Costs of adaption

Posted by William M. Connolley on May 24, 2012
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Someone’s PR folk mailed me CARE and climate change Into Unknown Territory: The limits to adaptation and reality of loss and damage from climate impacts, and the report itself. You know what its like: the first big pic is a poor person with a baby in a dry landscape with a dead cow skeleton; the next is a poor person up to her neck in water (although… there are some green shoots in the dry landscape, and green on the horizon. Never mind; you see what they are aiming at).

But I didn’t get far before the language became odd: The World Bank estimates that even in a 2°C world, adaptation costs for developing countries will amount to a minimum of US$70 billion by 2020 and to up to 100 billion a year by 2050. What does that mean? What is a “2 oC world”? One in which GW has reached +2 oC by 2050? One in which the trajectory is to +2 by 2100, say, and we’ve got half way there by 2050? +2 above pre-industrial, or present? I don’t know. And I couldn’t be bothered to read in enough detail to find out if they ever resolve this mystery. There is far too much dodgy language in there to make it worth shredding; where they get +6 oC (on page 6) from I don’t know. Or why (same page) they think China is going to overtake the US in per capita emissions by 2017.

However, their ref for the world bank is The Economics of Adaptation to Climate Change (EACC) study which was a bit interesting, and contained this figure:

adaption-costs

Look closely: the costs are mostly ~0.1% of GDP (except sub-Saharan Africa, which is very poor). More importantly: notice that the cost of adaption, as a percentage of GDP, goes down over time, not up. This is because the countries are growing, economically, faster than damages [*] are increasing in absolute terms.

Well, I’m sure you see the point.

[*] RJ, in the comments, eventually makes me understand that I’ve mis-spoked here. I mean “costs”, as in costs of adaption, not damages. And as we end up agreeing in the comments, the costs of adaption should be less than the damages (else why bother).

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Comments

  1. #1 Alexander Ač
    Bratislava, Slovakia
    2012/05/24

    Growing??? Ah sure, how could it be different…

    Alex

  2. #2 Russell
    2012/05/25

    Very odd indeed- if the WB does not expects to see +2C by 2020, what other than a quarter degree a year delta T is it costing ?

  3. #3 David B. Benson
    2012/05/25

    Hmmm. Somebody ought to read China’s coal plan, methinks.

  4. #4 Another Week of GW News, May 27, 2012 – A Few Things Ill Considered
    2012/05/28

    [...] 2012/05/24: Stoat: Costs of adaption [...]

  5. #5 Another Week of GW News, May 27, 2012 « Random Information
    2012/05/28

    [...] 2012/05/24: Stoat: Costs of adaption [...]

  6. #6 Roger Jones
    Australia
    2012/05/29

    William,

    the last para. Adaptation costs are not the same as damage costs.

    Even then, the model used to estimate these costs is macroeconomic whereas adaptation is microeconomic.

    This post is totally reactionary and the little interpretation you do is incorrect (I’m not saying they’re right, but neither are you)

    [That wasn't very clear. You probably need to expand on what you said -W]

  7. #7 Roger Jones
    2risk.wordpress.com
    2012/05/30

    Sorry, working on the assumption brevity is next to godliness.

    Adaptation costs are probably not a proxy for damage costs. Adaptation costs within a growing economy are very likely to become more efficient economically as the proportion of damage over time if you get them right. This is because flood costs, wind costs etc from extreme events (most of the cost) are more non-linear than retrofitting costs and certainly more non-linear than upfront investment in planned adaptation (done sensibly). The timing is critical to the modelling – many assumptions.

    The macro-micro argument comes from economic modelling. Most of these estimates come from CGE models that rely on macroeconomics but impact damages – adaptation costs don’t factor in well (impact costs are notoriously under-estimated and adaptation costs depend on the structure of the economy at the time and a bunch of non-economic factors). They are better modelled using bottom up microeconomics on a case-by-case basis but then they are hard to aggregate in regional and global estimates.

    So the report you mention is trying to make the point that these gross models’ estimate of adaptation costs is way below impact costs – that’s defensible but not an open and shut case. With totally wafty numbers as you’re well aware. The case is 2C by 2050 on the way to somewhere else. And the limits to adaptation are used to push the point for mitigation within that framing.

    I think these models underestimate the costs for both adaptation and damages, but the underestimation in the latter is greater.

    [But if adaption costs were greater than damage costs, then you wouldn't bother to adapt. Isn't that obvious? The point of doing the adaption is that its cheaper. The idea is that you're gaining something in exchange for the damage you do, and again, you have to assume that the gain is greater than the damage, otherwise you wouldn't do it. Assuming rational behaviour, of course.

    You're also arguing that their numbers may be wrong. That's possible, of course. It might also be possible to argue that, inevitably, their numbers are so badly wrong that no policy can be made from them; and that too could be an argument for choosing certain policies.

    2 oC by 2050, starting from now, would be +0.5 oC/decade, which is possible, though high. If you're starting from pre-industrial its perhaps 0.3 oC/decade, which is more likely -W]

  8. #8 Roger Jones
    2012/05/30

    True – but this is the sentence of yours I was objecting to most:

    This is because the countries are growing, economically, faster than damages are increasing in absolute terms

    This graph isn’t showing that, it’s showing adaptation – not damages. It’s possible in some scenarios that adaptation costs could grow by less than economic growth but damages could grow faster.

    [Ah. Now I understand you. And I agree. I'll update the post -W]

    We wouldn’t want that of course – it’s imperative for poverty reduction that these economies do grow – and that growth will be more sustainable with adaptation. This point is argued by those who maintain that a laissez faire attitude to growth is sufficient.

  9. #9 Martin Vermeer
    2012/05/31

    Hmm, it’s not only adaptation or damages. There will be residual damages after adaptation (as some things just cannot be well adapted to).

  10. #10 Hank Roberts
    2012/06/08

    neverendingaudit has a good reference on the assumption about the value of the future:
    _____________________
    consider how economics need to change its framing to deal with the kind of environmental concern we’re trying to address right now:

    Conventional economics supposes that agents value the present vs. the future using an exponential discounting function. In contrast, experiments with animals and humans suggest that agents are better described as hyperbolic discounters, whose discount function decays much more slowly at large times, as a power law. This is generally regarded as being time inconsistent or irrational. We show that when agents cannot be sure of their own future one-period discount rates, then hyperbolic discounting can become rational and exponential discounting irrational. This has important implications for environmental economics, as it implies a much larger weight for the far future.

    http://ideas.repec.org/p/cwl/cwldpp/1719.html