Economic instruments for adaptation to climate change in coastal areas

by Ngaio Hotte

The problem

Climate change poses important risks to coastal and marine communities, economies and environments. Coastal and ocean activities such as commercial fishing, aquaculture, shipping, marine recreation, and tourism are important to Canada’s economy and coastal environments are home to numerous species and habitats.

Climate change is expected to affect coastal areas in several ways. According to the US EPA:

Coasts are sensitive to sea level rise, changes in the frequency and intensity of storms, increases in precipitation, and warmer ocean temperatures. In addition, rising atmospheric concentrations of carbon dioxide (CO2) are causing the oceans to absorb more of the gas and become more acidic. This rising acidity could have significant impacts on coastal and marine ecosystems.
 
The impacts of climate change are likely to worsen many problems that coastal areas already face. Shoreline erosion, coastal flooding, and water pollution affect man-made infrastructure and coastal ecosystems. Confronting existing challenges is already a concern. Addressing the additional stress of climate change may require new approaches to managing land, water, waste, and ecosystems.

Adapting to climate change can be difficult because risks are uncertain and changing; however, even when we know what actions need to be taken to address climate change, it can be challenging to motivate governments, businesses or individuals to take action. There are two basic types of instruments that can be used to motivate action: regulatory and economic.

Motivating adaptation: regulatory vs. economic instruments

Regulatory instruments (or ‘command and control approaches’) establish legally-enforceable rules which must be adhered to when engaging in coastal planning, management and development. These instruments establish a minimum acceptable level of performance.

The United Nations (1997) describes economic instruments as fiscal and other economic incentives and disincentives designed to incorporate environmental costs and benefits into the budgets of households and enterprises. Where properly designed, economic instruments have the ability to yield more efficient and cost-effective ways of meeting environmental objectives (Stavins 2001). A pitfall of regulatory approaches is that firms are only encouraged to meet a minimum, regulated level of performance. With economic instruments, governments, businesses or individuals have the flexibility to improve their performance as long as they determine it to be in their best interest. Economic instruments may be paired with regulations; however, the regulation supports the introduction of an economic incentive or disincentive (e.g. a tax on an input or output that creates environmental damages, such as a Carbon Tax) that is expected to achieve a desired objective more efficiently.

There are several different types of economic instruments, including:

  • Financial (e.g. price signals, tax credits/allowances, bonds, risk sharing, public-private partnerships, R&D incentives)
  • Behavioural (e.g. nudging through default rules, or communications techniques)
  • Informational (e.g. reporting requirements, disclosure initiatives)
  • Regulatory (e.g. instruments used in the development and appraisal of policies)

These four types of instruments can be implemented independently or combined as part of a broader policy designed to reduce risk or the negative consequences of climate change.

It is worth noting that financial instruments encompass a wide range of instruments including market based instruments (MBI), which are organized around the financing and financial incentives around decisions (e.g. taxes, subsidies), and risk financing instruments (RFI), which are used to share and redistribute risks and losses prior to catastrophic events.

Economic instruments for coastal adaptation

While economic instruments have received considerable attention with respect to mitigation of climate change impacts (e.g. carbon taxes to reduce carbon emissions), fewer studies have explored potential applications to climate change adaptation (Bräuninger et al. 2011). One option may be to integrate climate change adaptation considerations into existing economic instruments that encourage sustainable coastal zone management, such as the Green Shores Program. With governments seeking to reduce the burden of cost and enforcement associated with regulatory approaches, it appears that economic instruments will present the preferred path for supporting adaptation and other sustainability measures in the future.

Green Shores Program
The Green Shores Program, operated by the BC Stewardship Centre, focuses on coastal development as a major threat to coastal ecosystems and fisheries. Green Shores “promotes sustainable use of coastal ecosystems through development planning and design that considers the diverse ecological features and functions of the coastal environment.” The program offers a voluntary rating and certification system for foreshore developments that is modelled after the LEED® Green Buildings rating system. This informational instrument offers an incentive for coastal land-owners or developers to minimize development impacts and restore ecosystem values. The existing rating system could be adapted to incorporate climate change adaptation considerations for foreshore developments (e.g. set-backs from the shoreline, preservation of natural coastal ecosystems).

Programs like Green Shores can offer communities the information they need to adapt to the uncertain impacts of climate change and help to demonstrate commitment to environmental sustainability. They also offer increased flexibility and responsiveness to changing conditions that are unavailable through traditional regulatory approaches.

References:

Bräuninger, M., Butzengeiger-Geyer, S., Dlugolecki, A., Hochrainer, S., Köhler, M., Linnerooth-Bayer, J., Mechler, R., Michaelowa, A. and S. Schulze (2011) Application of economic instruments for adaptation to climate change – Final report. CLIMA.C.3./ETU/2010/0011. Perspectives Climate Change.

Stavins, R.N. (1997) Policy Instruments for Climate Change: How Can National Governments Address a Global Problem? The University of Chicago Legal Forum, volume 1997, pp. 293-329. [A-22].

United Nations (1997) Glossary of Environment Statistics, Studies in Methods, Series F, No. 67. New York, USA.

US EPA (2013) Climate Change – Coastal Areas.

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