Economics of Adaptation

Aviation is usually discussed as a cause of climate change. This analysis treats it as an industry whose operating environment is changing faster than its economics can absorb. Three terms need to be kept apart: hazard is the physical event, such as a storm or flood; exposure is what lies in its path; and vulnerability is how badly the exposed system is damaged. Climate change raises the hazard, and aviation’s structure determines its vulnerability, meaning a more severe event produces a proportionately larger loss only if it strikes a system with little capacity to absorb it.   Aviation’s vulnerability stems from three structural features: networks with almost no slack, margins too thin to absorb recurring shocks, and dependencies concentrated in a few nodes. These features create an economic coordination problem: the benefits of resilience are distributed across airlines, airports, passengers, and the wider network, while the cost of maintaining spare capacity is borne directly by individual operators. What is privately efficient may therefore be less resilient than what is socially optimal. Northern Europe illustrates the vulnerability of network flow, while Thailand illustrates the vulnerability of node concentration.