Economic aspects of adaptation to climate change: costs, benefits and policy instruments

Climate change poses a serious challenge to social and economic development. Efforts to reduce greenhouse gas emissions need to move hand in hand with policies and incentives to adapt to the impacts of climate change. How much adaptation might cost, and how large its benefits might be, are issues that are increasingly relevant both for on-the-ground projects and in national and international contexts. This report provides a critical assessment of adaptation costs and benefits in key climate sensitive sectors, as well as at national and global levels. It moves the discussion beyond cost estimation to the potential and limits of economic and policy instruments - including insurance and risk sharing, environmental markets and pricing, and public private partnerships - that can be used to motivate adaptation actions. The report cautions that recent headline estimates on the global price-tag for adaptation face serious limitations. In addition, the few available studies have tended to stack upon the assumptions made in preceding studies. Therefore, a consensus, even in order of magnitude terms, is premature and may be misleading. Costing or raising large sums of money to finance adaptation is clearly important, but will not alleviate the challenge of ensuring that individuals, businesses, governments and civil society make timely, well-informed, and efficient adaptation decisions. The report therefore also calls for a raft of policy instruments to establish the right incentives to influence such decisions. Setting up the right incentive and partnership structures to promote adaptation, however, will be a daunting task. Adaptation to climate change as a public policy challenge has only just emerged.