Transcript Temporal Investment of Adaptation and Mitigation

Temporal Investment of
Adaptation and Mitigation
Presenter: Bruce A. McCarl
Weiwei Wang
Department of Agricultural Economics
Texas A&M University
April 6, 2011
Outline
Introduction
Conceptual Framework
Technical Part
Conclusion
Future Work
Climate Change and Political Strategies
• IPCC (2007) ”Most of the observed increase in global average temperatures
since the mid-20th century is very likely (>90%) due to the observed increase in
anthropogenic (human emission caused) greenhouse gas concentrations.”
• The future will depend on the choices we make about
Do little and live with it
Mitigate Emissions
Plan to adapt
?
Background on Adaptation and Mitigation
GHG Sources
and Sinks
MITIGATION
Climate Change
Exposure
Initial Impacts
Autonomous
Adaptation
Residual
Damages
Vulnerabilities
Atmospheric Processes
and Global Climate
Policy Responses
Source:Richard J.T. Klein (2007) “Links between
Adaptation to and Mitigation of Climate Change”
3rd Workshop, Bonn, Germany.
Planned
Adaptation
Policy Directions
Economic Considerations
Effective climate policy involves a portfolio of adaptation and mitigation
Source IPCC Fouth Assessment Report WGII Ch 18
Investment Allocation
Economic Considerations
Activity
Consequences
Consumption
Current Utility
Conventional investment
Future production and
consumption benefits
Adaptation investment
Avoided climate change
damages to production now
and possibly in future- more
consumption
Mitigation investment
Avoided extent of climate
change with lessened to
production in future- more
consumption
Importance of Adaptation
• More societal robustness to climate change
• Climate change cannot be totally avoided
• Planned adaptation is likely to be more effective
and less costly than last-minute, emergency
adaptation
 Droughts, heatwaves, increased hurricane intensity and new
disease vectors required forward-looking investment
• Immediate benefit can be gained from better
adaptation to climate variability and extreme
events
• Adaptation has a productive life
Limits and Barrier to Adaptation
• There are significant knowledge gaps for adaptation
 Absence of measurable outcomes or indicators
• Inability of natural systems to adapt to the rate and
magnitude of climate change, as well as technological,
financial, cognitive, behavioral, social and cultural
constraints.
• Most adaptation involves private actions, public
arrangements and national & international policies
• Funds competition
• Uncertain returns
Links between adaptation and mitigation
• Trade-offs and synergies
 Not a zero-sum game
 Combined effects that both limit GHG emissions and reduce
adverse damages
• Timing of investments
 Substitute or complement
• Identifying the optimal mix of no action,
mitigation and adaptation – significant policy
challenge
Research Needs
• What are the relative contributions of
adaptation and mitigation to climate change
damage reduction?
• How mainstreaming climate policy would be
most effective and cost-efficient?
• What are the social optimal allocations of
investment in adaptation and mitigation over
time?
Conceptual Framework
Optimal Control Model
Model I mitigation only
MinTCD  q(c)  IM (m)
m
s.t. c  g (m)
Cost
$
Marginal
Cost
TCD: Total climate change damages
q : losses as a function of realized climate
change (c)
Marginal
Benefit
m: mitigation effort
IM(m) : mitigation cost
g(m) : climate change realized given
mitigation effort m
Abatement Level
Model II Adaptation + Mitigation
Min TCDA  q (c, a )  IM ( m)  IA( a )
m,a
s.t. c  g ( m)
a : the level of adaptation effort
q(c,a): losses of realized climate change and the degree of adaptation effort
IA(a): the cost of investment in adaptation
Literature Review on modeling
adaptation and mitigation
Literature base rather small, yet very diverse and inconsistent in
its conclusions
• PAGE (Policy Analysis of the Greenhouse Effect) model (Hope et
al, 1993)
– Explicitly treat adaptation as a control variable
– modeling adaptation as a binary choice
• FUND (The Climate Framework of Uncertainty, Negotiation and
Distribution) (Tol, 2007)
– Adaptation is very important and have to be traded off with mitigation
– adaptation cost is limited to coastal protection
Literature Review..
• AD-DICE (Adaptation in Dynamic Integrated model of Climate
Change Economics) (de Bruin, 2009)
– Adaptation is a powerful option in the first 100 years while mitigation
does so afterwards
– adaptation costs are “instantaneous” rather than persistent and based
on coastal protection
• FEEM-RICE (Bosello, 2008)
– Planned adaptation and mitigation are strategic complements
– Calibration of adaptation costs was based on 1990’s surveys
• AD-WITCH (Adaptation- World Induced Technical Change
Hybrid) (Bosello, 2010)
– Mitigation started immediately while adaptation was delayed until
somewhere later when gross damages were higher
– Follow the same calibration as what did in the extension of FEEM-RICE
Methodology
• Explicitly adding the adaptation module into
DICE model
• Modeling the stock nature of adaptation
investment
• Incorporating a more broadly based damage
function that is from the economy wide
assessment of adaptation cost from Parry et al
(2009)
Technical Part
DICE (2007) – AD-DICE (2009) – AD-DICE++ (2011)
Rest is drawn from Wang, W.W., and B.A. McCarl, "Temporal Investment in
Climate Change Adaptation and Mitigation", Draft Paper TAMU, 2011.
Adding explicit adaptation to DICE
• Improving adaptation features
SA(t  1)  (1  β)10 SA(t)  10IA(t)
where β  0.1 : annual depreciation rate
IA : flow of annual adaptation investment
SA : stock of adaptation investment
• Calibration of adaptation cost function
RDt (GDt , At ) GDt * (1  At ),
0  At  1
1  At    (1   )e  rSAt
GDt / Yt   1TEt   2TE 2
where RD : residual damages
GD : Gross damages
A : normalized resulting level of adaptation
α : percentage of unavoidable damages
Y : total net output
Calibration of Adaptation Cost Function
• Fit a function reflective of a statement in Parry et
al. (2009)
Figure 1. Portrayal of relationship between adaptation
investment , residual damages and unavoidable damages
Figure 2. Fitted line
1  At 0.2  0.8e 10 /(7 sa )
  0.2, r  10 / 7
• Add adaptation investment to DICE
• Assume that decisions on the levels of adaptation and mitigation are
separable but compete for funds with consumption and traditional
investment
Qt  Ct  I t  IM t  IAt
Where Q: net output of goods and services net of climate change damages after abatement
C: consumption
I: “traditional” investment of production capital
IM: mitigation investment
IA: adaptation investment
Results and Discussions
Effects of Planned Adaptation
Figure 1: Optimal
mitigation investment
with and without
planned adaptation
allowed
Figure 2: Benefits in
terms of damages
reduction from
mitigation and
adaptation in ADDICE++ model
Effects of Adaptation
Figure 3. Total damages
with and without
planned adaptation
Figure 4. Gross world
productivity with and
without planned
adaptation
Optimal Time Path of Adaptation and
Mitigation Investment
Figure 5. Optimal investment of adaptation and mitigation
in the model with both allowed
Figure 6. Temporal investment distributions between
adaptation and mitigation
Reasons for Differences:
• The different mechanism of adaptation and mitigation
• The different timing of results from adaptation and mitigation
Sensitivity Analysis
Figure 7.
Adaptation investment
decreases with the
unavoidable damages
Figure 8.
Stock of adaption
investment decreases
with the depreciation
rates
Concluding Comments
• Well planned adaptation is an economically effective
complement to mitigation and an important current
policy option
• Adaptation investment tackles the short run reduction
of damages in the first 250 years while mitigation
dominates from thereon
• Effective political strategy is the immediate role for
adaptation with a longer run transition to mitigation as
the damages from GHG concentrations increases
Limitations
• We estimate the relative costs and benefits at a highly
aggregated level
• There is no single optimal mix of adaptation and
mitigation as this depends on local conditions,
uncertainties and different preferences and values in
society
• Research on the links between adaptation and
mitigation needs to beyond economic and integrated
assessment modeling
Future Work
• Modeling direct interaction between
adaptation and mitigation in terms of their
specific effectiveness and trade-offs
• Identifying the optimal strategy mix
considering regional differences and climate
change uncertainties
• Implementing extreme events and other risks
Thank you very much for your attention.