International Waters learning Exchange & Resource Network

9. Climate change economics

Climate change caused by the emission of greenhouse gases into the atmosphere from burning fossil fuels and land use change has been described as “the mother of all externalities” (Tol 2009). Climate change economics addresses the measurement of economic impacts of climate change, assessment of costs and benefits of greenhouse gas mitigation, assessment of costs and benefits of adaptation to the impacts of climate change, and the design of economic policy instruments to promote both mitigation and adaptation. Here we introduce the following topics that are directly relevant to LME/MPA/ICM: damage assessment, adaptation planning, ecosystem based adaptation, and blue carbon.

9.1 Climate change damage assessment

Climate change is expected to result in several, predominantly negative, impacts on coastal and marine ecosystems and the communities that use them. Direct impacts to coastal communities include damage to property, infrastructure and loss of life from extreme storm events, flooding due to sea level rise, saline intrusion into groundwater and agricultural land, and loss of marine food resources. Climate change impacts affecting fisheries include changes in food availability, recruitment, and distribution. Climate change impacts to tourism include changes in optimal temperatures, frequency and severity of extreme weather events, damage to infrastructure and facilities, and loss of biodiversity.

Economic assessments of damages resulting from climate change measure the magnitude and distribution of impacts, usually in monetary terms. This information can be useful for identifying the scale of the problem, raising public awareness and motivating responses in terms of both mitigation and adaptation. The scale of the assessment largely determines the method used to make economic damage assessments. Integrated Assessment Models (IAMs), combined macroeconomic and atmospheric models, have been used for global or regional scale assessments. Local scale assessments of climate change damages often couple together models or information that describe each step of the impact pathway from changing climate parameters, biophysical impacts, to economic and social consequences.

9.2 Vulnerability assessment and adaptation planning

Vulnerability is the degree to which a system or community is susceptible to, and unable to cope with, adverse effects of climate change, including climate variability and extremes. Vulnerability is a function of the magnitude and rate of climate change to which a system is exposed, its sensitivity to climate change, and its adaptive capacity. A vulnerability assessment therefore involves identifying and quantifying exposure to changing climate conditions, sensitivity to those changes and the capacity to adapt to them. Vulnerability assessments can be used as a first step in planning adaptation measure by: (1) identify areas most likely to be impacted by projected changes in climate;

(2) build an understanding of why these areas are vulnerable, including the interaction between climate change, non-climatic stressors, and cumulative impacts; and (3) identify and target adaptation measures to communities with the greatest vulnerability.

Adaptation involves anticipating the adverse effects of climate change and taking appropriate action to prevent or minimise damage. Autonomous adaptation is undertaken by economic actors in response to observed climate change (e.g. switching target fish species, migration, choosing alternative tourist destinations); whereas planned adaptation is undertaken in anticipation of climate changes (e.g. building seawalls, reducing pressures on coral reefs).

The Micronesia Conservation Trust and the Pacific Islands Managed and Protected Area Community have developed a simple adaptation planning tool targeted at coastal communities called the Vulnerability Assessment Local Early Action Plan (VA-LEAP). The VA-LEAP includes the following 6 steps:

1.Getting organized,

2.Raising community awareness, 

3.Assessing non-climate threats, 

4.Developing a local climate story, 

5.Assessing vulnerability to climate change, and 

6.Finalizing your local early action plan for climate change adaptation. 

The VA-LEAP is a simple planning tool that practitioners can use to guide actions that can be taken to improve management of important resources while taking climate change impacts into consideration. Developing a VA-LEAP includes identification of prioritization of social and natural resources, identification of threats, characterization of the vulnerability of priority resources to climate change impacts, identification of potential solutions to address threats and to reduce vulnerability to climate change impacts, identification of desired results and measurable objectives, and development of an action plan to achieve those results. The VA-LEAP results can be used by community members and local government and/or NGOs to begin to implement actions that are feasible for natural resource management climate change adaptation at the local level.

The VA-LEAP is a “qualitative” assessment using descriptive information obtained through community discussion, local experience and knowledge. The process is focused on collecting local knowledge and information to understand the perceived status of natural and social resources, and the vulnerability of these resources to climate changes based on existing non-climate threats, past and current experience, and future predictions. The identified adaptation measures can then be subjected to a more quantitative economic appraisal such as cost-benefit analysis or multi-criteria analysis.

Vulnerability Assessment Local Early Action Planning and Management (VA-LEAP) tool

9.3 Ecosystem based Adaptation

Ecosystem-based adaptation (EbA) is the use of biodiversity and ecosystem services as part of an overall adaptation strategy to help people to adapt to the adverse effects of climate change (Convention on Biological Diversity, 2009). EbA involves a wide range of ecosystem management activities to increase the resilience and reduce the vulnerability of people and the environment to climate change. In the context of marine and coastal management, there is substantial interest in the use of coastal ecosystems (e.g. dunes, mangrove, coral reefs and wetlands) to buffer the impacts of storms and coastal flooding. In addition to regulating services that reduce the impacts of climate change, EbA may also involve enhancing production of ecosystem provisioning and cultural services in the face of climate change threats to these services.

A number of international initiatives have been implemented to identify the conditions under which EbA is effective in order to provide evidence, motivation and guidance to undertake EbA as part of planned adaptation responses to climate change. Such initiatives have examined the benefits, costs and limitations of EbA and promote the integration of EbA into policy and planning.

The project ““Ecosystem-based Adaptation: Strengthening the evidence and informing policy” implemented by IUCN, the International Institute for Environment and Development (IIED), and UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC) have produced a set of guidance publication on EbA.

GIZ has developed a sourcebook and training module to assist in building capacity about why, how and in which contexts EbA valuation can be used to inform adaptation decision-making. The sourcebook provides information on valuation methods, practical steps for conducting an EbA valuation study, and 40 case study example applications:

A useful source of information on past and on-going EbA projects is the weADAPT online platform. This is a collaborative platform on climate adaptation issues that enables the sharing of experiences and ideas on EbA and climate change adaptation in general. It allows practitioners, researchers and policy-makers to access credible, high-quality information and connect with one another.

Another useful online resource for sharing experience and knowledge of sustainable management of marine ecosystems, including but not limited to EbA, is the Blue Solutions platform. Blue Solutions provides a global platform to gather, share and generate knowledge on sustainable management and equitable governance of the marine environment. Information on this platform is organised across five themes, one of which is climate change. The other themes are coastal and marine spatial planning and management; protected areas management and governance; ecosystem services; and sustainable financing.

9.4 Blue carbon

Mangroves, salt marshes, seagrasses, and algae (pelagic or benthic) all remove carbon dioxide from the atmosphere and store it in their fibres, in the soil, and/or in the ocean substrate (Pendleton et al. 2012; Siikamäki et al. 2013). The amount of carbon that is captured from the atmosphere by different plant species can be quantified in terms of a rate of sequestration. If a tree or plant is destroyed or damaged, the carbon stored in the plant’s cells is released as the biomass decays or burns. Carbon stored in the soil/substrate may be released over time if left un-vegetated, or released quickly if the substrate is disturbed. Both the rate at which carbon is added to biomass/substrate (sequestration rate) and any release of stored carbon are important and can be used together to calculate the net change in atmospheric carbon dioxide, in a given time period. Data on the rates of carbon sequestration by different ecosystems and the extent of those ecosystems can be used to estimate annual quantities of carbon sequestration; data on the quantity of stored carbon in different ecosystems and reductions in extent of those ecosystems can be used to estimate the annual quantity of carbon prevented from release or decay into the atmosphere (Siikamäki et al. 2012).

By convention, quantities of carbon are often expressed in terms of tonnes of CO2-equivalent in order to allow comparison with other greenhouse gases. The conversion rate between carbon and CO2 is 1 tC = 3.67 t CO2. To estimate the economic value of sequestered or avoided release of carbon, the relevant value per tonne of CO2 is the social cost of carbon (SCC), which is the monetary value of damages caused by emitting one more tonne of CO2 in a given year (Pearce 2003). The SCC therefore also represents the value of damages avoided for a small reduction in emissions, in other words, the benefit of a CO2 reduction (US EPA 2016). The SCC is intended to be a comprehensive estimate of climate change damages but due to current limitations in the integrated assessment models and data used to estimate SCC, it does not include all important damages and is likely to under-estimate the full damages from CO2 emissions. The estimated SCC used by the US EPA and other US agencies for appraisal of emissions reductions in 2015 is US$ 56/tonne CO2, using an annual discount rate of 2.5%.

The observed price in a carbon market is an alternative value per tonne CO2 commonly used in the appraisal of emissions reductions. The problem with this approach is that prices in carbon markets are largely artefacts of the set up and regulation of the market and do not reflect the benefits of carbon sequestration. It is therefore advisable to use SCC for assessments of the global value of carbon sequestration by ecosystems. The use of carbon market prices should, however, be used in financial assessments of carbon sequestration projects in order to reflect potential revenues for the project. An indicative estimate of the price of carbon credits on the voluntary market is provided by Forest Trends (2014), which reports an average price in 2013 of US$ 4.90 t CO2-eq. Carbon market prices reflect value to the resource owners; social costs of carbon represent global avoided cost values.

The steps in carbon sequestration quantification and valuation are (Salcone et al. 2016):

1. Estimate the quantity of carbon added to the stock of carbon stored in coastal ecosystems during the current year.

1.1. Obtain data on the current spatial extent of mangroves and seagrass beds.

1.2. Compute the quantity of carbon sequestered in the current year (i.e. the addition to the stored stock of carbon in that single year). Multiply the area of each ecosystem by estimates of the annual sequestration rate of each ecosystem. Where available, use estimates that reflect local species and conditions. The Blue Carbon Initiative by the Nicholas Institute for Environmental Policy Solutions at Duke University has summarized global coastal carbon data and report an average sequestration rate for mangroves of 6.3 tCO2/ha/yr (Murray et al. 2011).6

2. Estimate the (potentially avoided) quantity of carbon released due to reductions in area of coastal ecosystems.

2.1. Identify current rates of change in areas of coastal ecosystems.

2.2. Compute the change in area of each ecosystem in the current year (total area of ecosystem multiplied by percentage change) (average for Oceania: 0.39% for loss of mangroves (Sifleet et al. 2011); global average is from 0.7% to 2.1% (Murray et al. 2011).

2.3. Compute the quantity of stored carbon released to the atmosphere. Here it is necessary to make an assumption regarding the rate at which stored carbon is released following a change in land use from coastal ecosystem to some other land use, such as agriculture or commercial/industrial development.

2.3.1. Compute the quantity of carbon stored in living biomass using available estimates. For mangroves, average biomass carbon ranges between 237 t CO2-eq/ ha - 563 t CO2-eq/ha (Murray et al., 2011). Regarding the rate at which biomass carbon is released, it can be assumed that if the mangrove is burned, 75% of biomass carbon for mangroves is released immediately and that the remaining 25% decays with a half-life of 15 years (i.e. a further 12.5% is released within 15 years, a further 6.25% is released within 15 years after that, etc.) (Murray et al. 2011).

2.3.2. Compute the total quantity of carbon stored in soil that is released following removal of the ecosystem using available estimates. The average amount of carbon stored in the top meter of soil beneath mangroves is 1060 t CO2-eq /ha for estuarine mangroves and approximately 1800 t CO2-eq /ha for oceanic mangroves (Murray et al. 2011). Regarding the rate at which this is released, it can be assumed that mangrove soil organic carbon has a half-life of 7.5 years (i.e. 50% of the stored carbon is released in the first 7.5 years, 25% in the following 7.5 years, etc.) (Murray et al. 2011).7

3. Value the flow of carbon

3.1. For additions to the stocks of carbon stored in each ecosystem, multiply the annual quantity of sequestered carbon in step 1.2 (tonnes CO2-eq) by the social cost of carbon.

3.2. For the market value of (potentially avoided) carbon release, the “benefit” is the sale of carbon credits that represent avoided emissions. In this case, multiply the total quantity of (potentially avoided) carbon emissions (tonnes CO2-eq) estimated in step 2.31 and 2.32 by the market price.8 If relevant cost data is available, subtract the costs of managing and crediting emissions reductions to estimate producer surplus.

A useful resource is the Blue Carbon Initiative, a global program working to mitigate climate change through the restoration and sustainable use of coastal and marine ecosystems. The Blue Carbon Initiative has produced a manual on assessing carbon stored in coastal ecosystems: “Coastal Blue Carbon: methods for assessing carbon stocks and emissions factors in mangroves, tidal salt marshes, and seagrass meadows” (Howard et al.,2014).