Page - 347 - in Loss and Damage from Climate Change - Concepts, Methods and Policy Options

14 IntegratedAssessment for IdentifyingClimateFinanceNeeds… 347 that it implies some residual damage and, furthermore, it implies a total cost of climate damage after adaptation that is less than it would bewith no action, even after accounting for adaptation expenditures.When adaptation is less than optimal residualdamageswill be larger. Theaboveanalysisalsohasatimedimension,whichcanbesimplifiedbyassum- ingthatdamagesandadaptationexpendituresarerepresentedinpresentvalueterms. In doing sowe abstract from the problemofwhen the adaptation expenditures are tobemadeandwhen the residual damageswill occur.Thedynamic solution to the adaptationprogramme is, aswesee in thenext section, partly a functionof thedis- count rate.Thehigher thediscount rate taken, the lessmitigation isundertakenand the greater are total damages likely to be. This implies somemore adaptation but theneteffectonresidualdamages,whilenot totallyclear, is likely tobehigher than with the lowerdiscount rate. Since there is noagreement on the choiceof discount rate therewill also not be one on desired adaptation in the future and on residual damages that formthebasisof thecase forLossandDamage. Finally, the choice of adaptation versus residual damages for a given country will be influencedbywhat isfinanced internally andwhat isfinancedexternally. If adaptation is likely tobemorefullycoveredfromexternal funds thancompensation forresidualdamagestheincentiveswillbetogoforahigherlevelthantheoptimalOB showninFig.14.1.Ontheotherhand,ifresidualdamagesaremorefullycompensated and adaptation has to be financed to a greater degree from internal sources, the incentivewill be to aim for a lower level of adaptation thanOB.All these factors will play a role in determining howmuch adaptation actually takes place and how muchresidualdamagearisesasa result of climatechange. 14.3 EstimatingResidualDamagesasaMeasureofLoss andDamage 14.3.1 ModelSet-Up In this section we provide estimates of residual damages from a range of IAMs, takingaccountofuncertainty in thedamagefunctions.Thebasicmodelensemble is that ofBosello et al. (2010),whichgivesperhaps themost detailed timeprofile for adaptationcosts and residualdamages fromarangeof IAMs.Thesteps involved in making theestimatesare the following: TheBaseCasesconsideredareonesinwhichthetemperatureincreasesby2.5°C by the end of this century, which is consistent with concentrations stabilising at around650ppm(IPCC2014)andimpliesmoderatesuccess in limitingemissions to the ‘lowdamage’ scenario.Wecanalso refer to this as the lowemissions scenario. Bycontrast, in thehighemissions/highdamagescenario theequivalent temperature increase is around3.4 °C. Inaddition, thediscount rate,which represents a societal preferenceforenjoying(consuming)anyeconomicgainstodayratherthaninadistant