Page - 346 - in Loss and Damage from Climate Change - Concepts, Methods and Policy Options

346 A.MarkandyaandM.González-Eguino E G A O B Adaptation Expenditure ($) 45° F D Fig.14.1 Totaldamages, residualdamagesandadaptationexpenditures The horizontal axismeasures total expenditure on adaptation, again either in a singleperiodoras thepresentvalueover theplanninghorizon.ThecurveDAgives thedamagescorrespondingtodifferent levelsofadaptationexpenditure. It isconvex to the origin because initial expenditures on adaptation yield greater reductions in damages than subsequent expenditures. As adaptation expenditure increases each unitgenerates less reduction than theunitbefore. It isalso important tonote that the curvestartswithaslopeofgreater thanone inabsolute terms.Thismeans that each milliondollars spent onadaptationgenerates a reduction indamages formore than onemilliondollars. That is anotherwayof saying that investment in adaptation, at least initially, hasacost that is less than thebenefit. Theoptimal level of adaptation expenditure is givenby the distanceOB,where the slope of the adaptation curve is equal to -1. Further expenditurewould have a costgreater thanthereductionindamages,while lessreductiononadaptationwould not fullyexploit thepotential netbenefits tobegained. At this optimal level of adaptation expenditure damages fall by the amountEG, leavinga residualdamageequal toGB.Wecansee thenetbenefitsofadaptationas the difference between the reduction in damages (EG) and the cost (OB=EF, by construction).HenceFGis thenetbenefit fromtheadaptation.Ofcourse, damages ‘beyondadaptation’arestillveryimportant—andattheheartoftheLossandDamage debate. With optimal adaptation they are equal to GB, and this could be a very large amount, especially when adaptation is not optimal but evenwhen it is. The aboveanalysis isbasedonadaptationbeingundertaken inanoptimal fashion.Note