Climate Policy and the Optimal Balance between Mitigation, Adaptation and Unavoided Damage

32 Pages Posted: 26 Apr 2010 Last revised: 27 May 2010

See all articles by Francesco Bosello

Francesco Bosello

University of Milan - Department of Economics, Business and Statistics; CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Carlo Carraro

Ca' Foscari University of Venice; CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division); IPCC; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Centre for European Policy Studies, Brussels; Green Growth Knowledge Platform

Enrica De Cian

Fondazione Eni Enrico Mattei (FEEM); CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

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Date Written: April 23, 2010

Abstract

It has become commonly accepted that a successful climate strategy should compound mitigation and adaptation. The accurate combination between adaptation and mitigation that can best address climate change is still an open question. This paper proposes a framework that integrates mitigation, adaptation, and climate change residual damages into an optimisation model. This set-up is used to provide some insights on the welfare maximising resource allocation between mitigation and adaptation, on their optimal timing, and on their marginal contribution to reducing vulnerability to climate change. The optimal mix between three different adaptation modes (reactive adaptation, anticipatory adaptation, and investment in innovation for adaptation purposes) within the adaptation bundle is also identified. Results suggest that the joint implementation of mitigation and adaptation is welfare improving. Mitigation should start immediately, whereas adaptation somehow later. It is also shown that in a world where the probability of climate-related catastrophic events is small and where decision makers have a high discount rate, adaptation is unambiguously the preferred option. Adaptation needs, both in developed and developing countries, will be massive, especially during the second half of the century. Most of the adaptation burden will be on developing countries. International cooperation is thus required to equally distribute the cost of adaptation.

Keywords: Climate Change Impacts, Mitigation, Adaptation, Integrated Assessment Model

JEL Classification: Q54, Q56, Q43

Suggested Citation

Bosello, Francesco and Carraro, Carlo and De Cian, Enrica, Climate Policy and the Optimal Balance between Mitigation, Adaptation and Unavoided Damage (April 23, 2010). FEEM Working Paper No. 32.2010, CMCC Research Paper No. 86, Available at SSRN: https://ssrn.com/abstract=1594636 or http://dx.doi.org/10.2139/ssrn.1594636

Francesco Bosello

University of Milan - Department of Economics, Business and Statistics

Via Festa del Perdono, 7
Milan, 20122
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Carlo Carraro

Ca' Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy
+39 04 1234 9166 (Phone)
+39 04 1234 9176 (Fax)

HOME PAGE: http://www.carlocarraro.org/

CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division) ( email )

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Italy
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IPCC ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Centre for European Policy Studies, Brussels

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Green Growth Knowledge Platform ( email )

International Environment House
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Geneva, 1219
Switzerland

HOME PAGE: http://www.greengrowthknowledge.org/

Enrica De Cian (Contact Author)

Fondazione Eni Enrico Mattei (FEEM) ( email )

Campo S. M. Formosa, Castello 5252
Venice, 30122
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Lecce, I-73100
Italy

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