17.1. Background

This chapter assesses the literature on the economics of climate change adaptation, building on the Fourth Assessment Report (AR4) and the increasing role that economic considerations are playing in adaptation decision making and policy. AR4 provided a limited assessment of the costs and benefits of adaptation, based on narrow and fragmented sectoral and regional literature (Adger et al., 2007). Substantial advances have been made in the economics of climate change adaptation after AR4.

The specific objectives involved in an adaptation effort can be diverse. One may try to cancel all impacts (negative and positive), maintaining the status quo. Alternatively one can try to cancel adverse impacts and capture positive opportunities, so that the welfare gain (or loss) is maximized (or minimized).

Part of the literature presents adaptation as a continuous, flexible process, based on learning and adjustments (see, e.g., IPCC, 2012). Adaptation projects informed by this approach emphasize learning and experimenting, plus the value of using reversible and adjustable strategies (Berkhout et al., 2006; McGray et al., 2007; Pelling et al., 2007; Leary et al., 2008; Hallegatte, 2009; Hallegatte et al., 2011c).

Adaptation action and policy has also advanced since AR4, and the literature on the economics of adaptation has reflected this. This chapter builds on other chapters in this assessment—in particular Chapter 2, which sets the basis for decision making, recognizing economics as a decision support tool for both public and private actors. The type of economic approach used depends on factors discussed in Chapter 2, among others, including the agent making the decision, the nature or type of decision, the information used to make the decision, who implements the decision, others affected by the outcomes, and the values attached to those outcomes. While realizing the linkages between adaptation and mitigation, the starting point of this chapter is that adaptation is a given need.