Identify, cost and prioritize: A new report on the economics of adaptation

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A policy-maker in Ethiopia, managing a predominantly agricultural economy, and one that is likely to greatly affected by climate change, would probably like to know the impact of climate change as well as what it will cost to adapt to the impacts. Given the potential for more droughts and floods, what are the strategies and costs for adaptation? Like Ethiopia, other developing countries are grappling with the same question. It is an important one, but has not been widely addressed until recently.


ImageThis matter was given sudden prominence in 2006 when the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC) asked how much financial need developing countries will require to both reduce their own greenhouse gas emissions and adapt to climate change. The COP’s request created an overnight cottage industry estimating the total costs of adaptation by developing countries. Reports were published by the World Bank (2007), Oxfam (2007), the UNFCCC Secretariat (2009), Parry et al. (2009), and others. Most of these studies relied on expert judgment to develop adaptation cost estimates. The UNFCCC, however, applied some “top-down” rules in some sectors to rapidly estimate costs.


The latest and clearly most detailed estimate of the potential costs of adaptation in developing countries was just released in the UNFCCC conference in Bonn by the World Bank titled Economics of Adaptation to Climate Change (EACC). This report was a culmination of years of effort by the Bank to develop global and country level estimates of adaptation costs. The EACC is the most detailed estimate that has been developed to date because one, it addresses more sectors than prior estimates, two,  it does so in a more systematic manner than its predecessors, and three, it estimates global and national level costs. The EACC study estimated global costs for infrastructure, coastal zones, water resources, agriculture, forestry, fisheries, human health, and extreme weather. Each sector’s cost estimate was developed by applying rules to analyze impacts and costs as a result of climate change.


The EACC concluded that the total costs of adaptation could be roughly $70 to $80 billion per year by 2050. To be sure, there is a significant amount of uncertainty about exactly what adaptation will cost decades from now. We cannot forecast how socioeconomic conditions will change in developing countries. In addition, it is also uncertain how much greenhouse gas emissions will change, how the climate will change, and how people will want to adapt. So, at best, we can only estimate the approximate order of magnitude of financial need by developing countries.


One additional innovation of the EACC study is the analysis of adaptation costs at the country level. Cost estimates have been developed for Mozambique, Ethiopia, Ghana, Bangladesh, Bolivia, Vietnam, and Samoa. Many of these studies are applying similar top-down rules at the country scale. What is being done at the country level that could not be done across all developing countries is the use of economic models to estimate total national costs of adaptation.


In Ethiopia, for example, the report identifies ``low regret’’ investment and policies which include enhancing the climate resilience of the road network, investments in improved agricultural productivity and accelerated diversification of income and employment sources away from agriculture. While there are many benefits of the adaptations, the costs as a share of investment can be considerable. Models show, given the uncertainty on climate, the cost of adaptation can vary by a factor of as much as three and hence the costs of selecting a ``wrong’’ strategy may be considerable. 

The matter of how much adaptation will cost will require more analysis. But, with its EACC project, the World Bank has made a very valuable and important contribution to our understanding of the financial needs of developing countries in adapting to climate change over coming decades.


Joel B. Smith

Principal, Stratus Consulting Inc.

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