On the economics of coastal adaptation solutions in an uncertain world

Abstract

The economics of adaptation to climate change relies heavily on comparisons of the benefits and costs of adaptation options that can range from changes in policy to implementing specific projects. Since these benefits are derived from damages avoided by any such adaptation, they are critically dependent on the specification of a baseline. The current exercise paper reinforces this point in an environment that superimposes stochastic coastal storm events on two alternative sea level rise scenarios from two different baselines: one assumes perfect economic efficiency of the sort that could be supported by the availability of actuarially fair insurance and a second in which fundamental market imperfections significantly impair society's ability to spread risk. We show that the value of adaptation can be expressed in terms of differences in expected outcomes damages only if the effected community has access to efficient risk-spreading mechanisms or reflects risk neutrality in its decision-making structure. Otherwise, the appropriate metric for measuring the benefits of adaptation must be derived from certainty equivalents. In these cases, increases in decision-makers' aversion to risk increase the economic value of adaptations that reduce expected damages and diminish the variance of

Climate change risks to US infrastructure: impacts on roads, bridges, coastal development, and urban drainage

“…The results reported here reinforce prior work about the relative role of adaptation and mitigation policy in the coastal sector (Yohe et al 2011;Nicholls et al 2011), characterized by high potential impacts and cost-effective adaptation, and extend those findings to non- coastal sectors. The important story, however, is that mitigation policy provides a steady stream of avoided costs for all four of the infrastructure sectors evaluated here.…”

“…Several past efforts have characterized or quantified the effects of SLR on US coastal resources (see CCSP 2009 for a summary), but only a few of the models that have been applied are tractable for economic analyses at a national scale (Neumann et al 2010a), and only local or global-scale models have considered the role of mitigation policies in reducing effects of SLR (Nicholls et al 2011;Yohe et al 2011). We rely on US Environmental Protection Agency's (USEPA) National Coastal Property Model (NCPM), which comprehensively examines the contiguous US coast at a detailed 150 m×150 m grid level; incorporates site-specific elevation, land subsidence, and property value data; estimates cost-effective responses to the threat of inundation; and provides economic impact results for three categories of response: shoreline armoring, beach nourishment, and property abandonment (Neumann et al 2010b -note that inland, riparian flooding effects are addressed in a companion paper in this special issue, see Strzepek et al, Submitted for publication in this issue).…”

Climate change, sea level rise, and coastal disasters. A review of modeling practices

“…That study highlights that sea level rise can induce indirect effects that amplify the damages of storms. In the same vein, Yohe et al (2011) superimpose coastal storm to long-term sea level rise. They compare efficient insurance (foresight) versus unavailability of insurance (no foresight) and evaluate the effect of insurance availability on the ranking and comparison of two adaptation options, soft-(natural defenses characterized by a flow of expenditure over time) and hard-adaptation (characterized by large up-front investment costs) measures.…”

Prospect Theory, Mitigation and Adaptation to Climate Change

“…In environmental economics, reference dependence was brought forward in the discussion on the gap between willingness-to-pay and willingness-to-accept-compensation measures (Kahneman et al 1990;Knetsch 2010). Yohe et al focus on the role of the baseline scenario in evaluating benefits of coastal climate adaptation and find that adaptation benefits may depend on the baseline context -in their case, insurance availability and risk aversion (Yohe et al 2011). In the following, it will be argued that not only the characteristics of the baseline, but also the choice of the baseline as such is not trivial.…”