17.4.2.3 Financial barriers

The implementation of adaptation measures faces a number of financial barriers. At the international level, preliminary estimates from the World Bank indicate that the total costs of ‘climate proofing’ development could be as high as US$10 billion to US$40 billion /yr (World Bank, 2006). While the analysis notes that such numbers are only rough estimates, the scale of investment implied constitutes a significant financial barrier. At a more local level, individuals and communities can be similarly constrained by the lack of adequate financial resources. Deep financial poverty is a factor that constrains the use of seemingly inexpensive health measures, such as insecticide-treated bed nets, while limited public finances contribute to choices by public health agencies to give low priority to measures that would reduce vulnerability to climate-related health risks (Taylor et al., 2006; Yanda et al., 2006). In field surveys and focus groups, farmers often cite the lack of adequate financial resources as an important factor that constrains their use of adaptation measures which entail significant investment, such as irrigation systems, improved or new crop varieties, and diversification of farm operations (Smit and Skinner, 2002).

Lack of resources may also limit the ability of low-income groups to afford proposed adaptation mechanisms such as climate-risk insurance. In the case of Mexico, a restructuring of public agricultural institutions paralleled market liberalisation, reducing the availability of publicly subsidised credit, insurance and technical assistance for smallholders (Appendini, 2001). Even where both crop insurance and contract farming were being actively promoted by the state and federal government to help farmers address climatic contingencies and price volatility, very few of the surveyed farmers had crop insurance (Wehbe et al., 2006). In addition, individuals often fail to purchase insurance against low-probability high-loss events even when it is offered at favourable premiums. While this may occur because of the relative benefits and costs of alternatives, the trade-offs may not be explicit. Kunreuther et al. (2001) show that the search costs involved in collecting and analysing relevant information to clarify trade-offs can be enough to discourage individuals from undertaking such assessments, and thus from purchasing coverage even when the premium is affordable. Climate change is also likely to raise the actuarial uncertainty in catastrophe risk assessment, placing upward pressure on insurance premiums and possibly leading to reductions in risk coverage (Mills, 2005).