Chapter 17 - Economics of adaptation

This chapter assesses the literature on the economics of climate change adaptation, building on the Fourth Assessment Report (AR4) and the increasing role that economic considerations are playing in adaptation decisionmaking and policy. AR4 provided a limited assessment of the costs and benefits of adaptation, based on narrow and fragmented sectoral and regional literature (Adger et al, 2007). Substantial advances have been made in the economics of climate change adaptation after AR4

Are we willing to give what it takes? Willingness to pay for climate change adaptation in developing countries

Climate change adaptation is gaining traction as a necessary policy alongside mitigation, particularly for developing countries, many of which lack the resources to adapt. However, funding for developing country adaptation remains woefully inadequate. This paper identifies the burden of responsibility that individuals in the UK are willing to incur in support of adaptation projects in developing countries. Results from a nationally representative survey indicate that UK residents are willing to contribute £27 per year (or a median of £6 per year) towards developing country adaptation (US$30 and$7 using the World Bank’s purchasing power conversion factors). This represents less than one third of the back-of-the-envelope $100-140 per capita per year that the authors estimate would be needed to raise the$70-100bn per year recommended by the World Bank to fund developing country adaptation. Regressions indicate that WTP is driven mostly by a combination of beliefs and perceptions about one’s own knowledge levels, rather than actual knowledge of climate change. We conclude that, to engage the many different audiences that make up the ‘public’, communication efforts must move beyond the simple provision of information and instead, connect with people’s existing values and beliefs

Assessing the value of seasonal climate forecasts for decision‐making

Seasonal climate forecasts (SCF) can support decision‐making and thus help society cope with and prepare for climate variability and change. The demand for understanding the value and benefits of using SCF in decision‐making processes can be associated with different logics. Two of these would be the need to justify public and private investment in the provision of SCF and demonstrating the gains and benefits of using SCF in specific decision‐making contexts. This paper reviews the main factors influencing how SCF is (or can be) valued in supporting decision‐making and the main methods and metrics currently used to perform such valuations. Our review results in four key findings: (a) there is a current emphasis on economic ex ante studies and the quantification of SCF value; (b) there are fundamental differences in how the value of SCF is defined and estimated across methods and approaches; (c) most valuation methods are unable to capture the differential benefits and risks of using SCF across spatiotemporal scales and groups; and (d) there is limited involvement of the decision‐makers in the valuation process. The paper concludes by providing some guiding principles towards more effective valuations of SCF, notably the need for a wider diversity and integration of methodological approaches. These should particularly embrace ex‐post, qualitative, and participatory approaches which allow co‐evaluation with decision‐makers so that more comprehensive and equitable SCF valuations can be developed in future

The Risk and Policy Space for Loss and Damage: Integrating Notions of Distributive and Compensatory Justice with Comprehensive Climate Risk Management

The Warsaw Loss and Damage Mechanism holds high appeal for complementing actions on climate change adaptation and mitigation, and for delivering needed support for tackling intolerable climate related-risks that will neither be addressed by mitigation nor by adaptation. Yet, negotiations under the UNFCCC are caught between demands for climate justice, understood as compensation, for increases in extreme and slow-onset event risk, and the reluctance of other parties to consider Loss and Damage outside of an adaptation framework. Working towards a jointly acceptable position we suggest an actionable way forward for the deliberations may be based on aligning comprehensive climate risk analytics with distributive and compensatory justice considerations. Our proposed framework involves in a short-medium term, needs-based perspective support for climate risk management beyond countries ability to absorb risk. In a medium-longer term, liability-based perspective we particularly suggest to consider liabilities attributable to anthropogenic climate change and associated impacts. We develop the framework based on principles of need and liability, and identify the policy space for Loss and Damage as composed of curative and transformative measures. Transformative measures, such as managed retreat, have already received attention in discussions on comprehensive climate risk management. Curative action is less clearly defined, and more contested. Among others, support for a climate displacement facility could qualify here. For both sets of measures, risk financing (such as ‘climate insurance’) emerges as an entry point for further policy action, as it holds potential for both risk management as well as compensation functions. To quantify the Loss and Damage space for specific countries, we suggest as one option to build on a risk layering approach that segments risk and risk interventions according to risk tolerance. An application to fiscal risks in Bangladesh and at the global scale provides an estimate of countries’ financial support needs for dealing with intolerable layers of flood risk. With many aspects of Loss and Damage being of immaterial nature, we finally suggest that our broad risk and justice approach in principle can also see application to issues such as migration and preservation of cultural heritage

Economic Analysis of Urban Fuelwood Demand - The case of Harare in Zimbabwe

This study carries out an economic analysis of the demand for fuelwood in urban areas using Harare, the capital city of Zimbabwe, as a case study. The demand for fuelwood in urban areas is one of the causes of several environmental and health problems in Africa, where the up to 90% of energy requirements are met by wood.The study first develops an energy mix model as the conceptual framework, using the energy ladder hypothesis as a starting point. The energy mix model is based on the fact that in any one period, urban households use multiple sources of energy. Consumer theory is used to underpin this reality, and link it to the analyses that fo11ow. System of demands is used in the empirical analysis, using the Almost Ideal Demand System (AIDS model), in linear approximate form, as the empirical model, incorporating the effects of other household characteristics in addition to income and prices. A multi-stage budgeting process is used the analyses, which assumes that households first decide how much of their total expenditures to a11ocate to energy, among other household goods. At the second stage, they decide how much of their total energy outlays to a11ocate to specific fuels. Empirical analyses are carried out using household survey data co11ected in Harare from a sample of 500 households.The share of energy in total expenditure is shown to be 13% and 11% for electrified and unelectrified households respectively. For a11 households, total energy expenditure increases with total household expenditure. Other factors that explain household differences in total energy expenditure shares are household size, energy-using appliances owned, the number of rooms owned, the number of families living together at the same property and the level of education of the household head. The main sources of energy are electricity, firewood and kerosene, accounting for 73%, 14% and 13% of total energy expenditure respectively. Electrified households spend 81 %, 9% and 10% of their total energy outlays on these fuels respectively, while unelectrified households spend 55% and 45% of their total energy budgets on firewood and kerosene respectively. Among electrified households, the share of the energy budget a11ocated to fuelwood increases as household size, the number of households living together at the same property, the number of rooms being used by a household, the prices of electricity and kerosene increase. It decreases with total household expenditure, the educational level of the household head, the value of energy appliances, the square of household size and the price of fuelwood. Among unelectrified households, the share of fuelwood in the energy budget increases with total energy expenditure, the value of appliances, household size, the educational level of the household head and the price of kerosene. It decreases with households living together at the same property, the square of household size, the number of rooms used and the price of fuelwood. The shares of other fuels estimated in the same system of equations respond in different ways to these variables. The main policy implication of the findings is that fuelwood demand management is best approached by taking the whole energy urban system into account. The specific management options are pointed to by the response of demand to the different demand variables. Total electrification will not eliminate urban fuelwood demand if other demand variables are not attended to