Adaptation to extreme climate events at a regional scale

Hoffmann, Christin (2017). Adaptation to extreme climate events at a regional scale. (Dissertation, Universität Bern, Wirtschafts- und Sozialwissenschaftliche Fakultät)

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A significant increase of the frequency, the intensity and the duration of extreme climate events in Switzerland induces the need to find a strategy to deal with the damages they cause. For more than two decades, mitigation has been the main objective of climate policy. However, due to already high atmospheric carbon concentrations and the inertia of the climate system, climate change is unavoidable to some degree, even if today’s emissions were almost completely cut back. Along with the high uncertainty concerning future climate change policies, this fact has focused attention towards adaptation strategies. The increased interest in efficient and effective adaptation strategies motivates the three aims of this thesis: (1) to better understand the economic impacts of extreme climate events in Europe and especially Switzerland; (2) to develop policy recommendations for financially funding adaptation measures; and (3) to analyze the drivers of both.

In chapter 2, co-authored with Stefan Boes, we address the projected increase in frequency, intensity and duration of heat waves in Europe over the coming years. We estimate a non-market damage function for heat waves using climate and mortality data for 27 European countries from 1960 to 2009. We translate heat wave caused fatalities into monetary units using the value of statistical life approach. Since non-market damages are positive only when a heat wave occurs, we specify an exponential hurdle model that separates the modelling of zero damages from the conditional-on-positives part. Our results indicate that the population density and age ratio are positively associated with non-market damages, whereas the climate variables, GDP and the degree of urbanisation are insignificant in the conditional damage function.

Chapter 3 takes a computable general equilibrium approach to analyze direct and indirect effects of heat waves in Switzerland as well as strategies to adapt to them. It aims to answer two main research questions: (1) What is the order of magnitude of general equilibrium impacts of a 2003-like heat wave on the Swiss economy? (2) If adaptation to heat waves is a public good, what are the diverse economic effects of policies for financially funding optimal adaptation to heat waves? We develop a static Computable General Equilibrium (CGE) model which zooms into one single period of a standard Auerbach-Kotlikoff model. While we observe private and instantaneous adaptation in reaction to price changes, we explicitly model adaptation as a public good with financial funding realized through taxing either labor, capital, consumption or inheritance. Our approach has three main advantages: first, as it accounts for secondary effects, we are able to differentiate between welfare losses and damage in the output. Secondly, it makes it possible to do a regionally differentiated analysis without requiring regional input-output tables. Thirdly, it enables us to compare different strategies to fund the provision of the public good adaptation.

We are able to show that heat waves impact cohorts utility in an unadapted economy in substantially different ways. While young and less vulnerable cohorts profit (in welfare terms) from heat waves, vulnerable but surviving cohorts’ welfare decreases substantially. Thus, without adaptation, vulnerable cohorts are worse off and might have fewer possibilities to invest in private adaptation. These results support the findings of chapter 2, where we see that adaptation measures should mainly target the vulnerable groups of the population.

In chapter 4, co-authored with Gunter Stephan, we address the problem of an increase in the frequency, intensity and the duration of water-related extreme events in Switzerland. We aim (1) to gain a better understanding of the direct and indirect economic impacts of floods, (2) to analyze the issue of efficient flood adaption as well as the issue of financing adaptation in a federalist system, where local and national governmental authorities interplay in the provision of local public good adaptation. Our numerical thought experiments are based on a dynamic, spatial differentiated Ramsey type Computable General Equilibrium Model. Regions are determined by exposure and vulnerability to floods and are not identical with territorial units. Our results indicate: (1) general equilibrium effects caused by flood damages in vulnerable regions lead in regions of low vulnerability also to considerable welfare and GDP losses. (2) Providing local public good adaptation can, at low economic costs, significantly reduce negative impacts on welfare, GDP as well as the allocation of resources between regions and sectors. (3) Funding adaptation by imposing a regional land tax should be preferred to a national output tax or a combination of both with transfers from national to regional governments.

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