Enabling Climate-Resilient Economic Development

Climate change is one of the greatest threats facing humanity, with far-reaching and devastating impacts on people, the environment, and the economy. Accelerating climate change adaptation is a human, environmental, and economic imperative. With expected strong impacts of climate change on economic growth and development, it becomes critical to include a long-term and economic perspective in adaptation planning and risk management. Planning and implementation of adaptation measures focusing only on short-term, incremental effects could result in maladaptation, which increases vulnerability in the long-term. As explained in the UNEP Adaptation Gap Report from 2024, “to meet the scale of the climate change challenge, adaptation financing needs to shift from the historic focus on reactive, incremental and project-based financing towards more anticipatory, strategic and transformational adaptation” (Adaptation Gap Report 2024 | UNEP – UN Environment Programme).

Planning and investing in systemic adaptation actions, and in the innovations that come with it, can unlock new opportunities, and provide a triple dividend: they avoid economic losses, support economic growth, and deliver additional socio-economic and environmental benefits.

Assessing Climate Risks and Improving Adaptation Actions

Systemic, effective, and growth-aligned adaptation actions need an improved evidence base for assessing the climate-related risks that economies are facing. They enable deciding on the most efficient adaptation strategies in terms of cost-effectiveness as well as reduced economic losses and achieved economic, socio-economic and environmental benefits. Including macroeconomic effects into assessment and planning of adaptation actions enables policy actors to make the necessary investments for directing the economy towards climate resilience.

Risks without Systemic Adaptation Actions

• National development strategies may be ineffective, maladaptation may occur, and fragmented adaptation can cause welfare losses.
• National budgets may come under additional strain, potentially putting downward pressure on sovereign ratings as debts and deficits mount.
• Globally, climate change could push more than 100 million people within developing countries below the poverty line by 2030 (World Bank, 2020, “Revised Estimates of the Impact of Climate Change on Extreme Poverty by 2030”).

Climate Economy Modelling refers to the use of climate-sensitive macroeconomic models to incorporate climate risks into long-term economic and adaptation planning. It introduces macroeconomic modelling as an instrument to assess the economy-wide impacts of climate hazards and to evaluate sector-specific and economy-wide adaptation measures that contribute to climate resilience. The results inform key planning documents such as national adaptation plans (NAPs), nationally determined contributions (NDCs), (low emission) long-term strategies and other national development plans. 

Climate Economy Modelling therefore is an instrument that supports Economics of Climate Adaptation by:

• Improving the evidence base for assessing climate-risks and adaptation options for economies.
• Identifying systemic adaptation options that yield the triple dividend of avoided economic losses, supporting economic growth, and generating environmental and social co-benefits.
• Informing long-term economic and adaptation planning to avoid maladaptation, additional pressure on national budgets, and the devastating impacts of climate change.

The instrument includes different aspects:

• Data collection
• Sectoral cost-benefit assessment
• Country-specific climate-sensitive macroeconomic models
• Training of model builders and model users
• Integration of modelling results into policymaking
• Accessing (international) climate finance

Key steps of Climate Economy Modelling:

• Data-driven guidance for policymakers on mid- to long-term economic and adaptation planning (simulation of economy-wide impacts of climate hazards and investments in adaptation action).
• Drive climate action mainstreaming by engaging stakeholders from different ministries, agencies, academia, and non-governmental institutions.
• Coherent climate policies through the assessment of interactions of adaptation and mitigation measures (key trade-offs and synergies), e.g. quantifying the impact of adaptation measures on the national GHG emission trajectory.
• Unlock climate finance and the necessary political will for reforms by providing an evidence base on development opportunities and investment potentials.