The economics of climate change adaptation

EurActiv.com posts a summary of a policy analysis arguing the climate change adaptation is best approach through economic methods: There are clear similarities between climate change adaptation and economic behaviour and thus the issue can be dealt with within the framework of economic analysis, argues a policy brief by Asbjørn Aaheim and Marianne Aasen for the Centre for European Policy Studies (CEPS). The January analysis asserts that "analysing the behaviour of people as a consequence of climate change" can help policymakers, highlighting the challenge posed by the faster and more vigorous structural changes required to respond to the phenomenon.

"Recognition of the fact that adaptation [to climate change] may reduce the costs of [its] impacts substantially" has led economists to "address the potential benefits of adaptation options," but nevertheless "very little is known about the economic potential for adaptation strategies or the economic costs of adaptation options," write the authors.

The CEPS analysis distinguishes between autonomous adaptation to climate change and the public policy dimension. Understanding "what economic agents do autonomously to adapt to climate change" allows us "to identify cases where a public policy strategy for adaptation may be required," the authors argue.

…Another autonomous effect is the response of the market to climate change-related shifts in supply and demand, affecting "the relative prices of all goods and services".

Public policy adaptation is also necessary as "the full potential for adaptation to climate change will not be utilised by the markets alone". This is because individuals "lack incentives to invest in a public good" if they only receive part of the benefit, meaning a "socially beneficial" level of adaptation will not be achieved.

Aaheim and Aasen argue that the final impacts of climate change are moderated by the interaction of economic agents with markets, thus allowing a certain degree of autonomous adaptation. But when market conditions are imperfect – for measures which are a public good with high transaction costs – central authorities need to develop adaptation strategies themselves. They conclude that "the design of adaptation strategies should address areas where autonomous adaptation is insufficient" and public intervention is required.

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