Balancing Expenditures on Mitigation of and Adaptation to Climate Change : An Exploration of Issues Relevant to Developing Countries
Although climate policies have been so far mostly focused on mitigation, adaptation to climate change is a growing concern in developed and developing countries. This paper discusses how adaptation fits into the global climate strategy, at the global and national levels. To do so, a partial equilibrium optimization model of climate policies-which includes mitigation, proactive adaptation (ex ante), and reactive adaptation (ex post)-is solved without and with uncertainty. Mitigation, proactive adaptation, and reactive adaptation are found to be generally jointly determined. Uncertainty on the location of damages reduces the benefits of "targeted" proactive adaptation with regard to mitigation and reactive adaptation. However, no single country controls global mitigation policies, and budget constraints might make it difficult for developing countries to finance reactive adaptation, especially if climate shocks affect the fiscal base. Rainy-day funds are identified as a supplemental instrument that can alleviate future budget constraints while avoiding the risk of misallocating resources when the location of damages is uncertain.
| Summary: | Although climate policies have been so
far mostly focused on mitigation, adaptation to climate
change is a growing concern in developed and developing
countries. This paper discusses how adaptation fits into the
global climate strategy, at the global and national levels.
To do so, a partial equilibrium optimization model of
climate policies-which includes mitigation, proactive
adaptation (ex ante), and reactive adaptation (ex post)-is
solved without and with uncertainty. Mitigation, proactive
adaptation, and reactive adaptation are found to be
generally jointly determined. Uncertainty on the location of
damages reduces the benefits of "targeted"
proactive adaptation with regard to mitigation and reactive
adaptation. However, no single country controls global
mitigation policies, and budget constraints might make it
difficult for developing countries to finance reactive
adaptation, especially if climate shocks affect the fiscal
base. Rainy-day funds are identified as a supplemental
instrument that can alleviate future budget constraints
while avoiding the risk of misallocating resources when the
location of damages is uncertain. |
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