The Economics of Adaptation to Climate Change in Coasts and Oceans: Literature Review, Policy Implications and Research Agenda

Sea level rise and other effects of climate change on oceans and coasts around the world are major reasons to halt the emissions of greenhouse gases to the maximum extent. But historical emissions and sea level rise have already begun so steps to adapt to a world where shorelines, coastal populations, and economies could be dramatically altered are now essential. This presents significant economic challenges in four areas. (1) Large expenditures for adaptation steps may be required but the extent of sea level rise and thus the expenditures are unknowable at this point. Traditional methods for comparing benefits and costs are severely limited, but decisions must still be made. (2) It is not clear where the funding for adaptation will come from, which is a barrier to even starting planning. (3) The extent of economic vulnerability has been illustrated with assessments of risks to current properties, but these likely significantly understate the risks that lie in the future. (4) Market-based solutions to reducing climate change are now generally accepted, but their role in adaptation is less clear. Reviewing the literature addressing each of these points, this paper suggests specific strategies for dealing with uncertainty in assessing the economics of adaptation options, reviews the wide range of options for funding coastal adaption, identifies a number of serious deficiencies in current economic vulnerability studies, and suggests how market based approaches might be used in shaping adaptation strategies. The paper concludes by identifying a research agenda for the economics of coastal adaptation that, if completed, could significantly increase the likelihood of economically efficient coastal adaptation.

Climate Change Adaptation Case Study: Benefit-Cost Analysis of Coastal Flooding Hazard Mitigation

The damage Hurricane Sandy caused had far-reaching repercussions up and down the East Coast of the United States. Vast coastal flooding accompanied the storm, inundating homes, businesses, and utility and emergency facilities. Since the storm, projects to mitigate similar future floods have been scrutinized. Such projects not only need to keep out floodwaters but also be designed to withstand the effect that climate change might have on rising sea levels and increased flood risk. In this study, we develop an economic model to assess the costs and benefits of a berm (sea wall) to mitigate the effects of flooding from a large storm. We account for the lifecycle costs of the project, which include those for the upfront construction of the berm, ongoing maintenance, land acquisition, and wetland and recreation zone construction. Benefits of the project include avoided fatalities, avoided residential and commercial damages, avoided utility and municipal damages, recreational and health benefits, avoided debris removal expenses, and avoided loss of function of key transportation and commercial infrastructure located in the area. Our estimate of the beneficial effects of the berm includes ecosystem services from wetlands and health benefits to the surrounding community from a park and nature system constructed along the berm. To account for the effects of climate change and verify that the project will maintain its effectiveness over the long term, we allow the risk of flooding to increase over time. Over our 50-year time horizon, we double the risk of 100- and 500-year flood events to account for the effects of sea level rise on coastal flooding. Based on the economic analysis, the project is highly cost beneficial over its 50-year timeframe. This analysis demonstrates that climate change adaptation investments can be cost beneficial even though they mitigate the impacts of low-probability, high-consequence events.

Climate Adaptation Finance Mechanisms: New Frontiers For Familiar Tools

Demands for mechanisms to pay for adaptation to climate risks have multiplied rapidly as concern has shifted from greenhouse gas mitigation alone to also coping with the now-inevitable impacts. A number of viable approaches to how to pay for those adjustments to roads, drainage systems, lifeline utilities and other basic infrastructure are emerging, though untested at the scale required across the nation, which already has a trillion-dollar deferred maintenance and replacement problem. There are growing efforts to find new ways to harness private financial resources via new market arrangements to meet needs that clearly outstrip public resources alone, as well as to utilize and combine public resources more effectively. To date, mechanisms are often seen through a specific lens of scale, time, and method, for example national versus local and public versus market-based means. The purpose here is to integrate a number of those perspectives and also to highlight the following in particular. Current experience with seemingly more pedestrian needs like stormwater management funding is in fact a learning step towards new approaches for broader adaptation needs, using re-purposed but existing fiscal tools. The resources raised from new large-scale market approaches for using catastrophe- and resiliency-bond-derived funds will have their use embodied and operationalized in many separate local and state projects. The invention and packaging of innovative projects—the pre-development phase—will be pivotal to better using fiscal resources of many types. Those efforts can be greatly aided or hindered by larger national and especially state government policy, regulatory and capital market arrangements. Understanding the path to integration of effort across these scales deserves much more attention. Examples are given of how federal, state and local roles are each dimensions of that frontier, how existing tools can apply in new ways and how smart project creation plays a role.