of fruit increases, fruit price falls.
• System wide adjustment suggests that less farmers
should make switch given price changes
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Where Should Adaptation be Done?
• Everywhere, but priority to places where
climate change is having largest impact (low
latitudes)- more people- more sensitive
• Not necessarily places with largest climate
change (Arctic)
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
What sectors are at risk?
• Market: agriculture by far the largest, energy,
water, coastal, and forestry
• Nonmarket: ecosystem change (species
loss, shifting systems), health, recreation
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
How will impacts be distributed?
• Impacts fall most heavily in low latitude poor
countries (could bear 70+% of damages)
• Benefits in mid to high latitude countries
• Impacts grow with time as climate continues
to change
• Impacts vary depending on the climate
model
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
HAD3 exp 2020
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Can detailed impacts be predicted?
• Impact analyses reveals hill shaped
relationship with temperature (and
precipitation)
• Benefits to farms and people in cool
locations
• Damages to farms and people in warm
locations
• Impacts vary a great deal across the
landscape
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Marginal temperature effect on
rainfed farms in China
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Marginal temperature effect on
irrigated farms in China
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Timing
• Timing is critical to success of many adaptations
• Done too soon, raises cost and can be ineffective
(new crop before warm enough will not grow well)
• Done too late, damages can be large (as if there is
no adaptation)
• Matching adaptation to potential damages, the bulk
of adaptation actions need to be done in the
second half of this century
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Global Net Market Impacts over Time
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
What should governments do?
• Help autonomous adaptation
– Encourage private responsibility for resources
– Inform private actors of climate changes and
adaptation options
• Manage public adaptations (shared benefits,
externalities)
• Address fairness of impacts
(Equity/Inequality issues)
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Common Property
• Requires collective action to protect
• Individual users will not adapt
• Overharvest common forests or fisheries,
overgraze grasslands, overutilize water
resources
• Climate change will make these current
problems worse by making these resources
more scarce
• Need to increase responsibility over
management of resources (property rights
issue)
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Nonmarket Adaptations
• Public health responses to potential illnesses
and heat stress
• Retreat options for marshes and mangroves
against sea level rise
• Flexible conservation zones for species
migration to new habitat
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Externalities
• Secondary ozone pollution formation will
require tighter regulations on emissions
• Flooding will require system wide land use
regulations and flood control planning
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Severe Weather Events
• Adapt now to hurricanes, droughts, and
floods because current problem
• Severe events likely to cause more damage
in the future as economy grows
• If severe event frequency or severity
changes, adjust programs accordingly
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
Can poor adapt?
• Poor do autonomous adaptation
• For example, household farms may adapt
better than commercial farms because more
diversified (less specialized)
• Can help poor for equity reasons: but must
be careful not to provide mal-incentives
discouraging adaptation such as subsidized
insurance (market distortions)
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action
What adaptation can be done now?
• Reactive adaptation to the current climate
• Manage public adaptation (conservation, health,
coastal protection)
• Engage in planning and research to get ready
• Encourage institutional changes: improve public
management and markets for natural resources
(land, water, fisheries)
• Help developing economies grow and move away
from climate-sensitive economic sectors- such as
agriculture
Capacity Building Programme on the Economics of Adaptation
Supporting National/Sub-National Adaptation Planning and Action