The Economics of Climate Adaptation

Why adapting to climate change is necessary alongside cutting emissions, which adaptations pay off best, and who pays for them.

There are two main responses to climate change. Mitigation means reducing greenhouse gas emissions to limit warming. Adaptation means adjusting to the effects of climate change that are already happening or expected, such as heatwaves, floods, droughts and rising seas.

Why adaptation is needed

Even with strong mitigation, some warming is already locked in. Communities, businesses and governments must prepare for more extreme weather and changing conditions.

Examples of adaptation

Early warning systems for storms, floods and heatwaves.
Drought-resistant crops and improved irrigation.
Stronger infrastructure, such as raised roads and flood defences.
Protecting mangroves and wetlands, which buffer coasts and absorb floodwater.
Heat action plans and cooler building designs.
Crop and disaster insurance.

High returns

The Global Commission on Adaptation reported in 2019 that investing 1.8 trillion dollars globally from 2020 to 2030 in five areas, early warning systems, climate-resilient infrastructure, improved dryland agriculture, mangrove protection and resilient water resources, could generate 7.1 trillion dollars in net benefits. It described the benefit-cost ratios as ranging from about 2 to 1 to 10 to 1.

The funding gap

Poorer countries, which often face the greatest climate risks, have the least money to adapt. The United Nations Environment Programme’s Adaptation Gap Reports have found that adaptation finance flowing to developing countries is far smaller than their estimated needs. At international climate negotiations, developing countries have pushed for more adaptation funding and a fund for loss and damage, agreed in 2022 and set up in 2023.

Adapting a farm

A farmer facing more frequent droughts switches to a drought-tolerant millet variety, installs drip irrigation and buys crop insurance. These steps cost money but protect income in dry years. Without them, one bad season could force the family to sell land or livestock. Adaptation turns a potential disaster into a manageable setback.

Maladaptation

Poorly designed adaptation can backfire. Building sea walls can shift erosion to neighbouring areas. Subsidised insurance can encourage building in risky places. Economists call this maladaptation.

Thinking adaptation means giving up on cutting emissions

Adaptation and mitigation are complements. Adaptation reduces harm from unavoidable changes, while mitigation limits how severe those changes become. Both are needed.

Key takeaways

Mitigation cuts emissions; adaptation prepares for climate impacts.
Adaptation includes early warnings, resilient crops, infrastructure and ecosystem protection.
The Global Commission on Adaptation found high benefit-cost ratios for key investments.
Poorer countries face a large adaptation funding gap.