Adapting to Climate Change: Who Should Pay?

Abstract

As the realization sinks in that climate change will cause billions of dollars of harm even if we do everything feasible to cut back on emissions, the people who are directly harmed are going to start wondering whether they alone should bear the costs. After examining some of the relevant social goals for a cost allocation system, this paper considers four possible allocation principles: "Adaptation Beneficiaries Pay," "Emitters Pay," "Public Pays," and "Climate-Change Winners Pay." These principles do not cover the universe of possibilities but they seem to be the most plausible. The paper tentatively suggests that the preferred principle should be "Emitters Pay" but that cost allocations between taxpayers and beneficiaries ("Public Pays" plus "Beneficiaries Pay") may also have a role.

Keywords: Climate change, compensation, insurance, adaptation

JEL Classification: K14, K33, N5, Q4