Economic Aspects of Adaptation to Climate Change

Costs, Benefits and Policy Instruments

image of Economic Aspects of Adaptation to Climate Change

Climate change poses a serious challenge to social and economic development. This report provides a critical assessment of adaptation costs and benefits in key climate sensitive sectors, as well as at national and global levels. It also moves the discussion beyond cost estimation to the potential and limits of economic and policy instruments - including insurance and risk sharing, environmental markets and pricing, and public private partnerships - that can be used to motivate adaptation actions.

English Also available in: French

Economic and Policy Instruments to Promote Adaptation

Adaptation to climate change will comprise of thousands of actions by households, firms, governments, and civil society. This chapter provides some pointers as to how smart policy can turn private initiative into a force for adaptation. It focuses on three instruments: insurance, environmental markets and public private partnerships. Insurance has a long track record as a way to share weather risks. However, as climate damages grow insurance will become riskier. Public policy measures will be needed to overcome this problem, for example through publicly funded adaptation measures that bring down risks or by sharing the most extreme layer of risks with commercial insurers. Public policy should not, however, subsidise the systemic risks, as this may sustain activities that become progressively less viable under the changing climate. Environmental markets and pricing have a key role to play in the preservation of natural systems, even without climate change. They incentivise owners to preserve natural assets and consumers to use them carefully. From an adaptation point of view, environmental markets and pricing serve two main purposes. First, they reduce baseline stress, making systems more resilient. Second, they can help to monetise the adaptation services provided by ecosystems. Public Private Partnerships (PPPs), meanwhile, can help to overcome operational constraints and accelerate investment in infrastructure, which will likely be the most expensive part of adaptation and, therefore, put considerable strain on the administrative and financial capacity of governments. PPPs may also play a role in research and development and the search for better adaptation technologies.

English Also available in: French

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