Climate adaptation: a literature review
With climate change intensifying, adaptation-actions to reduce or cope with adverse impacts-is now a top priority for policymakers. However, the academic literature provides limited direct guidance for policy design, partly due to methodological challenges and the diversity of adaptive responses. In this article Tamma Carleton, Esther Duflo, Kelsey Jack, and Guglielmo Zappalà review the state of academic research on the economics of climate adaptation and its implications for effective policy.
Forms of adaptation:
Adaptation occurs through two main channels:
- Reactive (ex-post) adaptation: Responses after weather events (e.g., using air conditioning during heatwaves).
- Proactive (ex-ante) adaptation: Investments made in anticipation of future climate risks (e.g., planting drought-resistant crops, building resilient infrastructure).
The extent and nature of adaptation depend on external factors like technology prices, income, market structure, and frictions-all of which can be shaped by policy.
Barriers and inequality:
Financial constraints, market frictions, and behavioral biases often prevent optimal adaptation, especially in low-income countries and among vulnerable populations. Without policy intervention, adaptation can exacerbate inequality, as wealthier groups shield themselves more effectively from climate damages.
Research streams and policy motivation:
The literature has evolved along two main lines:
- Measuring adaptation to inform mitigation policy: Quantifying how much adaptation reduces climate damages to inform decisions like optimal carbon pricing. Studies show ex-ante adaptation (e.g., infrastructure, behavioral changes) can significantly lower damages to health, energy use, and labor supply, but is less effective for agriculture and overall GDP. Adaptation effectiveness is often limited by income levels.
- Studying adaptation to inform adaptation policy: Evaluating the welfare impact of specific adaptation interventions (e.g., new seed varieties, healthcare, cash transfers, information access). These studies highlight the importance of addressing market frictions and providing resources to the most vulnerable.
Empirical and methodological challenges:
- Many studies rely on historical weather variation, which may not capture future climate realities.
- The choice of functional form for modeling weather impacts is crucial and can affect results.
- Few studies explicitly project adaptation effectiveness under future climate scenarios.
Policy implications:
- Public policy should intervene where market failures distort private adaptation, such as by improving information, providing public goods, correcting externalities, or addressing incomplete markets (e.g., insurance, credit).
- Equity concerns justify adaptation policies that target vulnerable groups, even beyond standard market failure arguments.
- Policymakers need frameworks to prioritize adaptation investments, balancing adaptation-specific benefits with broader welfare impacts.
Future research directions:
- Develop more robust empirical methods and functional forms for modeling adaptation.
- Focus on adaptation to moderate, not just extreme, climate changes.
- Study mechanisms through which policy interventions reduce damages.
- Integrate insights across disciplines to inform targeted and holistic adaptation policies.
The economics of climate adaptation: From academic insights to effective policy
By: Tamma Carleton, Esther Duflo, Kelsey Jack, Guglielmo Zappalà – University of California, Berkeley, MIT, University of California, Santa Barbara
A novel model for climate adaptation
Simon Dietz and Bruno Lanz, in this paper, develop a structurally estimated model of long-run economic growth to analyze global adaptation to climate change. Key features include:
- A two-sector framework (climate-vulnerable agriculture vs. less vulnerable manufacturing/services) with non-homothetic consumer preferences.
- Endogenous technical change, fertility decisions, land-use dynamics, and a coupled climate system.
- Calibration using simulated method of moments (SMM) on 1960–2015 data for population (United Nations, 2019), output (World Bank, 2020), productivity, energy use, and GHG emissions (BP, 2017).
Findings:
- Proactive adaptation (e.g., reallocating resources to agriculture, innovation) reduced agricultural output losses from 9.6% (pre-adaptation) to 3.9% by 2020. This came at the cost of slowed structural change out of agriculture, lowering output in other sectors by 5.3% by 2020.
- Climate change, including adaptation costs and residual damages, caused a 6% welfare loss (1960–2020).
- Agricultural R&D and capital mobility are pivotal for effective adaptation.
- Constraints on fossil capital reallocation increase abatement costs by 6.9%.
- The authors underscore the trade-offs between adaptation and mitigation, emphasizing that while adaptation reduces sectoral losses, it imposes broader economic costs that justify aggressive emissions reductions.
Growth and adaptation to climate change in the long run
Authors: Simon Dietz, Bruno Lanz
From: LSE, University of Neuchâtel
A roadmap for climate adaptation policy
Mauro Pisu, Hélia Costa, Filippo Maria D’Arcangelo, Yannick Hemmerlé, Tobias Kruse, and Luisa Lutz outline a multi-step framework to integrate climate adaptation into economic policy.
Three-step framework for adaptation:
- Risk identification: Assess climate hazards (e.g., floods, heatwaves), exposure (assets/populations at risk), and vulnerability (susceptibility to harm). Quantify economic costs to public finances, private incomes, and growth.
- Action prioritization: Categorize adaptation measures (e.g., flood barriers, updated building codes, shifting economic activity) and prioritize based on cost-benefit analysis of avoided damages.
- Implementation: Deploy policy tools like economic incentives (tax breaks for resilient infrastructure), regulations (zoning laws), information systems (early warnings), and direct public projects (coastal defenses).
Policy instruments:
- Economic incentives (e.g., subsidies for climate-proofing homes).
- Regulations (e.g., wildfire-resistant construction codes in Portugal).
- Information tools (e.g., Germany’s “flood passports” for risk assessment).
- Public infrastructure (e.g., the Netherlands’ Delta Works).
Financing challenges:
Private investment is hindered by market failures; governments must de-risk projects via guarantees, PPPs, and fiscal integration. Developing countries require international support to meet adaptation financing gaps.
Future priorities:
Bridge gaps in assessing macroeconomic costs of climate impacts. Align adaptation with mitigation efforts to reduce long-term risks.
Accelerating climate adaptation: A framework for resilient economies
Authors: Mauro Pisu, Hélia Costa, Filippo Maria D’Arcangelo, Yannick Hemmerlé, Tobias Kruse, Luisa Lutz
From: OECD
