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Economic analysis of adaptation: challenges and possible solutions
Dealing with uncertainty: beyond CBA
Summary and conclusions
Source: Adapted from IPCC 2007. What do we have to prepare for? Unsuccessful mitigation Unavoidable warming Successful mitigation
Adapting to climate change: the example of agriculture Adaptation classification Examples Autonomous / private Sectoral Change crops, crop calendars, irrigation schedules Economy-wide Market adjustments in crop prices reflect new production levels / scarcity Planned / public Hard “ Climate proof” infrastructure: irrigation systems, rural roads, … Soft Seasonal climate forecasts, capacity building, research and extension on drought resistant crops, local institutions, economic incentives for efficient water use
Is investing in climate change adaptation economically justified?
At the global/sectoral level: a few studies attempting to estimate
Optimal adaptation-mitigation policy mix
Total adaptation costs, under a specified temperature increase (EEA 2007, World Bank 2010)
At the national level: some cost and cost-benefit studies (i.e., Carraro ed. 2009 for Italy)
At the project level: generally poor economic analysis
Step 1: Evaluating the costs of CC on agriculture (2/3) Farm value = f (farm characteristics, soil type, climate variables, etc.) 2. This information can be used to estimate how climate change affects agriculture productivity after farmers have adapted to it
Estimates how climate variables affect land values
AGRONOMIC RICARDIAN India (nationwide) : Climate change impacts in drought and flood affected areas Africa, China, Brazil, India, Egypt, etc. (nationwide) Morocco (nationwide) : Adaptation to climate change in the agriculture sector Bangladesh (nationwide) : Implications of Climate Change on food security: adaptation responses China (project level) : Mainstreaming climate change adaptation in irrigated agriculture
Step 1: Evaluating the costs of CC on agriculture ( 3/3 ) Alternative 3: Probabilistic methods May be applied to impacts of extreme events, but a better grasp on probabilities is a pre-condition Without adaptation With adaptation Loss Exceedance Probability
Assesses how different investments perform under a wide range of possible futures
Identifies the determinants of vulnerability of alternative project options
Points to “robust” alternatives that perform well across a wide range of possible futures
It does not rely on probability functions
Good when uncertainty is high, but sophisticated approach
Non-economic approach: “Robust” decision analysis
Example: investment decisions of a water supply agency in California Source: Groves et al. 2008 Hundreds of scenarios explore assumptions about climate change, resource-development, urban growth, program costs,... Scenarios evaluated according to the cost of supplying water to the end users plus the costs of incurring any shortages. Most important uncertain factors in generating high-cost scenarios identified.
Carraro ed. (2009) Climate Change and Adaptation Strategies in Italy — An Economic Evaluation. Il Mulino.
Fankhauser, S. (2006). The Economics of Adaptation. Background Document for the Stern Review.
Groves D. G., Knopman D., Lempert R. J., Berry S. H., Wainfan L. (2008). Presenting Uncertainty About Climate Change to Water-Resource Managers (Technical Report TR-505, Santa Monica CA, RAND Corporation).
Scandizzo P. L. and Notaro C. (2008) Adapting to Climate Change: A Case Study of Project Evaluation through Real Option Theory. Background Report for “ Low Carbon, High Growth: Latin-American Responses to Climate Change - An Overview”. By Augusto de la Torre, Pablo Fajnzylber, and John Nash. Washington DC: The World Bank, 2009.
Stern N. H. (2007) The Economics of Climate Change: The Stern Review. Cambridge University Press, Cambridge, UK
World Bank 2010 Economics of adaptation to climate change (www.worldbank.org/eacc)
PUBLICATION "Economic Evaluation of Climate Change Adaptation Projects - Approaches for the Agricultural Sector and Beyond": http://siteresources.worldbank.org/ENVIRONMENT/Resources/DevCC1_Adaptation.pdf GUIDANCE NOTE "Evaluate adaptation via economic analysis“: http://climatechange.worldbank.org/climatechange/content/note-7-evaluate-adaptation-economic-analysis Other guidance notes: www.worldbank.org/adaptnotes Contact: [email_address] Thank you!