Modeling Climate Change Adaptation in a Computable General Equilibrium Model: an Application to Tourism

In Switzerland, the research community along with public authorities are increasingly aware of the challenges raised by the necessity to adapt to future climate change. Such awareness results from the conviction that some amount of climate change will inevitably happen, even in case of important international efforts to reduce emissions of greenhouse gases, and that such changes will potentially imply large costs for the Swiss economy. Our research project aims to clarify the latter point by estimating the total, general equilibrium costs of future climate change for Switzerland in 2050. Another central issue of the project is the role adaptation could play in order to alleviate those costs. Accordingly, the focus of our research is given on the economic sectors that will be most affected by climate change. Among these sectors, winter tourism is a case particularly worth of interest since it relies heavily on natural snow whose availability will be drastically reduced under climate change. Indeed, all impact studies carried out in Switzerland emphasize the large decrease in snow depth and duration that could be experienced because of climate change. Hereafter, we will give more details on the modeling approach adopted for that sector and on how important climate change costs are likely to be through that channel.We use a multi-regional computable general equilibrium model, the GEMINI-E3 model, in order to investigate the issues of climatic impacts. As a first step, we modified its standard version so as to integrate or detail economic sectors that will be most likely affected by climate change (i.e. tourism, agriculture, water supply, health, insurance, energy and infrastructures). We decided to add three tourism sectors to GEMINI-E3, two of which being related to (snow-dependent) winter activities. In these two sectors, snowmaking has been identified as a key adaptation measure. Therefore, snow production has been modeled within these sectors with artificial snow considered as a substitute to natural snow. Model calibration then required to find some inventive ways to valuate the snow resource. For the purposes of our simulations, future impacts on snow cover will be based on the results of the European project ENSEMBLES. One strenght of our approach is the possibility to run counterfactual scenarios regarding the implementation of specific adaptation measures on the supply side. In the case of the winter tourism sector, this feature allows us to assess the potential for reducing climate costs through snowmaking.Though tourism as a whole only contributed 2.9% of Swiss GDP in 2005, its importance can be much larger at a regional scale. In mountain regions, the share of tourism in GDP typically ranges from 25 to 40%. Additionally, the tourism value added in mountain regions is mainly generated during the winter time thereby being heavily snow-dependent. Climate change, through a reduced snow pack, is therefore expected to have severe economic impacts on these regions. We will estimate these costs using the GEMINI-E3 model. Modeling adaptation on the supply side should help us not overestimating the costs of climate change. Furthermore, our estimates of the amount of the climate change bill could be further reduced through two distinct mechanisms stemming from the multi-regional, general equilibrium nature of our inquiries. Indeed, our modeling approach allows some of the money not spent anymore in winter tourism to flow elsewhere in the Swiss economy. At an aggregate level, Swiss ski resorts are also expected to suffer less from climate change than their competing counterparts from neighbouring countries, a situation that GEMINI-E3 can translate into welfare improvements for Switzerland.