by Judith Curry
If we really want to help globally, there is clear evidence that most can be accomplished through effective support at a community level for locally-designed and implemented adaptation measures in Africa and poor Asian countries where the real vulnerability exists, not nugatory mitigation that helps no one. – W. David Montgomery
Last week, the U.S. Senate Committee on the Budget held a Hearing on the Costs of Inaction: Economic and Budgetary Consequences of Climate Change. Lomborg also testified at this Hearing. Of particular interest is the testimony of W. David Montgomery [link].
Economic issues in designing adaptation strategies
Economists who have studied climate change generally agree that rational adaptation can substantially reduce the potential damage from climate change, and that in an institutional setting that does not distort the natural economic incentives to avoid risk, the private sector is quite capable of adopting many appropriate responses on its own. There are also public goods involved in adaptation, including the classic public goods of R&D, public health, roads, dams and flood protection. Resilience toward climate change is also a function of how well a system performs at providing public goods. Thus to me there are three fundamental requirements for effective adaptation policy in the United States:
- Understanding what types of adaptations should be left to the private sector and which are the responsibility of government. The criterion should not be “people’s homes need protecting” but “there are systematic public goods involved that justify public investment rather than relying on the clear private incentive to manage risks to ones own property.”
- Maintaining the economic freedom and property rights that create appropriate incentives for private investment to avoid risks of climate change. But these incentives can be diluted or distorted by government programs that provide free insurance before or after the fact or otherwise subsidize development in vulnerable areas.
- Limiting public policy toward adaptation to: a. elimination of subsidies and other distortions that reduce private adaptation incentives by creating moral hazards; b. investments in true public goods that have an acceptable balance of cost and climate risk reduction.
Poor countries face much greater challenges than these in achieving any kind of adaptation. Where our problem is adapting sensibly and cost-effectively, their problem is adapting at all. Many studies have shown why it is that poor countries, especially in equatorial regions where the potential effects of climate change would be the largest, are not likely to be able to adapt effectively. These include violence and insecurity that makes any investment questionable, rulers who keep their people in poverty while appropriating any economic surplus or foreign aid for their own benefit, and lack of secure property rights and land tenure that are fundamental to incentives to invest. They also include closed political systems that exclude most of their population from meaningful participation and carry out public works projects to benefit their narrow base of supporters and not the country as a whole.
I am firmly convinced that moving a country from a political order like that in, for example, the Sudan, to a political order like that in Botswana would improve its standard of living and reduce the potential for conflict and damage from climate change more than would any conceivable action to reduce global greenhouse emissions.
Potential Pitfalls in Adaptation Policy
Nor is the U.S. immune to distorted incentives and government policies that frustrate or misdirect adaptation. Our current policies already distort incentives in a way that increases vulnerability to extreme weather events and inflates estimates of the need for public investment to protect socially unwise private investments. The principle one is subsidized flood insurance, that encourages people to build in areas known to be vulnerable. A more hidden incentive is provided by Federal funding for reconstruction after a disaster hits; although solidarity with those who have been harmed justifies aid, providing the aid by rebuilding the areas that were damaged just reinforces the incentive to downplay risks. Most of record damage due to storms is clearly attributable to greater development in areas known to be vulnerable and not to an increase of the hazard. Fixing the incentives to locate in locations at risk is far more cost-effective than encouraging and then protecting unwise investments. Agricultural disaster assistance can have the same effect. The moral hazard that future policies could create must be looked at carefully if private adaptation is to play the full role that it can.
In terms of the design of public investment programs, I see three counterproductive dynamics at work, that if left unchecked are likely to greatly increase budgetary demands and reduce the effectiveness of adaptation measures. They are:
- Scientifically unjustified attribution of current weather events to climate change
- Using adaptation as a convenient rationale for pork barrel projects
- Making climate change an excuse for extension of agency missions and larger budgets
The first of these is a simple error, though it many cases it is indulged in by those who do know better. The other two are consequences of a dysfunctional system in which policies are pursued for the benefit of incumbents and their constituencies rather than for broader national objectives.
Although it is true that demanding certainty before acting is rarely a good risk management strategy, always assuming the worst and acting as if it is sure to happen without immediate action is equally bad risk management. So is insisting on doing something even though it is too late or too little to matter.
Where adaptation is most necessary
Despite all this, I agree that “To lower our national security risks, the United States should take a global leadership role in preparing for the projected impacts of climate change.” But I recommend a very specific type of response. I am convinced that most assessments of what can be done are so blinded by political correctness and diplomacy that they will not properly attribute the cause of vulnerability to failed states, rapacious ruling elites, and systems that fail to provide either economic or political freedom. They also continue the error of recommending top down planned solutions rather than recognizing that effective adaptation, like effective poverty reduction and wildlife conservation, must occur at the community level.
These conditions may be made worse by climate change, but the small difference that unilateral U.S. action can make to global warming in the current international setting will have no noticeable effect on the risks. To the extent that these conflicts affect U.S. national interests, a much wiser investment would be in a sufficiently strong military to deal with threats to us and humanitarian interventions around the world.
If we really want to help globally, there is clear evidence that most can be accomplished through effective support at a community level for locally-designed and implemented adaptation measures in Africa and poor Asian countries where the real vulnerability exists, not nugatory mitigation that helps no one.
JC comments
A previous Climate Etc. post discussed Montgomery’s testimony at two separate hearings in Spring 2011 [link]. Montgomery is one of the economists working on climate change issue that I definitely pay attention to.
Montgomery shows a healthy skepticism about the uncertainties surrounding climate change and the benefits of mitigation policies. I find his remarks about adaptation to be very insightful particularly with regards to:
- understanding which types of adaptation should be left to the private sector versus supported by the government
- the counterproductive dynamics at work in terms of government adaptation programs
- the futility of addressing natural security issues with ‘nugatory mitigation that helps no one.
Montgomery’s testimony, in combination with Lomborg’s, provides a powerful counter to the Obama administration’s accounting of the ‘cost of inaction.’
Filed under: Adaptation
