Climate Adaptation

1. Climate Adaptation 21st Century Temperature Change Richard A. Slaughter, Ph.D. Climate Impacts Group University of Washington Scenario A1B Water Outlook Conference October 22, 2009

2. 2009 Nobel in Economics • Two Americans Are Awarded Nobel in Economics – October 12, 2009 • Elinor Ostrom: work on governing the Commons • Oliver Williamson: Extension of transaction cost theory to contracts and governance • New Institutional Economics goes beyond (or back from neoclassical economics) to examine the effects of institutions on behavior

3. Governance • “Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. … These principles are in stark contrast to the common view that monitoring and sanctions are the responsibility of the state and should be conducted by public employees.” - Nobel Committee

4. The Institutional Focus The focus is on how institutional design affects behavior, instead of on directly controlling behavior

5. Adaptive planning "... the goal of adaptive planning is better framed as increasing the resilience of human and natural systems to climate impacts ... by eliminating or minimizing the negative consequences of climate change on these systems."

6. Consequences of adaptive planning for human systems Views human behavior as static Protect existing uses in current locations – “minimize the negative consequences of climate change” Requires public expenditure to support activity that, because of climate change, is no longer economically viable Public entitlements and subsidies gain political momentum; once granted they are difficult to withdraw

7. Lessons from the Snake Economic Model Farmers are very adaptive, without external direction Reducing the impact of climate variability – increasing resilience – results in demand growth, which raises vulnerability to the next event. In the near term, climate effects pale in comparison to commodity and input prices, and social policy

8. Alternative approaches • Rather than protect the population from climate impacts in the first instance, adaptation policy should facilitate the transmission of impact information to the economic sphere.

9. Governmental role in adaptation • Focus on sustainable activity by removing subsidies and protection for non-sustainable activity • Public policy serves to transmit climate effects, NOT mute them • Actions to offset climate effects today may raise vulnerability later

10. Strengthen ownership • The inability of the Department of Ecology to enforce prior appropriation rights is a major obstacle to efficient water allocation in Washington. • Sinking Creek case • Idaho conjunctive management and support for water transfers will over time force climate effects to be felt in asset prices.

11. Adaptation through taxation • Taxation has been used for three classes of purpose • necessary support of public functions, • dis-incentives for undesirable behavior, • subsidy for politically preferred activities

12. Utility pricing • Move from average cost pricing toward marginal cost. • In 2008, the Idaho PUC approved inverted block pricing for Idaho Power • Many water systems charge a higher summer use rate • Legislative mandate is to ensure the lowest possible consumer prices • regulatory commissions came about in the first place to control monopoly pricing by utilities.

13. Subsidies • Reduce subsidies for activities that increase climate risk. • Subsidized insurance for construction in flood plains. • Conditional use permits, zoning variances, tax exemptions, and other preferences for “economic development”

14. Climate Impacts Group University of Washington King Building 4909 25th Avenue NE Seattle, WA 98195 Ph: 206.616.5350 Fax: 206.616.5775 karpov@u.washington.edu Richard Slaughter, Ph.D. 907 Harrison Blvd Boise, ID 83702 Ph: 208.850.1223 Fax: 208.345.9633 richard@rsaboise.com

15. Water allocation as a contracting problem • Planning perspective: cause allocation to fit current social priorities • Assumes users are subject to public policy directives • Contracting perspective: continuously align user interests with social priorities • Assumes users are have ownership interest

16. Contract governance characteristics • Post-hoc ordering • Contract altered through ongoing negotiation among the parties • Ownership stake • Judicial arena avoided but present • Social priorities effected through ownership change • Politics minimized • Example: Snake river since c. 1911 • Governed for process, not outcomes

17. Characteristics of water markets • Basis for sufficient usufructuary rights • Sufficient hydrologic modeling to determine injury and mitigation • Non-judicial or quasi-judicial governing structure to act as referee • Continuous post hoc ordering: parties have sufficient ownership to negotiate changes in the contract