The Economics of Climate Change Adaptation Bangkok September 2013 Robert Mendelsohn Yale University

What is adaptation? Change in behavior in response to climate change. Examples: avoid running in hot weather, buy air conditioning, change to heat-loving crops, adjust water management, control disease causing pests, build sea wall

Economics of Adaptation Maximize net benefits (benefits minus costs) given that local climate has changed Match to local climate change impacts Only do adaptations if the benefit exceeds the cost

Timing Done too soon, adaptations can raise costs and be ineffective (plant new crop before warm enough to grow well- build sea wall long before needed) Done too late, damages can be large (as if there is no adaptation) Because adaptation actions must wait for potential damages, the bulk of adaptation actions need to be done in the second half of this century

Private Adaptation Action taken to benefit self –self interest to perform –will be done without help Examples: –Farmer switching crop and animal species –Household adopting cooling (a fan or air conditioner) –Firm adjusting production as water becomes scarce

Public Adaptation Actions taken to benefit many (jointly consumed) Examples –Conservation Benefit all who like nature –Flood control planning Benefit people subject to floods –Sea walls Protects all behind the wall

What adaptation will markets do? Firms will conduct private adaptations for their own benefit –Farmers will adapt Market will not do public adaptations –No mechanism to earn profit Market will not overcome externalities such as pollution Market will perform badly without property rights

What should governments do? Help create setting to encourage markets and private ownership of private resources –Transform common property –Enforce private property rights Help do public adaptations (shared benefits, externalities) Address fairness of impacts

Severe Weather Events Can adapt now to hurricanes, droughts, floods because current problem Severe events likely to cause more damage in the future as economy grows Greenhouse gases may make some severe weather worse

What adaptation can be done now? Adapt to current weather Do planning and research to get ready Encourage institutional changes: improve public management and markets for natural resources (land, water, fisheries) Help the economy of developing countries grow and become less dependent on climate sensitive economic sectors- namely agriculture