## What Is Mitigation vs Adaptation?

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### Mitigation: slowing or stopping emissions
- Objective: reduce fossil fuel emissions to limit global warming to 1.5°C– 2°C above pre-industrial levels.
- Rationale: without pricing the environmental cost, fossil fuels benefit from an implicit subsidy (market failure) because users do not pay for environmental damages.
- Main policy tools:
  - Carbon tax: sets a direct tax on coal, oil products, natural gas, and other fossil fuels in proportion to their carbon content; tax is passed from suppliers to consumers as higher prices for electricity, gasoline, heating oil, and other products and services that rely on fossil fuels.
  - Cap-and-trade system: sets allowances on the total amount of carbon emissions released each year, creating a market-based system in which the allowances can be traded from less-carbon-intensive to more-carbon-intensive sectors.
  - Regulatory measures such as renewable portfolio standards that mandate production of a certain amount of energy from renewable sources like wind and solar.
- Comparative assessment:
  - A carbon tax has been identified as the most effective way to change behavior because it can be added to existing fuel taxes, help meet Paris Agreement pledges, and provide an additional revenue stream for governments.
  - Carbon pricing is argued to force a more rapid and broader behavioral shift than regulation by aligning incentives across electricity providers, manufacturers, and consumers.

### Carbon pricing targets and current gaps
- IMF finding: it will take a $75 a ton price on CO2 worldwide by 2030 to limit warming to 2°C.
- Current status:
  - Four-fifths of global emissions are not priced.
  - The global average emissions price is only $3 a ton.
- Projected impacts at $75 a ton:
  - Over 10 years electricity prices would rise, on average, by 45 percent.
  - Over 10 years gasoline prices would rise, on average, by 15 percent.
- Equity and political economy:
  - Pursuing a just transition is vital: revenue from carbon taxes should compensate low-income households facing higher energy costs and support workers reliant on coal, petroleum, and other fossil fuels.
  - An international carbon price floor is proposed to ensure large CO2 emitters reduce emissions while allaying competitiveness and carbon-leakage concerns.

### Adaptation: coping with existing and future impacts
- Purpose: help people and governments withstand and minimize the ravages of climate change already occurring (more severe weather, strain on government budgets, especially in poorer countries).
- Types of adaptation measures:
  - More resilient infrastructure.
  - Securing water resources.
  - Improving crop production for dryland farming.
  - Protecting coastlines.
  - Encouraging private-sector adaptation, social protection after disasters, and holistic budgeting and planning that factor in climate change.
- Economic case:
  - Every $1 invested in adaptation could yield up to $10 in net economic benefits, depending on the activity (Global Commission on Adaptation).
  - Adaptation reduces future damage, boosts productivity and growth, and delivers social and environmental benefits.
- Financing challenges:
  - Up-front costs are a struggle for many developing economies with limited fiscal space.
  - Limited fiscal capacity raises risk premia and borrowing costs, making adaptation less feasible and creating a vicious circle.
  - Financing for adaptation totaled $30 billion on average annually in 2017 and 2018.
  - Annual adaptation costs in developing economies alone are currently estimated at close to $70 billion and are expected to rise to $140–$300 billion by 2030.
- Policy implication: helping countries sustainably finance adaptation investments is critical to reduce climate vulnerability and contain climate risk premiums, improving public finances over the long run.

### Key takeaways and policy recommendations
- Dual approach required: mitigation (plug the holes) and adaptation (bail the water) must proceed simultaneously.
- Implement effective carbon pricing (carbon tax or cap-and-trade) to internalize the environmental cost of fossil fuels and incentivize clean technologies.
- Use carbon-pricing revenue to:
  - Compensate low-income households for higher energy costs.
  - Support workers and communities dependent on fossil-fuel industries.
- Pursue an international carbon price floor to coordinate action among large emitters and limit competitiveness concerns.
- Scale up adaptation finance to break the vicious cycle of higher risk premia and limited fiscal space:
  - Mobilize sustained public and private financing for resilient infrastructure and climate-smart investments.
  - Integrate climate risks into budgeting and planning to maximize long-term benefits and reduce future fiscal burdens.

*Adam Behsudi, Finance & Development, September 2021.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2021/september/climate-change-what-is-mitigation-and-adaptation-behsudi-basics.pdf_