Estimating the costs and benefits of adaptation

It is only recently that studies examining the cost of adaptation have begun to emerge. Some, such as a report on the costs of adaptation to the global economy by the UNFCCC (UNFCCC, 2007), produce large-scale global costs, based on the investment and financial flows required to address climate change. For all sectors studied (which include agriculture) the investment and financial flows required to adapt to projected climate changes could be more than USD 100 billion per year several decades from now. This would be around 0.06-0.21% of projected GDP by 2030. Oxfam (2007) estimates the costs for financing adaptation in developing countries to be at least USD 50 billion per year, while the World Bank (World Bank, 2006) estimates costs of around USD 10-40 billion annually. Such estimates are useful for comparison with global mitigation costs.

However, large-scale global cost estimates mask the distributional impacts of adaptation and do not provide sufficient information for decision-making at a local or national level. In order to allocate finite resources and to prioritise alternative adaptation measures, a more detailed sectoral approach is required. Understanding the costs and benefits of adaptation actions is critical for practical decision-making.

Quantifying the costs and benefits of adaptation to climate change is, however, notoriously complex. Unlike mitigation, adaptation is a continual process, rather than a one-off action or outcome, and society, or farmers, are unlikely to be fully adapted to climate change. Indeed, we are vulnerable to current climate variability, and routinely bear climate-related losses as it is. These impacts are known in climate change literature as residual impacts, the impacts that society on some level has decided are acceptable. Residual impacts make costing adaptation difficult, as these must somehow be netted out of impact costing; i.e. not all the impacts will be avoided, therefore the cost of inaction does not necessarily translate directly into the benefits of adaptation. In addition, the baseline for comparison with inaction is also changing over time as climate change impacts are already routinely absorbed into management practices (or adapted to). Furthermore, many adaptation actions may have non-climate ancillary benefits, which may need to be taken into account in the valuation. These elements complicate any notion of efficient adaptation. Figure 4.1 illustrates the costs of climate impacts over time, for no adaptation (dashed line), with adaptation (solid line), and the baseline scenario of impacts with no climate change (dotted line). The baseline is increasing because the value of production and assets is assumed to increase over time. The difference between the solid and dashed lines represents the benefits of adaptation, while the difference between the dotted and solid lines represents residual impacts which will not be able to be adapted to. Residual impacts will vary both temporally and spatially.

Figure 4.1. Costs and benefits of adaptation

Figure 4.1. Costs and benefits of adaptation

Source: Adapted from Metroeconomica (2004).

Literature on the costs of agricultural adaptation is limited. This may in part be because the focus of adaptation is on farm-level adjustments such as changes in timing of planting, or crop choices that are low cost. It is also the case that the distinction between public and private responsibilities has given rise to inertia in defining cost data and deriving overall estimates.

The European Environment Agency (EEA, 2007) highlights the need to monitor the effectiveness of adaptation strategies and actions, and provide an analysis of EU policy frameworks from an economic perspective. The report also highlights methodological issues in estimating costs of adaptation, and reviews studies on the costs of adaptation to date. Agrawala and Fankhauser (2008) provide a critical assessment of adaptation costs and benefits in key climate-sensitive areas, as well as across sectors at the national and global levels. They do not provide specific costs for agricultural adaptations, although they examine market and regulatory mechanisms that may be used to incentivise adaptation actions.

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