The Cost of Climate Change Adaptation

What will it cost us both individually and collectively to adapt to climate change?  Barry wants to know and so do I!   The vague answer is that this cost will differ across individuals and that it will fall over time.   Consider two people who just graduated from Tulane.  Assume that one loves New Orleans while the other is indifferent between living there or in Chicago.   If climate change poses sharp risks to New Orleans, then the New Orleans lover will face higher adaptation costs if she must move away.   Population migration will be a big part of climate adaptation.  Climate change will have different impacts on different geographical locations.   Yes, Chicago will face challenges but I am optimistic that capitalist innovation will go a long way to protecting this person from anticipated events such as heat waves.   If New Orleans experiences a further brain drain due to climate risks, then the city will have strong incentives to invest to reduce these risks.  Every city must continually reinvest as the existing capital stock depreciates.  What is the marginal cost increase due to “climate proofing” the city?  This is difficult to estimate but we know that this cost will fall over time as cities all over the world experiment and the nerds tinker to devise new ways to protect the populace against the new risks we will face.   As the new White House report highlights, we foresee the challenge that lies ahead posed by climate change.

The RBC readers won’t believe it, but I can’t predict the future direction of technological change. I’m not that smart. But, I know that I don’t know even though I know that we face a very real challenge.  I also know that many others know this.   Like a 12 step program, our collective doubt and uncertainty is our first step in figuring out how to adapt.  The benefits of adaptation will exceed the costs.   Endogenous innovation is a powerful force.  Your Ipad won’t save you from climate change but a future Steve Jobs will allow your grandkids to have a high quality of life.  Now for the 99th time, I support $10 gas now.  Carbon mitigation now makes adaptation even easier.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

11 thoughts on “The Cost of Climate Change Adaptation”

  1. “If New Orleans experiences a further brain drain due to climate risks, then the city will have strong incentives to invest to reduce these risks.”

    This would be quite true, if the people who ran New Orleans had the same incentives as Matthew’s personified “city.” But they don’t: agency costs. And in the case of New Orleans, agency costs are huge. From what I know of New Orleans, the future prosperity of New Orleans is far less important to those who run the city than getting their preferred person as King of the Krewe of Rex, or whatever.

    And besides, if your basic take on life is quasi-feudal, you don’t want brainiac economic development. You want to offer cheap labor, and hope that some outsider, not particularly rooted in the community, takes advantage of this, so you can continue to live off the peasantry. This is the famous “Moonlight and Magnolias” economic development model of our finer former Confederate states.

    We’re not all Singapore.

  2. Going with the 12-step program, isn’t the first stage denial? We basically never got past it. Too much of the country never made it past, “Well, maybe my drinking is a problem but it would be too much trouble to quit, and your concerns about my health are overblown. Don’t worry, someone will come up with a pill for my liver, and I can drive drunk just fine.”

    Seeing as cost to growth has always been the argument against regulating emissions, “adaptation cost” estimates should likewise be as comprehensive. So, we’re not simply looking at protecting low-lying cities, but ocean acidification, catastrophic weather, droughts, political instability, etc.

    A vision of a Republican frat party just came into my head: “Drink, baby, DRINK!”

  3. When climate change disrupts agriculture (too much rain, too little rain, rain at the wrong time, too hot, too cold, etc.), it won’t matter what city you live in, you’ll still be hungry, or at best, spending an awful lot of the money you have left over from $10/gallon gas on food.

    1. I find it interesting to learn that we are currently experiencing the best of all possible climates. We must be: Otherwise climate change might be an improvement. But it’s always assumed that, no matter what the change, (More water, less, warmer, colder…) it’s always going to be for the worse.

      Hence, we are currently enjoying the best of all possible climates. Treasure this unique moment in history!

      1. We have invested heavily in the climate we have, both through economic investment and biological evolution. Changes to the system that we have adapted to are going to be costly in lives and treasure – if they aren’t calamitous.

        Twiddling the dials on complex systems is generally a bad idea precisely because the results are uncertain. The same right wing that said we’d be greeted with flowers and candy in Iraq now wants to tell us that we can impose huge changes on the complex system of climate with no consequences.

  4. I am optimistic that capitalist innovation will go a long way to protecting this person from anticipated events such as heat waves.

    I am optimistic that the 1% will probably allow their representatives and senators to build a few more “cooling centers” for the proles.
    Although they may insist on cutting Granny’s medicare benefits a bit more to make that happen…

    Haven’t you been paying attention to those news reports Matthew? Cooling centers are the new soup lines.
    And: “Brother, can you spare me some cool air?” is the new reality comedy catchphrase.

    One more thing: I get a kick out of the phrase: “capitalist innovation”.
    It is mostly the scientific method that drives innovation.
    And a ton of that science is done on the public dime.

    But most capitalists can’t be bothered these days in reinvesting that way: ( Disgorge the Cash! 5 stars!).
    But because Mr. Kahn leans towards market fundamentalist, he subsumes everything under the “capitalist” umbrella.
    The end result being a Republican party that believes wantonly in capitalism but wants to cut the government science budget.
    Dumb. Dumb. Dumb.

    Want to know my definition of a capitalist?

    Someone who builds shoddy track houses in the Arizona desert with complete disregard to the path of the sun…
    And those same track homes are being built with the hot water tank placed as far from the various taps as possible.
    This means that cold water is run down the drain a long time before the hot finally gets to the tap.
    For the full life of the house! In house after house after house. In the desert no less…
    That waste is built in by your capitalist boyz…

    Here is a question:

    How many more decades before capitalists design the hot water tank in a sensible location?
    How many decades before they consider the arc of the sun when putting in windows, porches, landscaping?

    Or is the long-term greed of these capitalists only capable of doing short-term dumb dumb dumb?

  5. “The RBC readers won’t believe it, but I can’t predict the future direction of technological change. I’m not that smart.” Why do you think we won’t believe this?

  6. “What will it cost us both individually and collectively to adapt to climate change? . . .The vague answer is that this cost will differ across individuals and that it will fall over time. . . . The benefits of adaptation will exceed the costs. . . .

    “Every city must continually reinvest as the existing capital stock depreciates. What is the marginal cost increase due to “climate proofing” the city? This is difficult to estimate but we know that this cost will fall over time . . .

    “a future Steve Jobs will allow your grandkids to have a high quality of life. . . .

    “Now for the 99th time, I support $10 gas now. Carbon mitigation now makes adaptation even easier.”

    I’m quoting the post to make clearer, what my reading of it is picking up.

    First, I see an argument by serial assertion. This is an ideologue’s method — there’s no definition of terms or denotation of examples, and so, neither deductive reasoning nor inductive inference is involved. Maybe, that’s happened elsewhere, and what we read here is distilled from it, but I doubt it. It seems more likely to me that Professor Kahn has subscribed to a favored “optimistic” narrative of technological redemption, and wishes to affirm that subscription by repetition of its main precepts, as a religious zealot might recite a ritual creed.

    There’s nothing wrong, in my view, with developing an adaptationist thesis or point-of-view. It is absolutely clear that we will be adapting to climate change; it is a necessary complement to mitigation. I see no basis for controversy on that premise.

    What I will challenge, though, is whether the dismal science of economics can really support this “optimistic” dogma.

    Will the benefits of adaptation exceed the costs, not just of adaptation itself, but of the costs of climate change it seeks to offset? It is a bit of a shell game to assert that the benefits of adaptation will exceed the (undefined) “costs of adaptation”. And, I don’t think it is altogether honest to hide the realized harms from climate change behind constant reference to the “risk” of climate change. We’re not “adapting”, because the benefits exceed the costs in absolute or global terms, though I would expect people to be fairly rational about choosing their adaptations. The costs of climate change are not fixed or constant. Some have speculated that climate change might yield something close to a wash, with net benefits from a warming earth at least partly offseting the harm, over the course of the first degree or two (understanding that we have already experienced the most of the first degree increase). After that first two degrees or so, the harm and the risk from additional and possibly accelerating climate change mounts.

    As the harms from climate change are realized, the “benefits” of adaptation increase. The “benefit” of adaptation is a function of realized harm. I would think that standard economic analysis would suggest a net loss, from the combination of costly harms and costly offsetting adaptation.

    Maybe there’s some reason to think that adaptation, itself, will have positive externalities. I can believe that mitigation might generate some positive externalities. Conservation efforts in service of mitigation could reducing urban sprawl or pollution of the natural environment, and thus, arguably, have some side-benefits, not directly related to reducing the harm from climate change, per se.

    As the degree of climate change increases, the net harm from climate change increases (“net” here refers to the harms and offsetting benefits of a warming world, not to the effects of adaptation), and as the degree of climate change increases, in the absence of increasingly effective mitigation, the rate of climate change also accelerates. We’re projecting a future in which we are going to be climbing an increasingly steep hill, at least until effective mitigation kicks in globally (which, on our present course might be mid-century!)

    Technological progress might make some individual measures of adaptation less costly. Might. But, in general, the increasing harm of climate change will make additional, and increasingly costly, adaptation “beneficial” on net. That’s a net, though, which is not, we should note, actually beneficial on net. The still realized net harm plus the cost of adaptation, when added to “good” salvaged by the adaptation, will still, on the expectations of standard economic intuition, be a net loss.

    It is fine to acknowledge the ability of advancing technology to increase total factor productivity. I wish economic theory would formally incorporate technology, and the second law of thermodynamics, into its theory of production; we might get better economic analysis of problems like this one, but I wish in vain. In these circumstances, though, I would think it is incumbent on the economist to also acknowledge the effects of externalities, congestion costs, and depletion on the productivity of natural resources, which are also part of the production process. Technology might be increasing our power and the projected power of our posterity, but these other trends are undermining the basis of that power. Our industrial revolution was built on a huge expansion of natural resource utilization; many think we have serious overshot the carrying capacity of the earth; that’s why climate change, peak oil and related issues of possible ecological collapse and resource depletion are so urgent.

    We are not justified in looking at the extraordinary gains of the last 150 years, attribute them entirely to technological advance when whole and virgin continents were being conquered, and draw a projected line on graph paper with a straight-edge.

  7. Matthew, you have been asked a hundred times, and you have NEVER answered the question — who PAYS for this adaptation?
    Your model seems, essentially, to be, that I can create whatever damn problems I feel like, and as long as other people, THEORETICALLY, can clean them up, life is just peachy — let’s all talk about how the adaptation should occur, and forget such pesky details as WHO caused the problem in the first place.
    I can understand why you and your profession like such a model — it is, after all, EXACTLY what we saw after the 2007 collapse, and what we are seeing in Europe today.

    But here’s the thing. The rest of us are not interested in hearing this same hand-waving from you for the n’th time.
    Either be intellectually honest — and confront this issue of who pays.
    Or admit that you are a shill for a certain, immoral, view of the world that has a very specific agenda — that of convincing the rest of the world that they are not responsible for the damage they have KNOWINGLY caused. And if you are such a shill, I’m not sure why your colleagues want you blogging here.

    [Yes, yes, this is shrill and ad hominem. But I know I am not alone in my anger. Go back through the comments to Matthew’s posts and you will see my complaint repeatedly — and never addressed.]

  8. Matthew Are you an economist? I don’t see any actual numbers in your post or even a model of how adaptation would work for large fractions of the population. how long does it take to adapt 300M people to 4degrees C warming? where do they move? is it shorter than the time to 4C or longer? then what about the next 4C? (warming doesn’t stop you know) how about the 4C after that? Have you looked at the heat stress models that find much of NA uninhabitable if warming continues unabated (Sherwood & Huber?) I also don’t see you suggesting any actual evidence to support some unlimited adaptation thesis. The counterexamples are easy though. In the 20th century (100 years) the US did not succeed in “adapting” to give everyone some minimum healthcare coverage (a matter of life and death) even at the end of the century 10-15% went without healthcare and don’t have it now. so what is your model of adaptation (you must have one somewhere if you are serious) and in that model what fraction of the population gets to adapt in 50years? or 100years? For that matter what is your model of technologies that can happen in 50 years and which can’t? Have you thought about this? after all it took about 100 years to go from steamships to passenger air transportation– what if warming adaptation needs that big a leap? How do you know it doesn’t (you must have ruled that out so I’d like to hear the argument).

  9. The notion that the cost of adapting to climate change will fall over time seems pulled out of thin air to me. Obviously, under equilibrium conditions, the cost of adapting to a given increment of climate change will fall. But each increment will be different, with different costs of adaptation. (For example, the 10 cm of sea-level rise that finally shuts down the new york city subway system will cost a lot more than the 10 cm of rise just before that.) But even more important, we’re not talking about equilibrium conditions. Right now we have cheap(ish) fossil fuels and low interest rates, but at some other time neither of those will be true. And adaptation costs could become particularly high once climate change starts having serious effects on transport and industrial infrastructure.

    This kind of thing is important not just because bullsh*t is a bad thing to propagate, but also because the falling-cost scenario encourages late adopters. And the last thing we want is for everyone to wait for someone else to take the risks of proving out mitigation and adaption technology.

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