RAMSES - KU Leuven...RAMSES Title Slide 1 Author Windows User Created Date 11/14/2013 1:17:05 PM ...
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Dr Graham Floater Director, SENECA EGC Director, London School of Economics [email protected] Cities and Climate Change: The Economics of Adaptation RAMSES
Transcript of RAMSES - KU Leuven...RAMSES Title Slide 1 Author Windows User Created Date 11/14/2013 1:17:05 PM ...
Dr Graham FloaterDirector, SENECA
EGC Director, London School of Economics
Cities and Climate Change:The Economics of Adaptation
RAMSES
CONTENTS
Value For Money and policy making
Damage costs
Adaptation investment
When is adaptation Value for Money?
Who pays? Who benefits?
Conclusions
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VALUE FOR MONEY AND POLICY MAKING
Policy making should always ask:
Is a project Value For Money (VFM)?
Value For Money means effective, efficient, equitable.
Value For Money does not mean lowest cost. It is about achieving the highest quality/effectiveness for each euro spent.
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Economics and policy making
To assess value for money policy makers need to know:
• Will a project be effective at achieving the city’s policy aims?
• How much does a project cost including risks of overspend?
• Who pays? – e.g. municipal or national government, private sector, consumers
• Who benefits? – e.g. through financial and socio-economic impacts?
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VFM delivers social/environmental benefits and economic growth
If investment is VFM, it will deliver overall benefits for society.
Benefits include:
• Social benefits
• Environmental benefits
• Economic growth
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Public spending choices – schools, hospitals or adaptation?
• The decision to pay for adaptation measures needs to be made within the context of total public spending.
• How big is the total spending cake? How big is adaptation’s slice?
• Will 1 billion euros spent on a flood barrier save more lives than building a new hospital or increasing traffic safety?
• Will 1 million euros spent on better home insulation increase the welfare of the poor and vulnerable more than providing computers for schools or building a community centre?
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How large is the cake? Which slice does adaptation get?
Greater London Authority annual spend 2011/12
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0 1 2 3 4 5 6 7
Humidity
Strong winds
Sea flooding
Cold waves and snow
Drought
Air pollution
Heat wave
Inland flooding
Average impact cost across cities (range 0 to 10)
Climate damage costs perceived by officials
DAMAGE COSTS: what city officials say
Survey of 20 cities
How will costs increase with climate change?
Survey of 20 cities
Insurance industry - the global cost of natural disasters is $130 billion a year
“If we do not adapt, the economic costs will be extreme. Over the next 50 years, we expect to see:
• windstorm losses increase by two thirds to $27 billion per annum worldwide,
• additional flooding costs of €100-120 billion a year in Europe
• and a 15-fold increase in UK flood costs to £22 billion.”
Association of British Insurers
Estimated losses from natural disasters have risen from about $25 billion a year in the 1980s to $130 billion a year today.
Are increased losses due to climate change or larger agglomerations and populations at risk of extreme events? Either way, cities need to be more resilient.
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ADAPTATION INVESTMENT:Costs of adaptation to flooding in UK
The UK Environment Agency estimated that flood management in England and Wales will need an additional spend of:
• $30 million annually from 2011
• $720 million annually by 2035
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WHEN IS ADAPTATION VALUE FOR MONEY?
• D = Damage cost from an extreme weather event
• A = Cost of the adaptation investment
• R = Residual damage cost following adaptation
Net benefit of adaptation = (D - R) - A
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When is adaptation Value For Money?
VFM is when the adaptation investment (A) is lower than the averted damages (D - R):
A ≤ (D – R) or A/(D – R) ≤ 1
Considerations:• Co-benefits and indirect costs of A need to be considered (in some cases,
A may be negative)
• Needs to take account of environmental and social impacts
• In the real world, D, R and A cannot be modelled comprehensively (e.g. endogenous growth effects)
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WHO PAYS? WHO BENEFITS?
Costs: Insurance companies, government, non-insured firms and individuals
Benefits: Reconstruction companies, workers
Costs: Government, private investors, firms, landlords, tax payers, house buyers, household consumers…
Benefits: Government, private investors, construction firms, household consumers…
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Damage costs
Adaptation investment
Financing mechanisms
Finance mechanisms
• City/national funding partnerships
• Public private partnerships
• Collaborations with the insurance industry
• EU and international funds
Non-financial instruments
E.g. regulation, information
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CONCLUSIONS
• Value For Money (VFM): costs of adaptation should be lower than avoided damage costs for society
• Cost-benefit analysis needs to consider who pays and who benefits
• Investment in resilient infrastructure can promote economic growth
• Collecting data is crucial – often challenging
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