Dottorato

1. Climate Change and Policy Modelling Assessment: Adaptation in (CGE) Modelling Francesco Bosello Dottorato

2. Defining adaptation (1) “Institutional definitions” “Adjustment in ecological, social, or economic systems in response to actual or expected climatic stimuli, and their effects or impacts. […] refers to changes in processes, practices or structures to moderate or offset potential damages or to take advantages of opportunities associated with changes in climate” (IPCC TAR, 2001) “Process by which strategies to moderate, cope with and take advantage of the consequences of climate events are enhanced, developed and implemented” (UNDP, APF, 2005). “Policies, practices, and projects with the effect of moderating damages and/or realising opportunities associated with climate change” (EEA, 2005)

3. Defining adaptation (2) “Definitions from the science” “Process through which people reduce the adverse effects of climate on their health and well-being, and take advantage of the opportunities that their climatic environment provides” (Burton, 1992) “Any adjustment, whether passive, reactive or anticipatory, that is proposed as a means for ameliorating the anticipated adverse consequences associated with climate change (Stakhiv, 1993) “Changes in a system in response to some force or perturbation, in our case related to climate” (Smithers and Smit, 1997)

4. Defining adaptation (3) There are some key concepts Systemic process or transformation Through space and time Triggered by a climatic pressure Reducing(increasing) negative(positive) impacts if successful viceversa if unsuccessful (maladaptation)

5. Classifying adaptation (1) The subject of adaptation: Who or what adapts Ecological, social and/or economic systems. These changes can be the result of natural responses and in this case they usually involve organisms or species, or of socio-economic or institutional reactions in which case they are undertaken by individual or collective actors, private or public agents. The object of adaptation: What they adapt to Adaptive responses can be induced either by changes in average conditions or by changes in variability of extreme events. While in the first case the change is slow and usually falls within the “coping range” of systems, in the second case changes are abrupt and outside this coping range (Smit and Pilifosova, 2001).

6. Classifying adaptation (2) How Adaptation OccursSeveral criteria can be used to identify the different adaptation processes (see e.g. Smit et al. 1999; Klein and Tol, 1997; Fankhauser et al., 1999; IPCC, 2001). Source: adapted from Smit et al. 1999

7. Classifying adaptation (3) Autonomous Adaptation: natural automatic response to a “shock”. Also socio-economic systems react partly autonomously. There are substitution possibilities triggered by price (scarcity) signals. Planned Adaptation:strategies apt to alleviating the damage once it is (or will be) materialized via proper modifications of the impacted socio-economic-environmental system. Undertaken by public agencies – agents. Objectives of planned adaptation (Klein and Tol, 1997): • increasing the robustness of infrastructural design and long term investment, • increasing the flexibility of vulnerable managed system, • enhancing the adaptability of vulnerable natural systems, • reversing trends that increase vulnerability (“maladaptation”), • improving societal awareness and preparedness.

8. A short history of adaptation (1) not a new issue indeed… UNFCCC (Rio Earth Summit 1992) Art. 2 objectives "...achieve [stabilization of greenhouse gas concentrations] within a time frame to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.” (UN, 1992). Art. 3.3: “The Parties should take precautionary measures to anticipate, prevent or minimise the causes of climate change and mitigate its adverse effects”.

9. A short history of adaptation (2) Article 4.1(b): parties are committed to “formulate, implement, publish and regularly update national and, where appropriate, regional programmes containing […] measures to facilitate adequate adaptation to climate change”. Article 4.1(e): all parties should “cooperate in preparing for adaptation to the impacts of climate change” and to “develop and elaborate appropriate and integrated plans for coastal zone management, water resources and agriculture, and for the protection and rehabilitation of areas, particularly in Africa, affected by drought and desertification, as well as floods”.

10. A short history of adaptation (3) Kyoto Protocol (1997) Art. 10: “All parties […] shall […] formulate, implement, publish and regularly update national and, where appropriate, regional programmes containing measures to […] facilitate adequate adaptation to climate change” Article 12.8: “The Conference of the Parties […] shall ensure that a share of the proceeds from certified project activities is used to […] assist developing country Parties that are particularly vulnerable to the adverse effect of climate change to meet the cost of adaptation”

11. A short history of adaptation (4) Prudential and “politically correct” However until the end of ’90s main policy & research focus was on mitigation (e.g. see 1995 IPCC SAR) More of an issue for “developing countries” Mitigation “easy” to investigate Standard tools for economic policy (command and control and/or market based mech.s) & standard analysis could be applied to mitigation Then Awareness of climate inertias Interest on adaptation (2001 TAR, 2007 FAR) Difficulty of effective implementation of mitigation policies (Kyoto)

12. Where do we stand now (1) IPCC TAR (2001)  [p. 779] “…Adaptation to climate change has the potential to substantively reduce many of the adverse impacts of climate change and enhance beneficial impacts - though neither without cost nor without leaving residual damages…” An increasing number of researches, but still far from conclusive, highlights a strong potential for adaptation to reduce climate change adverse effects see e.g. the vast literature on coastal protection or on agriculture

13. Where do we stand now (2) Nevertheless it is recognised that: “…Current knowledge of adaptation and adaptive capacity is insufficient for reliable predictions of adaptations; it also is insufficient for rigorous evaluation of planned adaptation options, measures and policies of governments” (IPCC 2001, TAR) “…more quantitative information on the costs and benefits of economy-wide adaptation is required…” (the Stern review, 2006) “Only a few credible estimates are now available of the cost of adaptation (in the Developing countries) …and… highly speculative” (the Stern Review 2006) “At a global or international level, defining a socially, economically and environmentally justifiable mix of mitigation, adaptation and development remains difficult and a research need” (IPCC 2007, FAR)

14. Select a mitigation and adaptation policy Global and regional temperature Costs of mitigation Costs of adaptation Impacts Costs Adaptation in modelling Exhogenous adaptation: the Hope’s PAGE (2002) model Source: Hope (2006)

15. Adaptation in modelling °C Damage Reduction Tolerability Plateau Slope Adaptation can achieve an increase in the tolerable t increase (plateau + slope effect) and a reduction in damage Source: Hope (2006)

16. Adaptation in modelling Default adaptation strategy in PAGE2002 Source: Hope (2006)

17. Adaptation in modelling Costs of default adaptation strategy in economic sector, PAGE 2002 $US (2000) billion/year 2000 - 2200 Source: Hope (2006)

18. Adaptation in modelling Endogenous adaptation as a flow, DeBruin et al. (2007) D = CC damage RD = residual damage GD = gross damage PC = adaptation cost P = adaptation rate Y = GDP TE = temperature

19. Adaptation in modelling To be estimated Restrictions: 0.3 < P(t=2130) < 0.8 0.1% of GDP < PC(t=2130) < 0.5% of GDP and 7% of TD < PC(t=2130) < 25% of TD

20. Adaptation in modelling Endogenous adaptation as a stock. Bosello (2006) Obj. Funct. “Productive” capital accumulation “Knowledge stock” accumulation “Adaptation” capital accumulation Gross production The “double” role of knowledge: productivity increasing and emission intensity decreasing Emissions

21. Adaptation in modelling Abatement costs (as forgone GDP) depending (+) on abatement rates “Link” gross – net output Climate change damages (as forgone GDP) depending (+) on temperature and (-) on adaptation “capital” Net (of CC damage and environmental Policies) output Ususal output allocation function

22. Adaptation: compendium of results. (Hope, 2006) At given assumptions aggressive adaptation policies could be easily justified as well: for instance, at a 5% discount rate, the mean cost of US $ 0.5 trillion implied by an ambitious adaptation strategy implemented between 1990 and 2100, were outweighed by the US $ 17.5 trillion benefits from the reduction in economic impacts.

23. Adaptation: compendium of results. (De Bruin et al., 2006) Climate change damages

24. Adaptation: compendium of results. (Bosello, 2006)

25. Adaptation: compendium of results. (Bosello, 2006) Mitigation, R&D investment and adaptation (M+A+R) Mitigation and R&D investment start at the beginning, adaptation later

26. Autonomous adaptation: CGE modelling It can “intrinsically” highlight the role of autonomous adaptation (i.e. economic substitution possibilities) as long as the difference between direct and indirect costs can be shown. Extreme care in the interpretation (and communication) of results. The big issues here: The geographical scale effect: large aggregations conceal “hot spots” Stock vs flows (do not compare pears with apples)!

27. Autonomous adaptation: CGE modelling Sometimes it is “embedded” in the model. It is nothing else than the very functioning of the general equilibrium structure of the model with all its interconnected adjustments (see SLR example) In some other cases also autonomous adaptation need to be modelled. This is the case of climate change impacts on health or tourism flows (but is this really adaptation or impact?) when endogenous (in this case demand) variables have to be modified

28. Autonomous adaptation: CGE modelling Example: Bosello et al. (2007), “Economy wide estimations of climate change impacts Sea level rise”

29. Autonomous adaptation: CGE modelling, SLR Reference Year 2050: % changes wrt baseline Inputs to the CGE model Outputs from the CGE model

30. Autonomous adaptation: CGE modelling, SLR

31. Planned adaptation and CGE modelling. The typical approach is the “if then” one. That is: a scenario with climate change impacts and without adaptation is compared with a scenario with adaptation. Adaptation is one (or more) specific planned adaptation strategy ad hoc modelled and a lower climate change impact is imposed. Thus we return to the shortcoming of not having an endogenously defined optimal level of adaptation In addition, when stock and flow variables at a time are concerned by climate change and adaptation, results are difficult to interpret.

32. Planned adaptation and CGE modelling. Example Bosello, F., Roson, R. and Tol, R.S.J. (2007), “Economy wide estimates of the implications of climate change: sea level rise”, Environmental and Resource Economics, 37.

33. Modelling coastal protection The idea: coastal protection implies additional investment need. This additional investment increases (exogenously) regional investment. (Cost of coastal protections from Nicholls) The amount of savings by regional households adjusts endogenously. In each region regional savings increase uniformly to meet the increased investment demand. Given that income is allocated between savings, private and public expenditure, more savings => less consumption. The sum of the three “shares” cannot exceed 1.

34. CGE modelling and planned adaptation: SLR Equation(linear)RORGLOBAL# global supply of cap. goods, or global rental rate on investment (HT 59)# (all,r,REG) qcgds(r)= investment(r); (8)New exhogenous variables (8) Endogenous variables deleted (equations for cgds)

35. CGE modelling and planned adaptation: SLR EQUATION (Linear) DEVSAVE1 (all,r,USA1) (all,i,EU1) qsave(r)=qsave(i);EQUATION (Linear) DEVSAVE2 (all,r,EU1) (all,i,JPN1) qsave(r)=qsave(i);EQUATION (Linear) DEVSAVE3 (all,r,JPN1) (all,i,EEFSU1) qsave(r)=qsave(i);EQUATION (Linear) DEVSAVE4 (all,r,EEFSU1) (all,i,CHIND1) qsave(r)=qsave(i);EQUATION (Linear) DEVSAVE5 (all,r,CHIND1) (all,i,EEx1) qsave(r)=qsave(i);EQUATION (Linear) DEVSAVE6 (all,r,EEX1) (all,i,RoA11) qsave(r)=qsave(i);EQUATION (Linear) DEVSAVE7 (all,r,RoA11) (all,i,RoW1)qsave(r)=qsave(i); (7 ??)New endogenous variables

36. CGE modelling and planned adaptation: SLR Equation DISTPARSUM #sum of the distribution parameters# (all,r,REG) DPARSUM(r)*dpsum(r)=DPARPRIV(r)*dppriv(r)+DPARGOV(r)*dpgov(r)+ DPARSAVE(r)*dpsave(r); From endogenous to endogenous From exogenous to endogenous

37. CGE modelling and planned adaptation: SLR Full Protection: Selected Results Inputs Outputs = highest (absolute) values

38. CGE modelling and planned adaptation: SLR GDP: No Protection vs Full Protection (2050)

39. CGE modelling and planned adaptation: SLR Utility: No Protection vs Full Protection

40. SLR, optimal adaptation (the PESETA project 2007) A2 2085 high SLR scenario: optimal protection levels for the EU from the DIVA model

41. SLR, optimal adaptation (the PESETA project 2007) A2 2085 high SLR scenario: GDP no adaptation vs optimal adaptaton

42. CGE modelling and planned adaptation: SLR

43. CGE modelling and planned adaptation: SLR

44. CGE modelling and planned adaptation: SLR