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Impacts of climate change can differ from one region to another. We combine the household-level panel data with weather and climate data to examine the heterogeneity of the impacts of climate change on crop yields across different crops and agro-ecologies in Ethiopia. Our results show that climate change will induce an increase in coffee and teff yields by 31% and 8.3%, respectively, at high altitudes by the years 2041–2060 compared to 1988–2018, under a medium emissions scenario. Conversely, it will reduce coffee yield by 3% at low altitudes, and barley, maize, and wheat yield by 22.7%, 48%, and 10%, respectively, at high altitudes. These findings suggest that tailoring agricultural development programs and climate adaptation strategies to address location and crop-specific sensitivity to climate change may help to build resilience and improve the livelihood of smallholder farmers.

Uncertain future payoffs and irreversible costs characterize investment in climate change adaptation and mitigation. Under these conditions, it is relevant to analyze investment decisions in a real options framework, as this approach takes into account the economic value associated with investment time flexibility. In this paper, we provide an overview of the literature adopting a real option approach to analyze investment in climate change adaptation and mitigation, and examine how the uncertain impacts of climate change on the condition of the human environment, risk preferences, and strategic interactions among decisions-makers have been modeled. We found that the complex nature of uncertainties associated with climate change is typically only partially taken into account and that the analysis is usually limited to decisions taken by individual risk neutral profit maximizers. Our findings call for further research to fill the identified gaps.

Purpose Climate change has become one of the most important development challenges worldwide. It affects various sectors, with agriculture the most vulnerable. In Ethiopia, climate change impacts are exacerbated due to the economy’s heavy dependence on agriculture. The Ethiopian Government has started to implement its climate-resilient green economy (CRGE) strategy and reduce CO2 emissions. Therefore, the purpose of this study is to examine the impact of CO2 emission on agricultural productivity and household welfare. Design/methodology/approach This study aims to fill these significant research and knowledge gaps using a recursive dynamic computable general equilibrium model to investigate CO2 emissions’ impact on agricultural performance and household welfare. Findings The results indicate that CO2 emissions negatively affect agricultural productivity and household welfare. Compared to the baseline, real agricultural gross domestic product is projected to be 4.5% lower in the 2020s under a no-CRGE scenario. Specifically, CO2 emissions lead to a decrease in the production of traded and non-traded crops, but not livestock. Emissions also worsen the welfare of all segments of households, where the most vulnerable groups are the rural-poor households. Originality/value The debate in the area is not derived from a rigorous analysis and holistic economy-wide approach. Therefore, the paper fills this gap and is original by value and examines these issues methodically.