Climate Change Risks and Adaptation: Linking Policy and Economics provides practical guidance and the latest evidence for policy makers on how they can more reliably estimate the costs and benefits of adaptation. The report is intended as a guide for policy makers to better identify, characterise and address climate risks, helping them mainstream adaptation into decision making by taking into account a range of uncertainties. These measures should help inform policies, prioritise scarce resources and unlock sufficient finance for adaptation.

The effects of climate change are already starting to be felt: sea-levels are rising, average temperatures are increasing and precipitation patterns are changing. Societies and ecosystems have always adapted to changes in their climate, but projected changes over the course of this century would lie outside of the bounds of historical experience. At the same time, the pace of the projected change is faster than any climate shift in the past millions of years. The consequences of this change will include shifts in agricultural production, changes in morbidity and losses of valuable ecosystems. Recent OECD modelling found that climate change impacts could reduce global GDP by between 1% and 3.2% per year by 2060. These are the known consequences. However, as the world moves further outside of its usual operating parameters, there is an increasing risk of encountering “severe, pervasive and irreversible impacts” according to the Intergovernmental Panel on Climate Change (IPCC).

This chapter provides an overview of the risks that are expected to arise from climate change. It includes evidence of the rising costs of extreme weather events, both globally and within OECD countries. This chapter explores the role of uncertainty about future climate change and the implications for decision making.

This chapter provides an overview of the approaches used by OECD countries to manage their exposure to climate risks. It highlights: the need to combine political will; effective institutional structures; and tools and evidence to ensure an effective response to climate change. It explores how national governments can support activity by local governments and the private sector. It emphasises the importance of measuring progress in adaptation using monitoring and evaluation.

This chapter reviews the latest evidence on the costs and benefits of adaptation, and draws out some of the key findings and emerging insights. It explores the use of information on the costs and benefits of adaptation to justify the case for action and prioritise resources to deliver the greatest benefits. Results of national and global studies are provided. The latest estimates are provided for the following sectors and risks: sea-level rise, coastal flooding and storms; river, surface water and urban flooding; water supply and management; infrastructure; agriculture; health; biodiversity and ecosystem services; business, services and industry.

This chapter outlines a framework for applying a risk-based approach to climate change. It explores: how risks can be identified through tools including climate risk and vulnerability assessments; how those identified risks can be characterised; and how appropriate policies can be explored and chosen to address risks. It emphasises the importance of regular monitoring and evaluation in a risk-based approach, particularly given pervasive uncertainty about the future climate.

The chapter examines how OECD countries can finance adaptation to manage climate-related risks. It first analyses the financing of risk reduction investments and risk transfer mechanisms. It also discusses possible options for governments to absorb the liabilities arising from residual risks. Furthermore, the chapter explores the role of governments in supporting the further uptake of financial instruments at the national, sub-national and sectoral levels.

This chapter examines the tools that can be used to mainstream, or integrate, adaptation into existing decision making and appraisal processes. Informed by countries’ experiences to date, it explores how adaptation can be included within traditional decision-making tools such as cost-benefit analysis, multi-criteria analysis and cost-effectiveness analysis. It analyses the applicability of new approaches, such as real options analysis, that are designed to support decision making under uncertainty. It discusses the importance of aligning the tools used with the institutional context that they will operate in.