Economic Aspects of Adaptation to Climate Change: Integrated Assessment Modelling of Adaptation Costs and Benefits

• Published in: OECD Environment Working Papers 2009-03 (6)
• Main Authors: de Bruin, Kelly, Dellink, Rob, Agrawala, Shardul
• Format: Article
• Language: English
• Subjects: adaptation; changement climatique; climate change; integrated assessment modelling; modèle d’évaluation intégrée
• ISSN: 1997-0900
• DOI: 10.1787/225282538105

The present report seeks to inform critical questions with regard to policy mixes of investments in adaptation and mitigation, and how they might vary over time. This is facilitated here by examining adaptation within global Integrated Assessment Modelling frameworks. None of the existing Integrated Assessment Models (IAMs) captures adaptation satisfactorily. Many models do not specify the damages from climate change, and those that do mostly assume implicitly that adaptation is set at an “optimal” level that minimizes the sum total of the costs of adaptation and the residual climate damages that might occur. This report develops and applies a framework for the explicit incorporation of adaptation in Integrated Assessment Models (IAMs). It provides a consistent framework to investigate “optimal” balances between investments in mitigating climate change, investments in adapting to climate change and accepting (future) climate change damages. By including adaptation into IAMs these already powerful tools for policy analysis are further improved and the interactions between mitigation and adaptation can be analysed in more detail. To demonstrate the approach a framework for incorporating adaptation as a policy variable was developed for two IAMs– the global Dynamic Integrated model for Climate and the Economy (DICE) and its regional counterpart, the Regional Integrated model for Climate and the Economy (RICE). These modified models – AD-DICE and AD-RICE – are calibrated and then used in a number of policy simulations to examine the distribution of adaptation costs and the interactions between adaptation and mitigation. Using the limited information available in current models, and calibrating to a specific damage level, so-called adaptation cost curves are estimated for the world. Adaptation cost curves are also estimated for different regions, although given the limited information available to calibrate the regional curves these should be considered as rough approximations of the actual adaptation potential in the different regions. These adaptation cost curves reflect how different adaptation levels will provide a wedge between gross damages (i.e. damages that would occur in the absence of adaptation) and residual damages. The analysis presented suggests that a good adaptation policy matters especially when suboptimal mitigation policies are implemented. Similarly, a good mitigation strategy is more important when optimal adaptation levels are unattainable