The Economics of Climate Change Adaptation UNDP Accra 2012 Robert Mendelsohn Yale University

Policy Questions What is adaptation? What adaptations are efficient? When should they occur? Where should they be done?

What is adaptation? Change in behavior in response to climate change. Examples: avoid running in hot afternoon, change to heat-loving crops, adjust water management, control disease causing pests

Objective of Adaptation Maximize net benefits (benefits minus costs) given that local climate has changed –Equate marginal benefit to marginal cost Depends on local conditions –Local climate –Local market –Other local factors

Where Should Adaptation be Done? Everywhere, but priority to places where climate change is having largest impact -Low latitudes could bear 70% of damages of climate change because already hot Not necessarily places with largest climate change (north pole)

What sectors are at risk? Market: agriculture by far the largest, energy, water, coastal, and forestry Nonmarket: ecosystem change (species loss, shifting systems), disease, heat stress, cold stress, recreation

Can detailed impacts be predicted? Most analyses of climate impacts reveal hill-shaped relationship with temperature Benefits to farms in cool locations Damages to farms in warm locations Impacts vary a great deal across the landscape

Marginal impacts of Temperature and Precipitation

Timing Timing of many adaptation actions 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) Because adaptation actions must wait for climate to change, the bulk of adaptation actions need to be done in the second half of this century

Autonomous Adaptation Autonomous –Private benefit for actor –Self interest to perform –Will be done without help –Most often done after climate changes Examples: –Shifting from crops to animals –Switching crop and animal species –Changing timber species

Public Adaptations Benefit many (jointly consumed) Require coordination (government) Examples –Conservation –Water planning –Flood control –Storm warning –Technical change

What should governments do? Help create setting to encourage markets and private ownership of private resources –Encourage long term use rights –Enforce private property rights Manage public adaptations (conservation, public resources, externalities) Address fairness issues

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 encourage long term use rights

Nonmarket Adaptations Public health responses to potential illnesses and heat stress Retreat options for marshes and mangroves against sea level rise Flexible and dynamic conservation management for species migration to new habitat

Externalities Secondary ozone pollution formation will require tighter regulations on emissions Flooding will require land use regulations and flood control

Severe Weather Events Can adapt now to hurricanes, droughts, floods because current problem Severe events likely to cause more damage in the future as economy grows Greenhouse gases may make events more intense of frequent

Can poor adapt? Poor can do autonomous adaptation Household farms may adapt better than commercial farms because less specialized May help poor adapt for equity reasons: they are low income and unlikely to have contributed much to emissions

Additionality Unfair to expect climate change funds to pay for development Yet focus on additionality will hamper efforts to proceed-too difficult to parse out what is adaptation versus development Recommend new focus on integration between climate adaptation and development

Policy Suggestions Do not confuse adaptation and mitigation Providing assistance for mitigation does not help a poor country cope with climate change

What adaptation can be done now? Focus on funding public adaptation where needed and when it is needed Do planning and research to get ready Encourage institutional changes: improve public management and markets for natural resources (land, water, fisheries) Help developing countries grow and become less dependent on climate sensitive economic sectors- namely agriculture