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Understanding the $316 billion climate adaptation economy

"From a business perspective there are opportunities out there," a new paper reports.

The amount spent on climate adaptation and resilience is on the rise, researchers have found, with the so-called "adaptation economy" maintaining steady growth in many cities throughout the global recession.

In a new paper, published Monday in the journal Nature, scientists from University College London found the total worldwide spend on adaptation hit $316 billion in 2014-2015, despite that policy focus has been directed only towards climate adaptation efforts relatively recently.

However, while a multibillion dollar market opportunity sounds impressive, the study was quick to note the figure still only translates to less than half a percent of global GDP.

The researchers used government statistics to produce a figure that combines public and private sector spending across different areas of the world in an effort to give as complete an overview as possible of the "adaptation economy" — data which is not always readily available to businesses or policymakers.

It also focused on climate adaptation spending in 10 of the world's megacities, including London, New York, Beijing and Lagos, as a means of highlighting the particular risks and opportunities urban areas face as they attempt to strengthen their climate resilience.

There seems to be support for action on adaptation — it's a sign that people are taking it seriously.

As well as quantifying total global adaptation spend, the findings show spending on adaptation in cities in particular is increasing, with expenditure on adaptation in eight of the 10 cities rising by around 4 percent a year between 2008 and 2015.

"From a business perspective it shows that there are opportunities out there in adaptation," Lucien Georgeson, doctoral researcher in the global green economy at University College London and lead author of the paper, told BusinessGreen. "The positive sign from the study is that we saw fairly strong growth in most cities, indicating there seems to be support for action on adaptation — it's a sign that people are taking it seriously."

The paper pointed to how increasing awareness of the ways growing cities are vulnerable to extreme weather may boost investment in adaptation measures, while the lack of a strict definition of what adaptation activity will look like offers opportunities for businesses and sectors to develop new innovations and specialisms.

However, the report also warned the spread of the "adaptation economy" remains patchy. The authors found that while some cities appear to be taking relatively strong action to adapt to climate change risks, others are being left behind — and it is those in the developing world who appear to be struggling most.

For example, New York spends over $1.75 billion a year on adaptation measures, while Ethopia's capital, Addis Ababa, spends just $16.4 million.

Total megacity spend on adaptation and resilience to climate change in 2014-15. Credit - Lucien Georgeson et al. Nature Climate ChangeTotal megacity spend on adaptation and resilience to climate change in 2014/15. Credit: Lucien Georgeson et al. Nature Climate Change

When the figures are adapted to incorporate how many people live in each city, New York still spends 41 times more per person than Addis Ababa, seven times more per person than Mumbai and five times more per person than Beijing.

Megacity spend per capita on adaptation and resilience to climate change in 2014-15. Credit - Lucien Georgeson et al. Nature Climate ChangeMegacity spend per capita on adaptation and resilience to climate change in 2014-15. Credit: Lucien Georgeson et al., Nature Climate Change

What's more, when the researchers looked into whether rich cities simply have more to spend overall, they found the disparity is not fully explained by the level of economic activity in the cities: When the figures are looked at as a percentage of overall GDP of each city, big differences still arise. Beijing spent the biggest proportion last year, with 0.33 percent of its GDP going to adaptation measures, followed by London with 0.23 percent. Meanwhile, Mexico City, Sao Paulo, Mumbai, Jakarta, Lagos and Addis Ababa all spent between just 0.14 and 0.16 percent of their GDP on adaptation — something which could be due to competing needs for expenditure, meaning they are left with less capacity to adapt, the researchers said.


xxxxMegacity spend on adaptation and resilience to climate change in 2014-15 as a percentage of city GDP. Credit: Lucien Georgeson et al. Nature Climate Change

"This is perhaps an early warning sign that more needs to be done in cities in developing countries to adapt to climate change, and there needs to be some way of getting more resources to those cities for adaptation," said Georgeson. "It's very unlikely that [$5.16] per person [per year] is going to be enough to protect the current and future population of Addis Ababa."

All this is especially worrying in cities such as Mumbai and Jakarta, where population is expected to rise rapidly in coming years and the cities' geographical locations make them vulnerable to climate change risks.

Spending also was found to be more volatile in developing countries, Georgeson said, with levels abruptly dropping by 26 percent in Addis Ababa and 6 percent in Lagos in Nigeria in 2013 — potentially because the smaller amounts spent in these cities mean they are more dependent on individual spending projects.

The researchers looked at how the "adaptation economy" was divided between different sub-sectors in the 10 cities. Interestingly here Beijing proved the major exception, with a far high proportion of its spending going to "build environment" measures such as new infrastructure and retrofitting of existing buildings to deal with a different climate than other countries.

Less developed cities generally were found to spend more on agriculture, forestry and healthcare, while the more developed cities had a stronger focus on energy and water, which Georgeson said could be due to the challenges of adapting big, complex and sometimes quite old infrastructure systems as well as citizens expecting a certain level of reliability, which necessitates higher spending to protect these systems from climate-related risks.

Policymakers in cities need to be able to understand the adaptation activities that are happening within their cities, as well as what the risks they face are.

With this study part of a larger project that aims to track how the global green economy is developing, the UCL researchers and others increasingly will be able to provide information on who is spending what on adaptation within their cities — data that could make all the difference in helping policymakers better understand how the "adaptation economy" is evolving, what the baseline for spending is and whether capital is being deployed in the areas where it is most needed.

"We're getting better at understanding what the risks of climate change might be, but policymakers in cities need to be able to understand the adaptation activities that are happening within their cities, as well as what the risks they face are, so they can assess whether what has been done addresses the risks," said Georgeson. "It's one part of the whole data and information picture that we need in order to make good decisions."

Meanwhile, putting a precise figure on the amount that will be needed to be invested in adaptation now and into the future is, of course, a tricky task. One analysis from Oxfam released ahead of the Paris climate summit last year found that if countries do not bump up the ambition of their climate pledges, which at their current level are expected to see average temperatures increase by around 3 degrees Celsius this century, developing countries would be forced to spend $567 billion each year by 2050 to adapt to the subsequent climate impacts.

This would be $194 billion more than under a 2 C scenario, Oxfam said, and comes on top of the annual $1.20 trillion loss to their economies that developing countries already expected to face by the middle of the century under a 3-degree scenario.

The 2009 Copenhagen climate summit saw developed nations committing to jointly mobilizing $100 billion per year in public and private finance by 2020 to help developing countries cope with climate change, with the Overseas Development Institute (ODI) estimating that this figure sat at $62 billion in 2014, although this combines financing for both mitigation and adaptation measures.

As is well recognized by now, the costs involved in adapting to climate change are far lower than inaction — in one example a study commissioned by the government of Uganda last year found that the costs of failing to take action on climate change would reach 20 times what the country would need to spend on adaptation by 2025.

With increasing levels of data rolling in to help shape policy and business decisions, the opportunities and responsibilities ready to be grasped in relation to climate adaptation are only set to rise.

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