Adaptation to Climate Change: How Does Heterogeneity in Adaptation Costs Affect Climate Coalitions?

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Adaptation to climate change: how does heterogeneity in adaptation costs affect climate coalitions? Itziar Lazkano, Walid Marrouch and Bruno Nkuiya To survive, a human being should consume a substantial amount of food and services every day. However, the production process of such outputs not only requires the extraction of natural resources but also generates externalities including pollution, which harm well-being. This issue is exacerbated when pollution is transboundary as when generated in a country, it affects another as well. Another challenge imposed by transboundary pollution is the fact countries are sovereigns so it is not possible to force others to strengthen unwillingly their environmental policy. When transboundary pollutants are global, such as the climate change-inducing anthropogenic Greenhouse Gases (GHGs), they result in international environmental problems that impact all countries and that require a concerted effort to tackle. As such, it has been natural to tackle the problem of climate change by looking for self-enforcing international environmental agreements within the international context of the United Nations Conference on Climate Change (UNFCC), where for a long time emphasis has been put on the abatement of these nefarious GHGs. However, recently and in addition the option to abate emissions, the importance of the option to adapt to the climate change problem has been explicitly recognized at the UNFCC’s Conference of Parties meeting in Cancun in 2010 (COP16). In the new post-Kyoto framework of the Paris agreement (2015), climate experts and policy makers now agree that abatement of GHGs emissions and adaptation are the two main options available to tackle climate change. Unfortunately, the role of adaptation is largely ignored in the Economics studies on International Environmental Agreements (IEAs) that tackle this problem. It is noteworthy that the most important feature that distinguishes emissions and adaptation decisions relates to their public and private good nature. While each country’s emissions generate a private benefit, their damages have the nature of a global public bad. However, while adaptation also generates a private benefit, its costs only affect the individual country. Whereas according to a number of international organizations substantial investments in adaptation are required during the current century, the costs of such investments differ widely across countries, especially between developed and developing countries. Moreover, adaptation activities also affect each country’s abatement level. Accordingly, these cross-country differences in adaptation costs and the relationships between abatement and adaptation yield new challenges in understanding countries’ incentives to join climate coalitions. In a recent paper, Lazkano, Marrouch, and Nkuiya (2016) tackle these challenges by focusing on the role of adaptation in countries’ incentives to join a climate coalition. Using a stylized game theoretic model, the authors study how cross-country differences in adaptation costs affect cooperation incentives. They find that reducing the adaptation cost disparity between countries leads to higher global emissions of GHGs. They show that the strategic relationship between emissions and adaptation effort depends crucially on adaptation costs, which in turn depend of the prevailing adaptation technologies. Moreover, an exogenous reduction in adaptation costs -say due to international technological cooperation- can switch a substitutable relationship between emissions and adaptation into a complementary relationship. They also find that the presence of adaptation is not necessarily a destabilizing factor for cooperation. This is in contrast to the view that putting efforts towards adaptation will discourage participation in IEAs, a view widely held in the media and among several policymakers. Finally, they find that a country’s incentives to join a coalition not only depend on how a country responds to its own adaptation but also on how a country responds to others’ higher emissions. Since these two effects depend on adaptation costs, an exogenous reduction in adaptation costs can change both the incentives to emit and join a coalition. These latter findings imply that policies directed at reducing the gap in adaptation costs, such as the Cancun adaptation fund, or policies directed at reducing free-riding on emission reduction, such as the Clean Development Mechanism, can help reduce the adaptation burden for less developed countries, but they might also strengthen or weaken the incentives to participate in environmental agreements. The study provides a cautionary tale to policymakers to be mindful that international cooperation on adaptation can backfire if it is coupled with international cooperation on emission reduction. To cite: Itziar Lazkano, Walid Marrouch and Bruno Nkuiya (2016). Adaptation to climate change: how does heterogeneity in adaptation costs affect climate coalitions?. Environment and Development Economics, doi:10.1017/S1355770X16000097

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