DEFRA Embedding Economics into the Fourth UK Climate Change Risk Assessment

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The aim of this research project is to ensure and improve the embedding of economic and social research methods in government-led climate risk assessments and maximise the impact of adaptation actions undertaken in the UK. There is currently significant under-investment in climate change adaptation and resilience-building, both in the UK and globally. As a consequence, the high benefits of such interventions are not realized. Drivers of this under-investment include a lack of full information on risks, on the costs of addressing those risks, and on the complete benefits of doing so. Understanding costs and considering the full range of benefits of adaptation and resilience-building interventions can enable governments, international financial institutions and the private sector to make better investment decisions and close the financing gap. Building on previous work showing that the full benefits of many types of adaptation investments are far greater than often assumed - and largely accrue even if extreme events against which they protect do not occur - the research undertaken during this fellowship is intended to support the UK's fourth Climate Change Risk Assessment (CCRA4) by incorporating expanded and improved cost-benefit analysis (CBA) - both ex-ante and ex-post - for adaptation and resilience-building. I intend to supplement this with multi-criteria analysis and ex-post impact analysis/ evaluation. Importantly, I intend to put at the heart of my work a triple dividend approach into economic and financial assessments which can help facilitate a scaling up of adaptation investments. CBA is widely applied across the public and private sectors as well as by international financial institutions (IFIs) to conduct ex-ante appraisal and ex-post impact assessments of interventions. The quality of CBA conducted within govenment and in IFIs (e.g., the World Bank) has declined over the past two decades due to challenges around data availability, the presence of intangible benefits, and a lack of methodological expertise. Yet its use is resurging due to its central role in project appraisals and impact assessments and in valuing externalities such as carbon emissions (using the social cost of carbon). The triple dividend of resilience (TDR) approach uses CBA to improve benefits estimates of adaptation investments. The TDR accounts for and quantifies the full economic, environmental, and social benefits of climate change adaptation. It groups benefits along three dividends: avoided losses (first dividend), induced economic or development benefits (second dividend), and additional social and environmental benefits (third dividend) of adaptation actions. The second and third dividends are especially important since they accrue regardless of whether the actual climate risk materializes. Research by Heubaum et al. (2021) has shown that the quantification of these benefits leads to benefit-cost ratios (BCRs) far greater than commonly assumed. An assessment of risk which better quantifies and makes visible the many benefits of intervention can help government adress the continued imbalance between climate mitigation and adaptation investments, and justify the use of limited resources to catalyze private sector investment. Heubaum, H. et al. (2022). The Triple Dividend of Building Climate Resilience: Taking Stock, Moving Forward. WRI Working Paper. Washington, D.C.: World Resources Institute. https://www.wri.org/research/triple-dividend-building-climate-resilience-taking-stock-moving-forward