This report assesses adaptation costs and benefits in key climate-sensitive sectors, as well as across sectors. It moves the discussion beyond cost estimation to examining market and regulatory mechanisms that can be used to incentivise adaptation actions. It argues that for adaptation to be effective, a number of policy measures will be required to prepare the ground. A combination of markets and public policy can refine risk sharing (through innovative insurance schemes), improve natural resource management (through the creation of environmental markets) and help climate-proof infrastructure (through Public-Private Partnerships).
Estimates of adaptation costs and benefits are relevant for actors directly exposed to particular climate risks who need to make decisions about whether, how much, and when to invest in adaptation. At the national and global level, cost estimates can be used to establish aggregate adaptation ‘price tags’ that would then need to be met through international, domestic, and private funding sources. Trade-offs might need to be considered between the costs of climate policies and the damage resulting from climate change.
There are, however, significant analytical and policy challenges associated with estimating adaptation costs and benefits. These include the nebulous nature of many adaptation actions, which are often embedded within responses to a broader set of social and environmental stimuli.
Sectoral adaptation costs and benefits estimates are available, but their coverage is uneven. Global studies of adaptation costs are also available, but have serious limitations.
- Studies for coastal zones show that while significant investment will be needed for coastal protection, total costs of protection represent a relatively small percentage of national GDP. However, there are significant regional differences and the normalised protection costs might be significantly higher for certain regions.
- In the agricultural sector, a general finding from available studies is that relatively modest adaptation measures can significantly offset declines in projected yield as a result of climate change, although these benefits depend upon the crop, growing region, and the level of climate change.
- For other sectors there are only a few isolated estimates of adaptation costs and benefits.
- Aggregate, multi-sectoral studies on costs of adaptation are becoming available at the global level and, in some cases, at the national level. While potentially relevant from a policy perspective, these have significant limitations: scaling up to aggregate levels from a limited (and very local) evidence base; issues of both under counting as well as double-counting; and lack of clear articulation of the benefits of the adaptation measures costed.
- National Adaptation Programmes of Action (NAPA) documents reveal important insights about adaptation needs, but generally do not provide justification or sourcing of underlying analyses of adaptation cost estimates.
- The ‘consensus’ on global adaptation costs, even in order of magnitude terms, may be premature and not a useful guide to shape international decisions on adaptation financing.
For adaptation efforts to succeed they need a sound economic basis. Adaptation policy is about much more than costing and financing, however; establishing incentives is also critical.
- Insurance can incentivise adaptation if premiums are well designed, but it is not a panacea. As climate damage grows, insurance will become riskier. Public policy measures will be needed to reduce risks or to share the most extreme risks with commercial insurers. Public policy should not, however, subsidise systemic risks, as this may sustain activities that become progressively less viable.
- Price signals and environmental markets can be used to incentivise adaptation actions, but may require adjustments to internalise adaptation benefits. Environmental markets and pricing reduce baseline stress, making systems more resilient, and help to monetise the adaptation services provided by ecosystems.
- Public-private partnerships can help to overcome operational constraints and to accelerate investment in infrastructure, (likely to be the most expensive part of adaptation). PPPs may also play a role in research and development and the search for better adaptation technologies.