Underestimated returns in climate projects

Funding climate adaptation delivers huge benefits to people's health and prosperity, but these benefits often remain hidden and unaccounted for. That's the conclusion of new research by WRI, which finds that investing $1 in climate adaptation can yield more than $10.50 in benefits over a 10 year period. Benefits not only include the avoided losses from climate impacts, but also a wide range of economic, social and environmental benefits that are generated even when disasters don't occur. WRI analyzed investments in 320 adaptation and resilience projects spanning agriculture, water, health and infrastructure, and found these projects generate much higher rates of return than commonly assumed. Adaptation investments in the health sector offer some of the highest returns. This is because investing in more resilient health systems can save lives, improve wider public health, and bolster economic productivity, especially among vulnerable populations. When governments and decision-makers do not fully take into account these benefits, climate adaptation is often seen as a financial burden. In fact, the opposite is true: it is often much more profitable to adapt than not to do so. Climate adaptation isn’t just about managing risk—it’s about building resilient societies, encouraging development, keeping people healthy and prosperous, and creating new opportunities. This is an important insight in the ongoing discussions around increasing climate adaptation finance for developing countries, which will kick off again next week at the UN climate negotiations in Bonn. Read the WRI report here: https://lnkd.in/gisDhfvW Or read a helpful summary here: https://lnkd.in/gtPXpSD4

𝗠𝗼𝘀𝘁 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗺𝗼𝗱𝗲𝗹𝘀 𝘂𝘀𝗲𝗱 𝗶𝗻 𝗳𝗶𝘀𝗰𝗮𝗹 𝗽𝗼𝗹𝗶𝗰𝘆𝗺𝗮𝗸𝗶𝗻𝗴 𝘀𝘁𝗶𝗹𝗹 𝘂𝗻𝗱𝗲𝗿𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗲 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗱𝗮𝗺𝗮𝗴𝗲𝘀 - 𝗯𝘆 𝗮 𝗳𝗮𝗰𝘁𝗼𝗿 𝗼𝗳 3 𝗼𝗿 𝗺𝗼𝗿𝗲 or ignore them all-together. This shapes decisions on public investment, debt sustainability, and our collective ability to transition in time. I recently looked into how deep the modelling gap runs: 🔹 Global income losses from climate change 𝗺𝗮𝘆 𝗿𝗲𝗮𝗰𝗵 19% 𝗯𝘆 2050, with a likely range of 11–29%, according to the latest empirical studies. Yet widely used models like 𝗗𝗜𝗖𝗘-2024 𝘀𝘁𝗶𝗹𝗹 𝗽𝗿𝗼𝗷𝗲𝗰𝘁 𝗼𝗻𝗹𝘆 3.1% output loss at 3°C warming and 7% at 4.5°C - a dramatic underestimation. 🔹 $2.86 trillion in historical climate damages (2000–2019) are recorded empirically, versus just $0.8 trillion in DICE estimates - 𝗮 𝗳𝗮𝗰𝘁𝗼𝗿 𝗼𝗳 3.5 𝗹𝗼𝘄𝗲𝗿. 🔹 𝗧𝗵𝗲 𝗳𝗶𝘀𝗰𝗮𝗹 𝗶𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗼𝗻𝘀 𝗮𝗿𝗲 𝗲𝗾𝘂𝗮𝗹𝗹𝘆 𝘂𝗻𝗱𝗲𝗿-𝗮𝗰𝗸𝗻𝗼𝘄𝗹𝗲𝗱𝗴𝗲𝗱. The UK Office for Budget Responsibility projects that delaying decarbonisation could increase the national debt-to-GDP ratio by 10–100 percentage points by 2050. Yet mainstream Debt Sustainability Assessments (𝗗𝗦𝗔𝘀) 𝗶𝗻 𝘁𝗵𝗲 𝗘𝗨 𝗶𝗴𝗻𝗼𝗿𝗲 𝘀𝘂𝗰𝗵 𝗿𝗶𝘀𝗸𝘀 𝗲𝗻𝘁𝗶𝗿𝗲𝗹𝘆. 🔹 Perhaps most concerning: 𝗮𝗰𝘁𝗶𝗻𝗴 𝗻𝗼𝘄 𝗶𝘀 𝗮𝗹𝗺𝗼𝘀𝘁 50% 𝗰𝗵𝗲𝗮𝗽𝗲𝗿 𝘁𝗵𝗮𝗻 𝘄𝗮𝗶𝘁𝗶𝗻𝗴. Climate damages by 2050 outweigh the combined GDP losses from mitigation and impacts by a factor of 1.8 - yet our economic models still bias us toward delay. 𝗧𝗵𝗲𝘀𝗲 𝗯𝗹𝗶𝗻𝗱 𝘀𝗽𝗼𝘁𝘀 𝗮𝗿𝗲𝗻’𝘁 𝗷𝘂𝘀𝘁 𝗮𝗰𝗮𝗱𝗲𝗺𝗶𝗰. 𝗧𝗵𝗲𝘆 𝗰𝗼𝗻𝘀𝘁𝗿𝗮𝗶𝗻 𝘄𝗵𝗮𝘁 𝗽𝗼𝗹𝗶𝗰𝘆𝗺𝗮𝗸𝗲𝗿𝘀 𝘃𝗶𝗲𝘄 𝗮𝘀 𝗳𝗶𝘀𝗰𝗮𝗹𝗹𝘆 𝘀𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗹𝗲 𝗼𝗿 𝗽𝗼𝗹𝗶𝘁𝗶𝗰𝗮𝗹𝗹𝘆 𝗳𝗲𝗮𝘀𝗶𝗯𝗹𝗲 - especially in EU settings where fiscal rules and DSAs are central tools of economic governance. 📌 𝗙𝗼𝗿𝘁𝘂𝗻𝗮𝘁𝗲𝗹𝘆, 𝘁𝗵𝗲𝗿𝗲 𝗮𝗿𝗲 𝗲𝗳𝗳𝗼𝗿𝘁𝘀 𝘂𝗻𝗱𝗲𝗿𝘄𝗮𝘆 𝘁𝗼 𝗰𝗹𝗼𝘀𝗲 𝘁𝗵𝗶𝘀 𝗴𝗮𝗽. I want to highlight the excellent work by Dezernat Zukunft - Institut für Makrofinanzen, who recently reviewed how to integrate climate risk and transition investment into EU DSAs. Their proposals offer a crucial pathway to update the way we think about debt, risk, and climate. Another leader is Network for Greening the Financial System (NGFS), who brings together the climate with the fiscal and monetary policy community. 🛠️ Finance ministries need to work on approaches that merge macroeconomic and climate science insights and use them! 🧠 𝗪𝗲 𝗸𝗻𝗼𝘄 𝗯𝗲𝘁𝘁𝗲𝗿 𝗺𝗼𝗱𝗲𝗹𝘀 𝗮𝗿𝗲 𝗽𝗼𝘀𝘀𝗶𝗯𝗹𝗲. 𝗟𝗲𝘁’𝘀 𝗺𝗮𝗸𝗲 𝘀𝘂𝗿𝗲 𝘁𝗵𝗲𝘆’𝗿𝗲 𝘂𝘀𝗲𝗱! Peter Handley Ursula Woodburn Philippa Sigl-Glöckner Ludovic Suttor-Sorel Leslie Johnston, M.Sc. Jo Swinson Rosa Klitgaard Andersen Ida Lærke Holm Olivia Lazard Linda Zeilina-Cross Pascal Canfin Karl Pincherelle Philippe Lamberts Radan Kanev Alexander Reitzenstein Brian Kettenring Daniel Valenzuela Apratim (Tim) Sahay Adam Tooze Rana Foroohar

I somehow missed the recent blog from Mark Gongloff (linked in comments) about the link between the quality challenges of the VCM and the propensity for buyers to gobble up the cheapest possible carbon credits. This is an incredibly important dynamic I wish more journalists would pay attention to. Currently, a lot of the media criticisms of these projects equate to, "These projects don't work." But if you carefully read the studies on which these reports are based, that isn't QUITE their conclusion. Their conclusion is that these projects vastly overestimated their climate impact. Now, how is this linked to companies paying low prices? It's a combination of a few things: First, imagine you have a project that does provide climate benefit at about $25 / tonne. You go and talk to buyers and you learn that the most they are willing to pay is $5 / tonne. Now, imagine you are using a first-generation methodology which allows you to propose the counterfactual scenario - or "baseline" - against which your project is measured. You find that if you just include a few somewhat aggressive assumptions - none of which are "wrong," strictly speaking, because you're describing a future scenario, after all - you can miraculously increase the projected impact of your project. And, wow, would you look at that? All of a sudden it's pumping out more credits and the price per tonne is $5. To date, the media has told this story under the headline, "Carbon Projects don't deliver what they promised." But you could just as easily tell this story under the headline, "Companies weren't willing to pay for the change they sought." At the end of the day, the companies mentioned in this blog all ended up paying a higher price for ACTUAL climate mitigation - they just reported that they achieved a lot more than they did. This is an eminently fixable problem, and the recent prices companies are paying for many carbon credits shows that - for some projects types - we're well on the way to solving it. (Ironically and unfortunately, the media critiques of REDD+ have caused prices for that particular project type - arguably the most important of them all - to drop, giving developers even LESS resources to implement high quality methods). Of all the quality challenges this blog or other critiques of the VCM raise, NONE of them are insurmountable if project developers could afford to use the best available science (including social science). So, companies, when you buy carbon credits, keep in mind the old aphorism, "You get what you pay for."