Give and take: How the funding of adaptation to climate change can improve the donor's terms-of-trade ¬リニ

a r t i c l e i n f o JEL Classification: C68 D58 F18 Q56 Q54 Keywords: Funding of adaptation Climate change International trade Dynamic multi-region multi-sector CGE model This paper discusses the interplay between international trade, regional adaptation to climate change and financial transfers for funding adaptation. It combines insights from a theoretical model of North-to-South transfers with the findings of a calibrated dynamic multi-region multi-sector computable general equilibrium model that takes into account the impacts of climate change and the adaptation to it. Assessing the effects of adaptation funding indicates that funding of adaptation in developing regions can be Pareto-improving. Not only will developing regions, which do not own sufficient resources for adapting optimally, profit from receiving adaptation funding. Terms-of-trade improvements in the high and middle income donor countries can dominate transfer costs and hence lead to a net-welfare gain in almost any developed region except North America. As such our consideration adds a new argument for financially supporting adaptation in the developing world besides the well-known ones such as fairness and incentives for participation in a global climate treaty. Mitigation and adaptation are the main strategies for responding to the threat of global climate change. Although the reduction of greenhouse gas emissions remains the primary objective in the political debate , measures for moderating the impacts of global climate change and reducing the climate vulnerability of communities and regions become increasingly important for at least two reasons. First, due to the inertia of the climate system, climate change is unavoidable to some degree, even if emissions of greenhouse gases are reduced radically (Farber, 2007). Second, while benefits of mitigation are independent of where emissions are abated, benefits of adaptation are primarily local. In other words, mitigation is a global public good that requires internationally coordinated efforts whereas adaptation is more likely to be implemented locally with sufficient pace and scope. Not surprisingly the lack of progress in negotiating a successor of the Kyoto Protocol has turned attention towards adaptation measures that can be more easily implemented without global coordination. Adaptation to climate change can be costly. The World Bank (2010) estimates that until mid of the century the developing countries' costs for adapting to a 2 °C warmer planet could be in the order of 70 to 100 billion US$ per year. This is above the range of what the UNFCCC (2007) has projected. According …