Investment as an adaptation strategy to climate change: case study of flood damage in China

Abstract

The objective of this research was to evaluate investment as a robust adaptation strategy in response to projected climate change in China. Four scenarios combining climate change and investment have been simulated in the model, which was established by adopting the standard approach of modern optimal economic growth theory; it also includes two discount factors from the climate sector (i.e., flood damage from climate variability and climate change). Relations between the flood prevention infrastructure and flood damage to the agricultural and the nonagricultural sectors were established from historical data and applied to estimate the benefit of investment to mitigate flood damage from climate variability. By assuming that the marginal adaptation costs to flood damage from projected climate change is the same as those from current climate variability, these relations were applied to estimate the benefit of investing in the mitigation of flood damage due to climate change. Tests were made to verify the model’s validity when the marginal adaptation cost for flood damage due to climate change was increased by 10%, 20%, and 30%, respectively. The conclusion is that optimized investment, taking climate change into consideration, effectively reduces the damage due to climate change and promotes the capacity to mitigate flood damage due to climate variability. Moreover, consumption and production increases regardless of whether climate change occurs.