Mitigation and adaptation within a climate change policy

Mitigation and adaptation within a climate change policy portfolio: A research program www. epa. gov/ord/nrmrl Tyler Felgenhauer Post-Doctoral Research Fellow, Energy and Climate Assessment Team felgenhauer. tyler@epa. gov U. S. EPA, Office of Research and Development National Risk Management Research Laboratory Air Pollution Prevention and Control Division Research Background Framework Development Economic Modeling International Policy Application Optimal responses to global climate change require a portfolio of both mitigation and adaptation actions: : research question: How can a framework that incorporates both mitigation as well as three types of adaptation investments – short-lived flow adaptation, long-lived stock adaptation, and adaptation with the option to upgrade in the future after learning occurs (“option stock”) – provide policy guidance to decision makers looking to allocate scarce climate policy resources? The research goal is to frame and conceptualize the tradeoffs between mitigation and adaptation in joint implementation for decision makers in a way that is useful for understanding policy. Integrated assessment models, such as those based on the DICE model, can be improved when policy variables more accurately depict the options that are available to decision makers. research question: What climate policy lessons can be drawn from a modeling exercise where mitigation, short-lived flow adaptation, and long-lived depreciable stock adaptation are available as choice variables in a dynamic optimization over time? methodology: Modeling, using the AD-DICE S/F model, an author-modified version of AD-DICE, itself based on DICE. Any global post-Kyoto climate mitigation agreement will likely include an additional mechanism for international adaptation financing transfers from developed to vulnerable developing nations. adaptation: adjustment in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderates harm or exploits beneficial opportunities. Fig. 1. The allocation of resources across climate policy options. Fig. 2. Adaptation flow, stock, and option stock, with expected damages under different climate change trajectories. Significant differences between the two responses have inhibited consideration of these two key strategies in a coherent policy framework: • Economic good types. Mitigation is a global public good and adaptation is a localized private or club good, with implications for the distribution of the costs and benefits of each policy. • Benefits timing. Mitigation is only anticipatory, with long time lags between implementation and the receipt of policy benefits. Adaptation measures, conversely, pay off relatively quickly, either within a few decades or instantaneously with autonomous adaptation. • Institutional implementation. Mitigation and adaptation will be implemented with different emphases across multiple scales: local, regional, national, and international. • Relationship to climate damages. Mitigation lowers the overall probability of future severe climate damages, while adaptation lowers specific realized future damages. • Complementarity, substitutability, and other interrelationships. Mitigation and adaptation can both offset each other (in that the use of one requires less of the other) or reinforce each other depending on the technology. In order to understand the relevant relationships and tradeoffs that occur when mitigation and adaptation are considered together, two particular dimensions are fundamental: 1) strategy investment lifetimes and related capacity limits in reducing climate damages, and 2) strategy dynamics under uncertainty. We present three stylized classes of adaptation investment types as a conceptual framework : short-lived “flow” spending, committed “stock” investment, and lower capacity “option stock” with the capability of future upgrading. research question: How can such adaptation assistance be structured within the new climate regime to encourage both participation by relevant national parties and compliance by those parties once the treaty is joined, thus promoting its primary goal of mitigation? Fig. 6. Relationships among three country types in a possible international climate policy agreement with side payments. Policy levels mitigation: the reduction of greenhouse gas emissions and the enhancement of sinks, with the eventual goal of stabilizing atmospheric concentrations, and Conscious management of the type of adaptation aid that is donated, along the lines of flow and stock adaptation explored here, may serve as a tool to change the perceived interests of adaptation aid donor and recipient nations. Ongoing and Future Research 1. The Limits of Adaptation The limits of adaptation to climate change depend on physical properties (natural processes and engineering parameters), resource constraints (expressed through market prices), and societal preferences (from prices as well as cultural norms). Fig. 3. Four response approaches to climate change using a two -stage investment portfolio allocation decision under uncertainty, with learning. The policies are mitigation M, flow adaptation FA, committed adaptation stock CAS, and option stock OS; the uncertainties are in net adaptation benefits NAB, mitigation costs MC, and climate sensitivity CS. Given the large policy uncertainty that we face currently, explicitly considering adaptation option investments is a valuable component of a policy response that can balance between the flexible flow and committed stock approaches, as it allows for the delay of costly stock investments while at the same time allowing for lower-cost risk management of future damages. Fig. 5. Total policy costs and net damages under four policy scenarios, 1995 -2185 research question: How do we define adaptation limits, how should these limits be measured (and what is their level), and what choices are likely to be made when these thresholds are passed? 2. International Climate Change Damage and Risk Trading Experience with market-based emissions trading systems (e. g. , for SO 2) has shown them to be among the most cost-effective ways to achieve pollution abatement goals. These systems tend to work best when the market is bounded and institutionally mature, and where the pollutant substitutes are cheap and readily available. Climate change responses ultimately are geared towards reducing damages, either directly through adaptation or indirectly through mitigation. Rather than look at well-studied global cap-and-trade proposals for mitigation, this innovative paper will investigate a global climate regime that fully integrates both mitigation and adaptation through international market-based trading across both responses using a common unit of avoided damages, and where the trading is on risk or damages rather than on units of CO 2 e abated. Strategic tradeoffs between mitigation and adaptation depends critically on the relative ratio of stock adaptation to flow adaptation. research question: Is such an international climate change damage and risk trading regime theoretically sound? Is is feasible in practice with the current set of international institutions?