The study, “Optimal Infrastructure Adaptation to Climate Change” presents an interesting discussion on how to design and implement climate change adaptation policies in infrastructure investments.
It reports that there has been a significant emphasis placed on designing climate change mitigation both in New Zealand and internationally.
Published on the Motu site as Motu Note No. 11, the study discusses the following:
- Climate mitigation is essential, but it takes a global effort for it to be effective.
- For a small country like New Zealand, its mitigation efforts may not have a direct material impact on the global climate.
- In contrast, adaptation can be immediate and has a direct effect on infrastructures.
The paper examines some of the critical issues that should be considered when investing on infrastructure for climate adaptation such as identifying and quantifying the risk of a climate event using a “certainty equivalent” method borrowed from the financial market credit loss approach.
The report also highlights the uncertainty of climate change prospects, and as new information comes, probabilities of the severity and frequency of climate events will be subject for revisions.
Overall, the study presents two key lessons from the analysis for infrastructure investments:
- “To spread the nature of adaptation responses to climate change across margins that reduce the probability of a disaster, reduce the exposure given a disaster, and reduce the loss given exposure; and
- To be cautious in committing to irreversible investments that may no longer be optimal as our understandings of the severity and frequency of climate change outcomes are revised.”
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