Economic modelling and adaptation policies – challenges and results

16:15 Tuesday 28 May


Room S11


Lehr Ulrike (Germany) 1; Ahmann Lara (Germany) 1; Flaute Markus (Germany) 1

1 - Institute for Economic Structures Research (GWS)

Germany has a developed framework of climate change adaptation strategies (German Federal Government 2008, UBA 2013), monitoring reports (UBA 2013) and involvement of the respective authorities such as the Federal Office of Civil Protection and Disaster Assistance, the Federal Railway Authority, or the German Environment Agency, to mention a few. The assessment of the vulnerability of Germany gathers the latest research results of risk and damage assessment for different vulnerable sectors and suggests a wide catalogue of measures and instruments for adaptation. However, macroeconomic assessments of these catalogues have not been part of the exercises as of yet.

This knowledge gap is exploratively filled by a research project under the title ‘Analysis of macro-economic effects of adaptation measures and instruments’ commissioned by the German Environment Agency. The approach followed four steps:

Firstly, climate change damages are quantified and (2) translated into economic variables and quantities. Then adaptation measures are selected, which a) are relevant and effective and b) matter in the overall economic context. The selection procedure involves the classification of policy measures and instruments according to their respective macroeconomic relevance and representability in an economic modelling context. The final, and most important, step involves the simulation as such and the scenario comparison.

Next to official statistics, data for the identification of damages are collected through a wide variety of channels, such as insurance data, forest models, climate change models, and newspaper clippings and further desk research.

The damages and the adaptation measures and strategies are entered into the environmental economic model PANTA RHEI. PANTA RHEI has a macro-econometric simulation and forecasting model at its core, which consistently describes the annual inter-industry flows between the 63 sectors, their contributions to personal consumption, government, equipment investment, construction, inventory investment, exports as well as prices, wages, output, imports, employment, labor compensation, profits, taxes, etc. for each sector as well as for the total economy.

In the behavioral equations, decision routines are modeled that are not explicitly based on optimization behavior of agents, but are founded on bounded rationality. The parameters in all equations in PANTA RHEI are estimated econometrically from time series data.

The results can be summarized as follows: Modeling damages from extreme weather events and gradual temperature change is a challenging but solvable task. Economic effects of adaption are small and most often positive. The economic perspective can help to develop the adaption strategy and select the synergistic measures.