A recent post Renewables Hypocrisy described the vain and empty spectacle of Mayors of major cities lining up to get badges claiming “100% Renewable Energy”. This post provides the alternative to such posturing. Matthew Kahn is a microeconomist studying and writing on the more rational and productive response to future climate change possibilities. His thinking is explained in a recent paper is Will Climate Change Cause Enormous Social Costs for Poor Asian Cities? Asian Development Review September 2017. There is much wisdom packed in this document, not only regarding Asia but everywhere. Some excerpts below give the flavor.
Climate change could significantly reduce the quality of life for poor people in Asia. Extreme heat and drought, and the increased incidence of natural disasters will pose new challenges for the urban poor and rural farmers. If farming profits decline, urbanization rates will accelerate and the social costs of rapid urbanization could increase due to rising infectious disease rates, pollution, and congestion. This paper studies strategies for reducing the increased social costs imposed on cities by climate change.
Cities face a practical challenge and many have not embraced it
While Asia’s poor face major new risks because of climate change, there are countervailing forces in play as well. With the rise of big data, governments and individuals have greater access to real-time information about emerging threats. Increased international flows of capital have given local governments the capacity to fund public infrastructure projects.
An open question concerns the incentives for mayors and city governments in developing countries to take costly steps to improve the quality of life of the urban poor. Such investments will ultimately increase the migration of rural poor to these cities. Anticipating this effect, some mayors and city governments are discouraged from making such investments. Feler and Henderson (2011) present evidence of this dynamic in Brazil.
Asia’s collective ability to adapt to anticipated but ambiguous new climate risks hinges on the well-being of the urban poor. If this group can successfully adapt to new challenges, then Asia’s overall urbanization experience is more likely to yield long-term economic growth and improvements in living standards.
The campaign to mitigate (prevent) global warming by reducing CO2 emissions is typified by the Paris accord, an ongoing political theater providing cover for elected officials.
Mitigation is not only useless, it distracts from real efforts to prepare for the future. Kahn:
Given that climate change directly impacts city quality of life, one surprising fact is that many leaders from around the world appear to devote more effort to seeing their city become a low-carbon city rather than a resilient city. To an economist, greater effort being devoted to mitigation rather than adaptation is surprising. With the former, there is a free-rider problem. Each city only contributes a small amount of the world’s total emissions; even if a city’s emissions are reduced to zero, its efforts will make no real difference in mitigating climate change.
Therefore, self-interest should drive adaptation efforts. Climate change can be perceived as a medium-term threat that will intensify after today’s leaders are no longer in power. It remains an open question whether elected officials are rewarded for tackling medium-term challenges. If real estate markets are forward looking, then current prices should reflect future threats. If a city develops a reputation for having a declining quality of life, then it will have more trouble attracting and retaining skilled workers. The threat of a brain drain (and lost tourism receipts) should incentivize local leaders to act.
It is also a case where one size does not fit all
In the spatial economics literature, cities differ with respect to their locational characteristics. Some cities feature cold winters, while others feature mountains. Real estate prices and rents adjust across cities so that those with better quality of life have higher rents and lower wages as compensation differential for living there (Rosen 2002). Climate change affects a city’s attributes. For example, a city that has enjoyed a temperate summer climate may now be much warmer during summer months.
In the typical urban economics model, a city’s attributes are all common knowledge. When considering the urban consequences of climate change, a city’s future attributes should be thought of as a random vector. For example, we do not know exactly what challenges Singapore will face in the year 2025 resulting from higher temperatures and/or rising sea levels. We can form expectations of these random variables, but we know that we do not know these future outcomes.
Facing uncertainty about how the quality of life will evolve in different cities, the theory of option value suggests it is important that Asia’s urban poor have as many possible destinations to move as possible. Such a menu of cities protects individuals and creates competition. Every city and country features locations of “higher ground” that are ostensibly more protected from the impacts of climate change. Advances in spatial mapping software can pinpoint such areas. If cities change their land use patterns to allow for higher densities in such areas, then adaptation is promoted.
If a population can self-protect from emerging threats using affordable technologies and real-time information, and if local governments can do a better job protecting urban residents from risk, then the historical relationship between risk and negative outcomes can be attenuated. This is a new version of the “Lucas critique,” which argues that as governments change the rules of the game, economic agents reoptimize and past relationships between consumption and income no longer hold (Lucas 1976).
In the case of climate adaptation, Mother Nature changes the rules of the game and economic actors change their decision making to reduce their risk exposure. Forward-looking households and firms should be making investments to become more nimble in the face of increased exposure to heat, drought, and climate volatility. The net effect should be that B1 in equation (1) shrinks toward zero over time.
Two schools of thought regarding future climates:
Mitigation: Cut down on use of fossil fuels to mitigate or prevent future global warming.
Adaptation: As changes occur, adapt our methods and practices to survive and prosper in new conditions.
The Paris Agreement and various cap-and-trade schemes intend to Mitigate future warming. Lots of gloom and doom is projected (forecast) by activists claiming mitigation is the only way. But the facts of our experience say otherwise. Building Adaptive Cities means investing in resilience, preparing for future periods both colder and warmer than the present. Key objectives include reliable, affordable energy and robust infrastructure.
See also: Adapt, Don’t Fight Climate Change