Worldly Philosopher: Costing Adaptation in the Developing World
This week's Worldly Philosopher, Anthony Bonen, discusses how even the best models for estimating the costs of adapting to climate change are still a guessing game.
Estimates of the social cost of carbon (SCC) focus almost exclusively on the net benefit/loss of mitigating climate change. The cost of adapting to the unmitigated impacts of climate change remains an even more elusive figure. Properly calculated, however, SCC should include both dimensions.
As discussed in an earlier SCEPA working paper, SCC model estimates of mitigation costs are notoriously difficult to pin down. But, after being asked to give a presentation on adaptation, I soon learned that there is far less certainty in these costs. For developing countries, estimating the cost of climate change adaptation is essential. Their success or failure in saving lives, reducing poverty and becoming resilient to climate change depends in large measure on how much support – financial, logistic and political – the industrialized world is willing to provide.
Systematic efforts to estimate the global cost of adapting to climate change began in earnest only in 2006 with a World Bank study of investment flows in the developing world [1].1 The second generation of adaptation estimates relies on impact-level assessments. The best example of these more detailed, but still top-down, studies is the World Bank's report [2]. The IPCC's chapter on the Economics of Adaptation [3] calls it "[t]he most recent and most comprehensive to date global adaptation costs [in which] costs range from US$70 to more than US$100 billion annually by 2050." The conservative estimates for each of the 6 sectors are reproduced in Table 1.
Each sector relies on different models and parameters, but the basic approach is the same. An integrated assessment model (IAM) is projected forward to 2050 under the assumption of no climate change (no-CC). The ecological, social and economic output variables are then compared to the same model run in which the global mean temperature rises 2C above the pre-industrial norm. Required adaptation is then defined as the cost of paying for policy instruments that would return the output variables to the levels estimated under the no-CC scenario.
All told, the cost of the developing world adapting to climate change is undoubtedly under-estimated by the World Bank's study. The UN Environmental Programme's [4] recent critique argues that the costs are "plausibly four or five times higher." In particular, the World Bank figures ignore bottom-up estimates of specific projects. A World Bank project, for example, to protect Ethiopia's electrical infrastructure against increased flooding risk is estimated at $1.2-5.8 billion/yr – or up to 8% of the global cost estimate. A fulsome bottom-up costing of adaptation projects would be preferable, but this has yet to be done.
In spite of all of these problems, the IPCC's assessment of the World Bank study is correct: it remains the most comprehensive study of adaptation costs to date. And yet, this study is a woeful under-estimate of the global cost of adaptation – especially if one considers the possibility of climate change at a greater-than 2C level.
1This report and a later one by the UNFCCC (2007) were strongly repudiated for their simplistic approach of costing adaptation by scaling up current investment flows by guessed-at fraction of "climate-sensitive" capital in the developing world (see Parry et al. 2009).
2The EU-funded econadapt.eu project is aimed at this very task, but remains in the early phase of development.
[1] UNFCCC. (2007). Investment and Financial Flows to address Climate Change. United Nations Framework Convention on Climate Change (UNFCCC).
[2] World Bank. (2010). Economics of Adaptation to Climate Change: Synthesis Report. Washington, DC: World Bank.
[3] Chambwera, M et al. (2014). "Economics of Adaptation". In C. B. Field, et al. (Eds.), Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (pp. 945–977). Cambridge, UK: Cambridge University Press.
[4] UNEP. (2014). The Adaptation Gap Report 2014. Nairobi, Kenya: United Nations Environment Programme (UNEP) (pp.33).
