Very few regions will escape the impacts of climate change. Climate risk vulnerability assessments identify these impacts, but whether, how and where to intervene are complex decisions. Economic valuation supports decisionmakers in government, industry and financial institutions by considering various factors:
• cost of the climate change impact versus the cost of interventions – whether to respond
• cost effectiveness of solutions and interventions – how to respond
• economic sectors, regions and infrastructure facing the largest economic risk – where to respond.
Examples of economic valuation demonstrate its usefulness in addressing these fundamental questions:
Whether to respond: In 2021, SRK quantified climate change risks to the Eastern Cape province of South Africa to guide policy and expenditure allocation. The greatest costs were associated with interruptions to water supply and increased cost of maintaining public infrastructure, each estimated at US$2 billion over 25 years, followed by reduction in agricultural production (US$1 billion) and damage to coastal infrastructure and reduced tourism (US$600 million). The principle of ‘just transition’ also warrants the comparison of societal costs of transitioning with costs of climate change impacts to identify appropriate replacement strategies and ensure that any transition or intervention is fair.
How to respond: Many solutions can mitigate climate change risks. Economic analysis helps select interventions by comparing costs and effectiveness, such as whether a client should reduce Scope 1 or Scope 3 emissions, reduce or sequester emissions, and relocate residents and infrastructure or improve storm water management.
Where to respond: Socioeconomic impacts differ across regions, depending on the expected climate change impacts, population density and concentration of economic activity. Economic analysis can identify high-impact regions or sectors for focused interventions.
Resource economic analysis can also value traditionally unvalued impacts of climate change, such as loss in indirect use value from changes to ecosystems.
In each instance, economic valuation was the key to navigating climate change decisions.
