The Economics of Adaptation to Climate Change and Its Main Challenges

See Lindoso and Araújo (2013), pp. 107–123. See also, for example: Page (2006), p. 23.

Arrhenius (1986), pp. 237–276. Arrhenius’s paper is the first to quantify the contribution of carbon dioxide (“carbonic acid”) to the greenhouse effect and to speculate about whether variations in the atmospheric concentration of carbon dioxide have contributed to long-term variations in climate. Even before (in 1856), Eunice N. Foote was the first to hypothesize that changing amounts of CO₂ in the atmosphere would alter the climate: “An atmosphere of that [‘carbonic acid’] gas would give to our earth a high temperature”: see Foote (1856), p. 383.

Callendar (1938), pp. 223–240. Although Callendar attributed the rise in average air temperature to the buildup of carbon dioxide from the burning of fossil fuels, he thought this warming would be beneficial: “In conclusion it may be said that the combustion of fossil fuel [...] is likely to prove beneficial to mankind in several ways, besides the provision of heat and power. In any case, the return of the deadly glaciers should be delayed indefinitely.” (236).

Keeling (1960), pp. 200–203.

Phillips (1956), pp. 123–164. According to Edwards, Paul N.. 2011. History of climate modeling, WIREs Climate Change, No. 2, 131, “The first person to attempt a computerized GCM [General Circulation Model] was Norman Phillips at Princeton’s Institute for Advanced Study. Phillips applied nascent NWP [Numerical Weather Prediction] techniques, completing a 2-layer, hemispheric, quasi-geostrophic computer model in mid-1955.”

See, for example: Emiliani (1955), pp. 538–578; also Emiliani (1972), p. 400: “[...] man’s interference with climate through deforestation, urban development, and pollution must be viewed with alarm. If the present climatic balance is not maintained, we may soon be confronted with either a runaway glaciation or a runaway deglaciation, both of which would generate unacceptable environmental stresses.”

See Page (2006), p. 25, table 2.1.

Ehrlich (1968). The Population Bomb, Ballantine Books. The words for the title were first used on the cover of a pamphlet issued by the Hugh Moore Fund in 1954. Not surprisingly, this book was inspired by two 1948 neo-Malthusian books: Osborn (1948); Vogt (1948).

Georgescu-Roegen (1971). According to N. Georgescu-Roegen (1986), the essay for his 1966 Analytical Economics, “which by way of a second edition turned into the 1971 volume”, had one main idea: “that the economic process is entropic in all its material fibers”.

Meadows et al. (1972).

About the concept (and its origins), see: Simonet (2009), pp. 392–401.

Other examples—referred by de Murieta et al. (2015), p. 20—are: “Efficient cooling systems, desalination technologies or increasingly advanced weather forecasts that anticipate extreme events are examples of how technology can enhance adaptive capacity.” To understand the importance of this last example (“advanced weather forecasts”), the 2004 Indian Ocean earthquake and tsunami or, even before that, in 1999, the cyclone Lothar, with its virtually undetectable superfast approach to Europe must be remembered. Extreme events like these, quite hard to anticipate, are a big challenge for those who wish to integrate them into an economic model regarding their potential impacts, although some methodologies can be applied. For example, according to de Murieta et al. (2015), p. 21, “Okuyama offers an exhaustive review of methodologies for disaster impact analysis, such as input-output (IO), social accounting matrix (SAM), computable general equilibrium (CGE) and econometric models, each method showing strong and weak features (e.g., IO and SAM tend to overestimate economic impacts while CGE may lead to underestimations).”

Vide Article 4, paragraph 3. The “developed Parties included in annex II shall also assist the developing country Parties that are particularly vulnerable to the adverse effects of climate change in meeting costs of adaptation to those adverse effects.” (Paragraph 4). However, it is debatable which developing country parties are “particularly vulnerable”; in this regard, vide Klein (2009), pp. 284–291.

See Dannenberg et al. (2009), p. 1.

See Nordhaus (1991), pp. 920–937.

About the trade-off between mitigation and adaptation, see infra (III.2.3.) and also: Grasso (2010), p. 13.

Burton et al. (2001), p. 881. See also: Berry (2009), p. 282.

In this regard, see, e.g.: Nordhaus (2019), p. 2006.

Mimura (2010), p. 132.

Parry et al. (2007), p. 27. Other definitions of adaptation can be found, e.g., in Agrawal (2018), p. 152.

“Adaptation is adjustment in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts. This term refers to changes in processes, practices, or structures to moderate or offset potential damages or to take advantage of opportunities associated with changes in climate. It involves adjustments to reduce the vulnerability of communities, regions, or activities to climatic change and variability.”: Burton et al. (2001), p. 881.

That is why some invoke a so-called triple dividend of adaptation “avoiding future human, natural and material losses; generating economic benefits by reducing risks, increasing productivity, and stimulating innovation; and the social, environmental and cultural benefits”. (Communication from the Commission COM (2021) 82 final, 24.2.2021).

See Smit et al. (1999), p. 203.

Recognized as a separate concept from adaptation in 2008. About the concept of loss and damage, see, e.g.: Mathew and Akter (2017), pp. 17–45.

About these and their impact, see, e.g.: Lisa and Schipper (2020), pp. 409–414.

About this concept, see, for example: Eakin and Luers (2006), pp. 365–394.

On the other hand, the creation of the artificial island of Hulhumalé by the Maldives (in the 1990s) was (and, it seems, still is) a good adaptation to the sea level rise, at least until the end of this century: see Brown et al. (2020), p. e12567.

See Parry and Martens (1999), p. 233: “Restoration [is a type of adaptation that] aims to restore a system to its original condition following damage or modification due to climate [though] [t]his is not strictly an adaptation to climate”.

Restoration should only mean, as in the recent Proposal for a Nature Restoration Law by the European Commission, the adoption of measures to repair and rehabilitate current habitats in a poor condition.

de Murieta et al. (2015), p. 6.

United Nations Environment Programme (2021), p. 17, Figure 3.2. Progression of global adaptation planning since 2020.

In the last 5 years, a number of subnational adaptation plans have also emerged in Portugal: Planos Metropolitanos de Adaptação às Alterações Climáticas – PMAAC-AML / PMAAC-AMP (Lisbon and Oporto metropolitan areas), Planos Municipais de Adaptação às Alterações Climáticas (municipalities), and Planos Locais de Adaptação às Alterações Climáticas – PLAAC (for example, PLAAC-Arrábida).

See NWP. 2021, Assessing the Costs and Benefits of Adaptation Options. An Overview of Approaches. Bonn, United Nations Climate Change Secretariat, 45.

See Burton et al. (1998), pp. 5–12.

A CBA is often used to assess adaptation options when efficiency is the only decision-making criteria. A CBA involves calculating and comparing all of the costs and benefits that are expressed in monetary terms (this can mean that non-market costs and benefits are excluded).

The CEA is often used to find the least costly adaptation option for meeting selected targets. The CEA is usually applied in assessing adaptation options in areas where benefits are difficult to express in monetary terms.

The MCDA allows assessment of different adaptation options against a number of criteria. Each criterion is given a weighting. Using this weighting, an overall score for each adaptation option is obtained, and the adaptation option with the highest score is selected.

The BECCA are subdivided into outcome and process-criteria (and each one is subdivided into several subcategories or criteria stricto sensu). The seven outcome criteria categories are: Effectiveness, efficiency, equity, side effects, acceptability, coherence (external and internal) and robustness. The process criteria categories are: Adaptive capacity, dependencies, deliverability and feasibility, flexibility, participation and lessons learnt. See, e.g.: Campos et al. (2018), p. 147.

See Carter et al. (1994).

See Mendelsohn (2000), p. 585.

On this particular uncertainty, see, for example: Markandya (2015), p. 99.

See Watson et al. (1995), p. 23.

See Callaway et al. (2016), p. 2.

de Murieta et al. (2015), p. 7.

Tröltzsch et al. (2016), pp. 27–33 and 37 ss.

Additional alternatives can be found, e.g., in Markandya (2015), p. 110.

Regarding these distributive impacts, see in more depth, for example: Hunt and Fergunson (2014), pp. 120–37.

See Hunt and Fergunson (2014), p. 127, Table 6.2.

See Mimura et al. (2014), p. 880. See, also, e.g.: Huq (2011), p. 293 ss.

See, again, Mimura et al. (2014), p. 880: “Sources of public financing for adaptation include contributions from national budgets, multilateral and bilateral development funds, and UNFCCC operational funds – the Adaptation Fund, the Least Developed Countries Fund, and the Special Climate Change Fund [...]. A potentially key source of future public financing for adaptation is the Green Climate Fund that was officially designated at the 17th Conference of the Parties to the UNFCCC in Durban [in 2018, this fund already represented, according to the UNFCCC, 67% of total funding through multilateral climate funds]. [...]. Private financing for adaptation is primarily of two types: debt and equity. Debt-based financing typically consists of loans (e.g., bank loans) or bonds that must be paid back over time with interest. Equity-based financing generally involves a transfer of ownership rights through stocks or other assets. Export credits and foreign direct investment are two additional potential forms of private financing for adaptation. [...] Foreign direct investment is seen as having only limited potential for adaptation financing because it is highly concentrated in a few sectors and in a limited number of countries.”

Vide United Nations Environment Programme (2021), p. 24.

SCF (2021), p. 107.

For example, the expected results for the Green Climate Fund were 111 million direct beneficiaries, but the reported results were instead only ten million direct and indirect beneficiaries: see SCF (2021), p. 108. On the other hand, the 2021 EIB [European Investment Bank] Adaptation Plan pledges to increase the share of adaptation support to 15% of the bank’s overall finance for climate action by 2025 (an almost threefold increase compared to the 2012–2019 period).

SCF (2021), p. 109.

de Murieta et al. (2015), p. 18.

In more depth, see, e.g.: Pickering and Rübbelke (2014), p. 56 ss.

Watkiss et al. (2015), p. 545.

Heuson et al. (2014), p. 32.

Heuson et al. (2014), p. 37.

Isoard (2011), p. 64.

See Schelling (1992), p. 7.

See Tol (2007), p. 742: “If we would mitigate more, climate change and its impacts are lower and we would have to adapt less. [...]. However, if we would mitigate more, we would have less resources left for adaptation, and climate change impacts may be higher. This argument [...] [was] eloquently made by Schelling (1992)”.

Despite the so-called “environmentalist’s paradox”: Raudsepp-Hearne et al. 2010, pp. 576–589.

See, e.g.: Grossman and Krueger (1995), p. 370: “Contrary to the alarmist cries of some environmental groups, we find no evidence that economic growth does unavoidable harm to the natural habitat.”; Byrne (1997), p. 278: “A policy which restricts economic growth to zero, presumably in hopes of preventing environmental degradation, may actually increase the growth rate of pollution.”

See: Meadows et al. (1972), p. 24 (proposing “the transition from growth to global equilibrium”) and maxime 170 ff.; Marín-Beltran et al. (2022), p. 9 (proposing “that industrialized countries should follow a degrowth strategy to face immediate challenges, at least until an eventual decoupling between economic growth and material extraction is achieved”).

See, for example: Daly (1973a), pp. 945–954; Daly (1973b); Daly (1993), pp. 811–816.

See, e.g.: Georgescu-Roegen (1971); Georgescu-Roegen (1975), pp. 66–69; Georgescu-Roegen (1979).

About measuring growth with indexes that correct (or do not use) the GDP, see Constanza et al. (2009).

“[T]he transition to the low-carbon economy can be full of innovation, creativity and rising living standards on all relevant dimensions”: Stern (2015), p. 20150820.

See Mendelsohn (2000), p. 598.

Niggol Seo considers that, “[a]t the personal level, there is no need for a government to intervene to force an individual to take adaptation measures. An individual will compare the costs and benefits of multiple options that are available to him/her in the current and altered conditions [...]. The individual will make a transition from one enterprise to another, relocate from one location to another, and take up one task against another, considering relevant costs and benefits involved” (Seo Niggol 2017, p. 186). In autonomous adaptation, this is only true if it is presumed that individuals are (entirely) rational and have access to all relevant information.

Heuson et al. (2014), p. 32.

Also because, as Agrawala and Fankhauser (2008), say, being “adaptation [...] a decentralised process, there is the question whether, and if so how, economic agents need to be incentivised to adapt.”

See Mimura et al. (2014), p. 136.

See Kahneman and Tversky (1972), pp. 430–454.

On the relevance of some of these behavioural factors, see also, for example: Domingos et al. (2018), p. 49 ss.

See Weinstein (1980), pp. 806–820.

Tversky and Kahneman (1981), pp. 453–458.

Wason (1960), pp. 129–140.

Samuelson (1937), pp. 155–161.

See Bernedo and Ferraro (2016), p. 165.

On the impact of mass media in climate change mitigation, see: Swain (2017), pp. 167–220. On the impact of the so-called echo chamber effect, see: Cinelli, Matteo, et al. 2021. The echo chamber effect on social media, PNAS, Vol. 118, No. 9.

Darley and Latané (1968), pp. 377–383.

A concept coined by Veblen (1899).

The nudge concept was popularized by behavioural economist Richard Thaler and legal scholar Cass Sunstein with their famous book called Nudge (Thaler and Sunstein 2008). About green nudges, see, for example: Wee et al. (2021), p. 100364; Kind and Savelsberg (2016), pp. 253–273; Enste, Dominik, Potthoff, Jennifer. 2021. Behavioral Economics and Climate Protection: Better Regulation and Green Nudges for More Sustainability, IW-Analysen, No. 146. Considering that green nudges are “insufficient to address environmental issues that are deeply politically and structurally embedded”, see: Petel (2020), pp. 223–247.

On the impact of technology and how it contributes to adaptation, see: Callaway, John M. 2014. The role of technology in adaptation, in A. Markandya, et al. (eds.) 395–416.