Wouter Botzen (with Jeroen Aerts and Hans de Moel) 3er Congreso National – 17 October, 2013

Climate Change and Natural Disasters: Economic Analysis of Flood Risk Adaptation

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Agenda

1. Context: Natural disasters and climate change

2. Economic evaluation of flood risk adaptation measures in NYC

2.1. Flood risk management strategies

2.2. Overall methodology and model framework

2.3. Costs of flood risk adaptation

2.4. Flood risk modeling and climate change

2.5. Results Benefit-Cost Analysis

3. Conclusions

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Hurricane Sandy in New York in 2012

Hurricane Sandy Extremely large wind field Less than a 1 in 100 year event $50 billion of costs in the USA

Impact Sandy in New York City (NYC) Flooded 17% of the City’s land 88,700 buildings in flooded areas $19 billion of costs

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Hurricanes Ingrid and Manuel − September 2013

Two storms hitting Mexico Manuel made landfall as a tropical storm in Southwestern Pacific Hurricane Ingrid hit the opposite coast Strong winds, floods, and mudslides

Impacts Affected 20 Mexican states Large scale evacuations More than 150 casualties 75bn MXN$ losses

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Global Trend Weather-Related Losses

Source: Munich Re (2013)

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Climate Change and Extreme Weather Events

Extreme weather event

Confidence in past increases

Confidence in future increases

Length/number of dry spells Medium Very likely

Droughts Medium Medium

Heavy precipitation events Likely Likely

River floods Low-medium Low

Intensity tropical cyclone Low Likely

Extreme high coastal water Likely Very likely

Source: IPCC (2012), Special Report Extreme Events & Disasters

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Impacts Climate Change on Hurricane Risk

More severe hurricanes (likely) - Stronger winds can double damages from hurricanes (Nordhaus, 2010; Bouwer & Botzen, 2011, Climate Change Economics)

Sea level rise increases surge levels and coastal erosion (very likely) - Can increase flood damage up to tenfold in global coastal cities (Hallegate et al., 2013, Nature Climate Change)

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Agenda

1. Context: Natural disasters and climate change

2. Economic evaluation of flood risk adaptation measures in NYC

2.1. Flood risk management strategies

2.2. Overall methodology and model framework

2.3. Costs of flood risk adaptation

2.4. Flood risk modeling

2.5. Results Benefit-Cost Analysis

3. Conclusions

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2. Economic Evaluation of Flood Risk Adaptation

Goal of this study Perform a Benefit-Cost Analysis of flood risk management strategies for New York City (NYC), including long term

projections of climate change

Key questions - Should NYC invest in upgrading building codes, or install flood-protection infrastructure? - How does this depend on future climate change? - How sensitive are our results to model assumptions?

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2.1. Main Flood Risk Management Strategies

S1: Upgrade building codes •  New, or existing buildings •  +2ft, +4ft, or +6ft above the current ground level •  Applied to the 1/100 or 1/500 year flood zone

S2: Build storm surge barriers that close off the City and levees

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S1: Upgrade Building Codes

Elevate a building above flood level

Wet floodproof a building

Dry floodproof a building

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S2: Flood Protection: Environmental Dynamics

Three storm surge barriers - Arthur Kill - Verrazano Narrows - East River Coastal protection Open system to preserve

ecosystem dynamics

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S2: Flood Protection: Barrier NYC-New Jersey

Large outer harbor barrier Large reduction coastline Protects larger area Disruption of ecosystem

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Agenda

1. Context: Natural disasters and climate change

2. Economic evaluation of flood risk adaptation measures in NYC

2.1. Flood risk management strategies

2.2. Overall methodology and model framework

2.3. Costs of flood risk adaptation

2.4. Flood risk modeling and climate change

2.5. Results Benefit-Cost Analysis

3. Conclusions

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2.2. Overall Methodology and Model Framework

Steps economic evaluation of each strategy: 1) Estimate the investment and maintenance costs (Ct) 2) Estimate the reduced yearly (t) average flood risk (Bt) 3) Benefit-Cost Analysis over a horizon (T) (here 100 years)

Discount rate r =4% or 7%

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Overall Model Framework

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Agenda

1. Context: Natural disasters and climate change

2. Economic evaluation of flood risk adaptation measures in NYC

2.1. Flood risk management strategies

2.2. Overall methodology and model framework

2.3. Costs of flood risk adaptation

2.4. Flood risk modeling and climate change

2.5. Results Benefit-Cost Analysis

3. Conclusions

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2.3. Costs of Flood Risk Adaptation

S1: Building code measures - Unit costs of flood proofing houses - Building characteristics and number of houses in flood zone - Aggregated costs per flood zone (1/100 floodzone)

Measure Existing buildings New buildings

Elevation 2ft-6ft $2bn to $3bn $80mln to $240mln

Wet floodproofing 2ft-6ft $250mln to $980mln $70mln to $260mln

Dry floodproofing 2ft-6ft $650mln to $980mln $170mln to $260mln

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Costs of Flood Risk Adaptation (2)

S2: Flood protection and storm surge barriers - Cost estimates of design from engineering firms - Comparative study of other surge barrier costs - Costs of local flood protection and maintenance

Barrier Investment costs Maintenance cost

‘Environmental Dynamics’

$21bn $99mln per year

‘Outer harbor barrier’ $13bn $118mln per year

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Agenda

1. Context: Natural disasters and climate change

2. Economic evaluation of flood risk adaptation measures in NYC

2.1. Flood risk management strategies

2.2. Overall methodology and model framework

2.3. Costs of flood risk adaptation

2.4. Flood risk modeling and climate change

2.5. Results Benefit-Cost Analysis

3. Conclusions

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2.4. Flood Risk Modeling and Climate Change

Hurricane surge heights (MIT)

Digital elevation model

Inundation maps HAZUS model & Building

value maps

549 storm simulations

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Distribution of Current Flood Risk in NYC

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Flood Risk in NYC and Climate Change

Current risk to only buildings is $71bn per year

Effects of climate change on risk are based on 2 GCMs (Lin et al., 2012, Nature Climate Change) 2050 2080

Sea level rise 30cm 60cm

Risk increase “low climate change” 80% 170%

Risk increase “high climate change”

480% 1200%

An extreme “high rapid ice melt” scenario (100cm in 2080) could increase risk up to 2300%

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Flood Risk in NYC and Urban Growth

NYC local population projections are translated into future flood risk

Population growth increases flood risk by 15% in 2040

Constant population assumed after 2040

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Risk Reduction Benefits of Adaptation Options

Building Code Measures Calculated by the flood risk model by adjusting the relations between water depth and building damage Measure Existing buildings New buildings

Elevation 2ft-6ft 20% to 30% 65% to 95%

Wet floodproofing 2ft-6ft 10% to 25% 20% to 40%

Dry floodproofing 2ft-6ft 20% to 50% 35% to 75%

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Risk Reduction Benefits of Adaptation Options (2)

Storm surge barrier strategies Calculated as the reduced damage to buildings and to the economy in the protected area Annual current flood risk saved by barriers: ‘Environmental dynamics’ = $203 mln per year ‘Outer Harbor’ = $232 mln per year Uncertainty interval around estimates risk reduction: -49% and +63%

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Agenda

1. Context: Natural disasters and climate change

2. Economic evaluation of flood risk adaptation measures in NYC

2.1. Flood risk management strategies

2.2. Overall methodology and model framework

2.3. Costs of flood risk adaptation

2.4. Flood risk modeling and climate change

2.5. Results Benefit-Cost Analysis

3. Conclusions

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2.5. Results Benefit-Cost Analysis (BCA)

Elevation of existing buildings • 36 BCAs conducted under different discounting and climate change scenarios for elevation from 2ft up to 6ft

• None of these are cost-effective (all B/C ratios <1)

• For specific high risk properties elevation may be economically viable, but it does not apply in a large scale

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Results Wet Floodproofing Existing Buildings

High discount rate Low discount rate

Low climate change:

+ 2ft height 0.70 1.45

+ 4ft height 0.58 1.10

+ 6ft height 0.37 0.69

High climate change:

+ 2ft height 1.99 2.86

+ 4ft height 1.69 3.74

+ 6ft height 1.07 2.36

Wet floodproofing is not cost-effective in current risk conditions

Overall conclusions are similar for dry floodproofing

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Results New Buildings

Elevation of new buildings has the highest Net Present Values

Elevation up to 6ft in coastal flood zones is cost-effective in all scenarios - Every $1 invested yields up to $2 (no climate change), or $15 (high

climate change)

Elevation up to 4ft in inland flood zones is cost-effective under all scenarios with climate change, and all scenarios if r=4% - Every $1 invested yields up to $1.5 (no climate change) or $9 (high climate change

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Results Flood Protection Strategies

‘Environmental Dynamics’

‘Outer Harbor’

Current climate

B/C ratio, r=7% 0.13 0.23

B/C ratio, r=4% 0.21 0.36

Low climate change

B/C ratio, r=7% 0.22 0.38

B/C ratio, r=4% 0.41 0.69

High climate change

B/C ratio, r=7% 0.60 1.06

B/C ratio, r=4% 1.32 2.24

Both barrier strategies are cost-effective in the rapid ice melt scenario

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Agenda

1. Context: Natural disasters and climate change

2. Economic evaluation of flood risk adaptation measures in NYC

2.1. Flood risk management strategies

2.2. Overall methodology and model framework

2.3. Costs of flood risk adaptation

2.4. Flood risk modeling and climate change

2.5. Results Benefit-Cost Analysis

3. Conclusions

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3. Conclusions ─ Advice to NYC policy makers

Floodproof newly built buildings - Elevate +6ft in coastal zones, and +4ft in inland flood zones

Consider floodproofing existing buildings when renovated - Wet floodproof up to +4ft

Delay investment in storm surge barriers -  Invest in storm surge barriers only if sea level rise develops according to 30cm in 2050 and storminess increases -  NPV ‘Outer Harbor” is up to $22bn in that scenario

Results are robust according to a variety of assumptions - Life time barriers, discount rate, uncertainty in risk estimate

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3. Conclusions ─ General Lessons

Destructive events (floods in Mexico and New York) are a strong call

for action to limit future impacts of disasters

Natural disaster losses already increased substantially globally and this trend will continue with climate change

Local climate risk assessments are needed to inform local adaptation

Economic BCA is powerful for prioritizing adaptation investments

A comprehensive BCA is complex, requires a chain of models, and is affected by uncertainties

Despite such (climate) uncertainties robust policy advice can be given if these are adequately modeled

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Thank You for Your Attention!

Publications NYC flood risk management Aerts, J.C.J.H. and Botzen, W.J.W. (2011). Climate-resilient waterfront development in New

York City: Bridging flood insurance, building codes, and flood zoning. Annals of the New York Academy of Sciences, 1227: 1-82.

Aerts, J.C.J.H. and Botzen, W.J.W. (2012). Managing exposure to flooding in New York City (NYC). Nature Climate Change, 2: 377.

Aerts, J.C.J.H. and Botzen, W.J.W. (2012). Hurricane Irene: A wake up call for New York City? Natural Hazards and Earth System Sciences, 12: 1837-1840.

Aerts, J.C.J.H., Lin, N., Botzen, W.J.W., Emanuel, K. and de Moel, H. (2013). Low probability flood-risk modeling for New York City. Risk Analysis, 33(5): 772-788.

Aerts, J.C.J.H., Botzen, W.J.W., de Moel, H. and Bowman, M. (2013). Cost estimates for flood resilience and protection strategies in New York City. Annals of the New York Academy of Sciences, 1294: 1-104.

Aerts, Botzen, W.J.W., Emanuel, K., Lin, N., De Moel, H. and Michel-Kerjan, E. (2013). Assessing Flood Resilience Strategies for New York City. Working Manuscript.