Catastrophic Risk, Precautionary Abatement, and Adaptation Transfers

40 Pages Posted: 17 Jan 2015 Last revised: 31 Jan 2015

See all articles by Francesco Bosello

Francesco Bosello

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

Enrica De Cian

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

Licia Ferranna

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Date Written: January 15, 2015

Abstract

This paper contributes to the normative literature on mitigation and adaptation by framing the question of their optimal policy balance in the context of catastrophic climate risk. The analysis uses the WITCH integrated assessment model with a module that models the endogenous risk of experiencing an economic catastrophe if temperature increases above a certain threshold. We find that the risk of a catastrophic outcome would encourage countries to reduce emissions even in the absence of a coordinated global agreement on climate change and to realign the policy balance from adaptation toward more mitigation. Our analysis also shows that adaptation transfers from and strategic unilateral commitments to adaptation in developed countries appear to provide weak incentives for reducing emissions in developing countries. Thus our first conclusion is that precautionary considerations, rather than the ability to reduce smooth damage increases, justify mitigation as a fundamental policy option. Accordingly, adaptation is needed to cope with the non-catastrophic damages that countries would fail to address with mitigation Our second conclusion is that supporting adaptation in developing countries should be considered primarily as a mean for ensuring equity or improving development, and very marginally as a mitigation incentive.

Keywords: Climate Change, Mitigation, Adaptation, Climate Risk, Integrated Assessment

JEL Classification: C61, D58, Q05

Suggested Citation

Bosello, Francesco and De Cian, Enrica and Ferranna, Licia, Catastrophic Risk, Precautionary Abatement, and Adaptation Transfers (January 15, 2015). FEEM Working Paper No. 108.2014; CMCC Research Paper No. RP0227. Available at SSRN: https://ssrn.com/abstract=2550714 or http://dx.doi.org/10.2139/ssrn.2550714

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

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

Licia Ferranna

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

via Augusto Imperatore, 16
Lecce, I-73100
Italy

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