Costs of Climate Adaptation: Evidence From French Agriculture

Abstract

Adaptation costs are one of the main missing elements from the existing literature on the effects of climate change. Policy to address climate change depends on how costly it is for people to adapt, but a lack of cost-related data means that such estimates are rare. In this paper, we use uniquely rich data on agriculture in France to provide novel, direct estimates of the marginal cost of adapting to changing temperatures. The dataset is a farm-level panel with measures of outputs, inputs, and prices from 1994–2018. We merge the farm data with measures of realized and forecasted weather. Controlling for realized weather, we use forecasts as information shocks to estimate costs of ex ante adaptation. For the year that heat shocks arrive, we find that for the average farm in France the cost of adaptation is low. In contrast, the benefits of adaptation are large. This difference is driven by the behavior that farms engage in when responding to forecasts. They mainly use the forecasts to change the timing of planting and harvesting decisions, as well as their crop mix, rather than to change costly inputs. The large, observed difference between the benefits and costs of adaptation contradicts a widely used sufficient statistic approach to estimating climate damages. We further show that while costs of adaptation are low initially, future periods are marked by increases in costs and decreases in profit, potentially capturing the dynamic nature of farms’ adaptation strategies. Finally, we show that forms of adaptation currently implemented by farmers are less likely to remain relevant in a warmer world.