Adaptation, Mitigation and 'Green' R&D to Combat Global Climate Change - Insights from an Empirical Integrated Assessment Exercise

Abstract

SummaryThis work develops a framework for the analysis at the macro-level of the relationship between adaptation and mitigation policies. The FEEM-RICE growth model with stock pollution, endogenous R&D investment and emission abatement is enriched with a planned-adaptation module where a defensive capital stock is built through adaptation investment. Within this framework the optimal path of planned adaptation, the optimal inter and intra temporal mix between adaptation, mitigation and investment in R&D, and the sensitivity of a strategy to each other is identified. The major conclusions of this research show that adaptation, mitigation and R&D are strategic complements as all concur together to the solution of the climate change problem; nonetheless the possibility to adapt reduces the need to mitigate and partly crowds out other forms of investment like those in R&D. The optimal intertemporal distribution of strategies is also described: it requires to anticipate mitigation effort that should start already when climate damages are low and postpone adaptation intervention until they are substantial. Thus the possibility to adapt is not a justification to delay abatement activities. A sensitivity analysis demonstrates the robustness of these results to different parameterizations, in particular to changes in expected climate-change damages and in the discount rates. Keywords AbstractThis work develops a framework for the analysis at the macro-level of the relationship between adaptation and mitigation policies. The FEEM-RICE growth model with stock pollution, endogenous R&D investment and emission abatement is enriched with a planned-adaptation module where a defensive capital stock is built through adaptation investment. Within this framework the optimal path of planned adaptation, the optimal inter and intra temporal mix between adaptation, mitigation and investment in R&D, and the sensitivity of a strategy to each other is identified. The major conclusions of this research show that adaptation, mitigation and R&D are strategic complements as all concur together to the solution of the climate change problem; nonetheless the possibility to adapt reduces the need to mitigate and partly crowds out other forms of investment like those in R&D. The optimal intertemporal distribution of strategies is also described: it requires to anticipate mitigation effort that should start already when climate damages are low and postpone adaptation intervention until they are substantial. Thus the possibility to adapt is not a justification to delay abatement activities. A sensitivity analysis demonstrates the robustness of these results to different parameterizations, in particular to changes in expected climate-change damages and in the discount rates.

The effect of proactive adaptation on green investment

“…As a result, they find only marginal differences between their adaption-only and mitigation-and-adaptation scenarios, while we observe noticeable differences between the two. As with Bosello (2008), they find that it is optimal to start mitigating before adapting, which is the opposite of our results (again except when assuming a high climate sensitivity).…”

“…Ada-BaHaMa belongs to a limited number of integrated assessment models, such as AD-DICE (de Bruin et al, 2009b;de Bruin and Dellink, 2011b;de Bruin, 2011a), AD-WITCH and FEEM-RICE (Bosello, 2008), that take explicitly into account strategies to adapt to the negative impacts of climate change. The particularity of Ada-BaHaMa is to model both a reactive adaptation strategy through an adaptive capital and a mitigation strategy taking the form of a clean technology.…”

“…Having acknowledged these differences in the modeling approaches, we can however compare some insights Ada-BaHaMa provides with the ones obtained with FEEM-RICE, AD-DICE and AD-WITCH. Bosello (2008) considers in FEEM-RICE proactive adaptation using a dedicated investment variable, therefore modeling the adaptation strategy in a fashion similar to our own. Besides, the efficiency of adaptation depends on the current temperature deviation level, as in our model.…”

“…Hope et al (1993) (updated in Hope, 2006 were the first to integrate adaptation as a policy variable in an IAM, the PAGE model. Bosello (2008) We use in this paper the deterministic version of a simple integrated assessment model (Bahn et al, 2008(Bahn et al, , 2010, thereafter referred to as BaHaMa) enriched to consider explicitly adaptation options. 4 BaHaMa is in the spirit of the DICE model but distinguishes between two types of economy: the "carbon economy" (our present economy) where a high level of fossil fuels is necessary to obtain output and a so-called "carbon-free" or "clean economy" (an hydrogen economy, for instance) that relies much less on fossil fuels to produce the economic good.…”

Plan or React? Analysis of Adaptation Costs and Benefits Using Integrated Assessment Models

“…The optimal level of adaptation is chosen considering the expenditures relative to avoided gross damages. While in these works adaptation is treated as a "flow" variable, i.e., all the costs and benefits accrued in the same time period, Bosello (2010) includes adaptation in the FEEM-RICE model (Bosetti et al, 2006a) treating it as a "stock" variable, where the benefits persist for decades into the future. To include a more comprehensive regions.…”