1. Integrating Mitigation and Adaptation as Complementary Tools in Reducing the Risk of Climate Change Gary Yohe June 24, 2004 International Energy Workshop Paris

2. Outline of Remarks Reflections from the TAR Perspectives on a risk-based approach to integration Incorporating the results of mitigation into adaptation analyses, and visa-versa New uncertainties in climate sensitivity Robustness in near-term mitigation policy

3. A Perspective from the TAR Climate related damages that can be avoided by mitigation are the benefits of that mitigation Credible calculations of the benefits of mitigation must therefore recognize the potential that adaptation (autonomous and planned) could reduce damages and therefore the benefits of mitigation.

4. Support for that Approach The environmental economics literature – optimal intervention assumes efficient evasive activity The finance literature – calculates risk premia net of diversifiable risk thereby assuming efficient diversification

5. More from the TAR Adaptation may or may not reduce damages significantly –SLR examples from developed coastlines (the US developed coastline work of Yohe shows significant cost savings from adaptation; corroboration in subsequent global coverage by Nichols and friends) –SLR examples from low-lying islands (Atoll states work by Adger shows abandonment only option to SLR, but earlier significant stress from other sources)

6. Including Adaptation can be Critical It follows that adaptation cannot be ignored in any credible calculation of the benefit side of mitigation –It passes the Lave test (factor of two) –But we are not sure where, when and how.

7. Fundamental Conclusions from Chapter 18 “Current knowledge of adaptation and adaptive capacity is insufficient for reliable prediction of adaptations; it is also insufficient for rigorous evaluation of planned adaptation options, measures and policies of governments” (pg 880 or WGII Report) Vulnerability is a function of exposure and sensitivity; and both can be influenced by adaptive capacity All of these are path dependent and site specific

8. A Potentially Unsettling Conclusion Asking for estimates of the economic value of mitigation might be wrong question. Thinking about mitigation in the context of a cost-benefit framework might be the wrong approach ……. at least for a while….

9. A Risk-based Approach that Accommodates the Synthesis of Impacts cum Adaptation with Mitigation Targets Thinking about both mitigation and adaptation as tools to reduce the risk of troublesome, intolerable, etc…. climate change makes them complements rather than substitutes. Mitigation is then a means of hedging against bad outcomes measured, net of adaptation, in terms of the likelihood of crossing critical thresholds. Adaptation is then a means by which systems can expand their coping ranges or delay their contraction.

10. An Artificial Illustration – The Baseline

11. An Artificial Illustration: Adding Adaptation Alone

12. An Artificial Illustration: Adding Mitigation Alone

13. An Artificial Illustration: Adding Mitigation with Adaptation

14. The Cost Side The cost side of mitigation (thought of as a risk- reducing tool whose outputs are measured in terms of a vector of impacts) is one of cost- effectiveness; i.e., minimizing the cost of achieving certain objectives. The cost side of adaptation (thought of as a risk- reducing tools whose outputs are measured in terms of the likelihood of crossing thresholds) is one of opportunity cost informed by understanding how the determinants of adaptive capacity help or impede adaptation.

15. Decision-makers’ Context Their job is to assess the relative opportunity costs of achieving specific risk reductions. Double causality is required to assess the effectiveness of mitigation. Single causality is sufficient to assess adaptation; but not in a synthetic approach. Uncertainty becomes the reason for contemplating policy rather than the reason for contemplating delay.

16. Can Science Support this Approach? Recent MIT work (Webster, et. al., “Uncertainty Analysis on Climate Change and Research Policy Response”, Climatic Change, 2003) produces distributions of temperature change associated with a specific concentration threshold and translates that into SLR possibilities (at least for 2100, but could produce transcients).

17. More Support Recent Schneider work (See OECD Workshop on the Benefits of Climate Policy and forthcoming special issue of Global Environmental Change) produces distributions of an extreme event (THC shutdown) conditional on –natural variables (climate sensitivity, etc…) –policy-related variables (the discount rate in an otherwise informed optimization exercise).

18. Even More Support Roger Jones (See OECD Workshop on the Benefits of Climate Policy and forthcoming special issue of Global Environmental Change) : links site specific thresholds to adaptation and climate variables –SLR illustration with the likelihood of crossing critical thresholds at specific years –Episodes of coral bleaching and mortality with the likelihood of crossing critical ocean temperature thresholds at specific years

19. Some Profound Uncertainty Distributions of Climate Sensitivity

20. An Example: How Near-term Policy Could be Examined as a Risk-reducing Tool The starting point – the CDF of climate sensitivity. The question – What does the expanding uncertainty mean for near term mitigation? The method – Envision hedging experiments a la the EMF experiments –Begin policy in 2005 –Uncertainty and ultimate temperature target revealed in 2035 –Associated least cost adjustment

21. The Example continues The model – a revised DICE global model –Zero pure rate of time preference – low discount rate –Logarithmic utility in per capita consumption –Limit on the rate of decarbonization –Policy as a carbon tax (scarcity rent) that increases over time at the endogenously determined private rate of interest (mitigation is an investment) Calibrate the CDF on climate sensitivity to a discrete representation in terms of a parameter that reflects the inverse of the thermal capacity of the atmospheric layer and the upper ocean.

22. An Alternative Representation From DICE-99

23. The Example continues Hedging strategies are evaluated in terms of robustness – the range of futures that they can handle with “reasonable” adjustment costs. Hedging is also evaluated in terms of “keeping doors open” – temperature targets that are still possible. The critical comparison is between a favored hedging strategy and doing nothing between 2005 and 2035.

24. The Temperature Target Experiment Set near-term policy assuming that temperature and climate sensitivity will be revealed in 2035. Choices for the near-term are expressed in terms of a initial carbon tax. An initial global tax of $10 per ton of carbon maximizes expected global GDP –Targets of 2, 2.5, 3, and 3.5 degrees are assumed to be equally likely choices in 2035 –Climate sensitivity according to the CDF

25. Expected GDP Across Near-Term Options

26. An Example – Hedging (?) to Meet a 3 Degree Target in a 6 Degree Sensitivity World

27. More on the Example – Hedging to Meet a 3 Degree Target in a 6 Degree Sensitivity World

28. Robustness of the $10 Hedge

29. Implications for the Near-Term Near-term hedging to reduce adjustment costs associated with temperature targets is modest and robust. Even if it is decided that no mitigation should be undertaken after adjustment, the economic effects involve small costs for low sensitivities and larger benefits for high sensitivities.

30. So It is possible to use uncertainty to assess policy analyses and come to policy relevant conclusions about confidence without being policy prescriptive. And it follows that we can explore the implications of applying one decision framework rather than another in the policy evaluation process. In a cost-benefit context, adaptation and mitigation are substitutes. In a risk- reducing context, they are complements.