Key issues in planning adaptation to climate change

Gordon HughesUniversity of Edinburgh

16th December 2013

Context - different kinds of adaptation

Adaptation will occur – the question is howPlanned adaptation

Modify assets to allow for expected (but not certain) climate conditionsInitial investment to reduce future O&M costs

Responsive adaptationBuild assets for current climate conditionsUpgrade or replace them as the climate changesHigher future costs but less risk of mistakes

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Climate proofing – the standard model

Core engineering approachProject investment & O&M spending to 2050Estimate increase in unit costs to protect assets against climate change over their lifeCalculate marginal cost of climate protection

Questions to addressHow is the future climate defined?How far into the future should we look?What are the climate stress-response models?

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What are the most important climate stresses?

Roads & transportSurface integrity – (max) pavement temperatureFlood damage – (max) 3-day precipitation

BuildingsVentilation – moisture & humidityRoofs & structures – precipitation & wind speed

Urban infrastructureStorm water – 3-day precipitation

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Allowing for climate uncertainty

Substantial variation in key climate variables across GCMs (climate scenarios)How should design standards be set?

Average over all scenariosWorst outcome or 95th percentile of scenariosRobust scenario allowing for uncertainty

Responsive adaptation may be viewed as a “wait and act” strategy

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Example 1: heat waves in Macedonia(99th percentile of daily max temp)

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1980 2010 2030 2050 2070 2090

Example 2: flood exposure in Macedonia(max 3-day precipitation)

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100

120

140

160

180

Max

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3-d

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1980 2010 2030 2050 2070 2090

The planning horizon: how far ahead should we look?

Trade-off between initial cost and future O&MArises even under certainty (perfect foresight)Depends on (a) the cost curve for adaptation, and (b) rate of change in key climate variables

Optimal planning horizon > 20 years is very unusual

Higher discount rate -> shorter planning horizonMore uncertainty -> shorter planning horizon

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For the Balkans, a planning horizon less than or equal to 20 years is adequate

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Planning horizon (years)

Discount rate 0 10 20 30 40 A. All countries

0% 0 3 82 3 0 2% 0 11 77 0 0 5% 11 38 39 0 0 8% 51 37 0 0 0

10% 82 6 0 0 0 B. Macedonia

0% 0 0 7 1 0 2% 0 1 7 0 0 5% 0 2 6 0 0 8% 3 5 0 0 0

10% 8 0 0 0 0

Using perfect foresight to identify priority sectors and regions

Use distribution of the costs of adaptation under perfect foresight to focus analysis

Where, when & in which sectors are the costs of adaptation significant relative to base spending?How sensitive are the relative costs to variations across climate scenarios?What is the contribution of existing infrastructure to the costs of adaptation?

This will decline over time but focuses attention on upgrading existing assets as well as building new ones

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Cost of adaptation under perfect foresight(Average over GCMs, % of baseline spending)

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Country Power & phones

Water & sewers Roads Other

transport Health & schools Urban Housing

Albania 0.6% 0.2% 7.1% 3.7% 0.9% 1.1% 0.0% Bulgaria 0.6% 0.4% 3.2% 2.9% 1.0% 1.1% 0.0% Bosnia 0.6% 0.3% 8.5% 5.4% 1.0% 1.2% 0.0% Greece 0.8% 0.5% 22.6% 2.4% 2.1% 2.3% 2.0% Croatia 0.6% 0.3% 25.2% 5.3% 1.0% 1.1% 0.0% Kosovo 0.6% 0.3% 21.4% 2.9% 0.9% 1.1% 0.0% Macedonia 0.5% 0.3% 2.4% 2.4% 0.9% 1.0% 0.0% Montenegro 0.6% 0.3% 22.3% 4.2% 0.9% 1.0% 0.0% Romania 0.6% 0.3% 13.3% 4.5% 1.0% 1.1% 0.0% Serbia 0.6% 0.3% 4.0% 3.8% 1.0% 1.1% 0.0% Slovenia 0.7% 0.3% 10.6% 4.6% 1.1% 1.2% 0.0%

Treating planned adaptation as an investment decision

Return on investment via lower O&M, upgrade and replacement costs

Very sensitive to the discount rateShorter upgrade/replacement cycles may be less costly than initial investmentFlexibility rather than irreversible commitments

However, getting land use right is crucialAvoid development in flood-affected zonesProvide capacity for future upgrades

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Planned adaptation is justified in some sectors(Average NPV in $ mln under perfect foresight)

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Planned adaptation - country and discount rate(NPV for all infrastructure, average over GCMs)

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Country Discount rate 2016-20 2021-25 2026-30 2031-35 2036-40 2041-45 2046-50

Macedonia 2% 1 12 22 36 46 58 72

5% -15 -10 -6 -0 4 9 17

8% -21 -18 -17 -15 -14 -12 -6 Albania 2% -63 -60 -55 -50 -44 -36 -27

5% -73 -72 -72 -71 -68 -63 -57

8% -74 -75 -75 -76 -75 -71 -67 Kosovo 2% 10 17 22 28 34 39 45

5% -1 3 4 7 10 12 16

8% -6 -4 -3 -2 -1 0 3 Serbia 2% -38 -13 12 45 82 128 178

5% -95 -84 -77 -62 -47 -26 1

8% -115 -110 -109 -104 -99 -89 -72

NPV of planned adaptation over GCMs(Urban assets, $ mln under perfect foresight)

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Robust strategies for adaptation

The optimal strategy depends on the degree of risk aversion

Risk neutral -> lowest average costExtreme risk aversion -> lowest worst outcome

Robust strategies focus on ‘good’ outcomesFor example, in top quartile for most time periods and/or sectors, plusNo very bad outcomes over all scenariosMacedonia excl transport – NCAR & IPSL scenarios

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Macedonia payoff matrix – PV of adaption cost (Lower is better, all infrastructure, $ mln for 2031-35)

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Planning scenario Outcome scenario Equal probabilitiesBCCR CSIRO MIROC NCAR UKMO Mean Worst SD

Responsive 29 10 59 42 52 38 59 19BCCR BCM20 34 33 46 41 55 42 55 9CSIRO MK30 39 34 78 56 75 56 78 20MIROC 32 39 35 35 35 45 38 45 4NCAR CCSM30 37 34 37 34 47 38 47 5UKMO HADCM3 55 54 54 54 59 55 59 2

Lowest cost of adaptation 38 45

Comparison under perfect foresightResponsive 29 10 59 42 52 38Planned 34 34 35 34 59 39NPV of investment -6 -24 24 8 -7 -1

Identifying a robust strategy for non-transport infrastructure

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Analysis of extreme events: how much protection?

Forget climate change for a whileDo we understand the distribution of extreme events today?If not, what information do we need to examine this?Will economic development increase or reduce vulnerability?What is an efficient level of protection against extreme events today or in future

Planning for managing extreme eventsFor Brazil: allowing for the role of El Niño Investment in infrastructure vs institutional responsesChanges in the trade-offs between costs and risks

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Extreme events and climate change

The effects of climate change: intensity & frequencyShifting the distributions of extreme eventsTropical cyclones: sea surface temperatures, other factorsFlooding: cumulative vs transitional (run-off)Droughts: period without rain or probability that rain < evapotranspiration + run-off over extended period

Example: Flooding in ChinaSeasonal flooding in Yangtze Basin: driver is variability in monthly (or even longer) precipitation in upper & middle basin Storm-related floods caused by cyclones or similar eventsChanges in water management and urbanization which may alter/accelerate run-off: hydro-power vs flood management

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Analysis of extreme events: forms of adaptation

Increasing resilience and/or reducing vulnerabilityLand use and urban planning: don’t put assets in harm’s wayBut, attractions of flood plains and coastal zonesBuilding codes, storm water drainage systems, etcCivil defense, evacuation plans, shelters, effective governance

Investment in infrastructureCoastal and river flood defenses: always at risk unless they are built to very high standards (e.g. Netherlands)Diversion of flood waters: analogy to interruptible contracts for power, but what happens when the event occurs?How far ahead should we look and what levels of protection should be adopted?

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