Low-carbon transition is improbable without carbon pricing

Unidad de excelencia María de Maeztu CEX2019-000940-MThis Letter has a Reply and related content. Please see: Reply to van den Bergh and Botzen: A clash of paradigms over the role of carbon pricing (https://doi.org/10.1073/pnas.2014350117) - Opinion: Why carbon pricing is not sufficient to mitigate climate change-and how "sustainability transition policy" can help (https://doi.org/10.1073/pnas.2004093117)

Methodological issues in natural disaster loss normalization studies

The mixed results in Pielke (2020) for natural disaster loss normalisation studies are due to methodological differences. Flaws exist in commonly used normalisation approaches that assume unitary elasticities between exposure indicators and losses. We refute Pielke’s arguments that statistical studies estimating these relationships are biased. We conclude with an agenda for future research

A stepwise approach for identifying climate change induced socio-economic tipping points

Climate change may cause socio-economic tipping points (SETPs), where the state of a socio-economic system abruptly changes to a fundamentally different state. While their potential existence is recognized, a systematic method for policy-relevant research on SETPs is lacking. This study introduces a stepwise approach for identification of SETPs that supports decision making under uncertain climate and socio-economic conditions. The approach is demonstrated with a stylized case study on the collapse of house prices (a SETP) in a coastal city, due to increasing flood risk from sea level rise. We explore four dynamic adaptive management strategies under a wide range of possible futures. We find that under scenarios with very high and rapid sea level rise, tipping points in real estate prices occur if the market responds to sudden changes in perceived flood risk rather than gradually adjusting prices to changes in flood risk in a rational manner. Such SETPs can only be avoided with a proactive strategy and when flood protection measures are implemented rapidly. Our approach can guide future studies on SETPs and seeks to move the study of SETPs towards a concept that provides perspective of action for policy makers

Review of Economic Instruments in Risk Reduction

Economic instruments (EI), such as subsidies, taxes and insurance-related options are at the heart of discussions regarding novel approaches for managing risk and adapting to climate change, including in the context of multi-stakeholder partnerships (MSP) between the private and public sectors. Although the attractiveness of reducing and managing disasters has long been demonstrated, there is underinvestment into disaster risk management (DRM). A number of factors, such as lack of comprehensive information and cognitive biases are important. In particular, financial constraints and moral hazard, i.e. adverse incentives provided by current arrangements for dealing with disasters rule high. In this line of thinking, instruments that provide a price signal for risk management and incentivize behavioural change hold high appeal to policymakers including the EU. Yet, little is known about such economic instruments, their mechanics, links to risk management and concrete application in the field of disaster risk management (and climate adaptation). Knowledge gaps exist particularly for conditions that create enabling environments for innovative market based EI. Among these are, e.g., the attractiveness for stakeholders in the context of MSP or institutional settings that are required to successfully and efficiently apply the EI. This report reviews key EI according to their potential for managing and incentivising risk management in the context of the ENHANCE project. The guiding questions for this review are: What economic instruments exist for managing disaster risk? How do they contribute to risk management? What innovative options re being discussed? How do case studies plan to discuss and assess economic instruments? The overall aim of this report is to develop an inventory of EI as they support risk management generally and their anticipated uptake in the ENHANCE cases studies. This report first discusses the methodology and the mechanics of EI. Next it presents the market-based and risk financing instruments; finally it concludes with a synthesis of our findings and next steps for the case studies, which are being carried out as part of the ENHANCE project

Making Communities More Flood Resilient: The Role of Cost Benefit Analysis and Other Decision-support Tools in Disaster Risk Reduction

Given the series of large-scale flood disasters that have occurred in recent years, there is a growing recognition among community leaders, businesses, insurers, governments and international donors of the need to invest in risk reduction measures before such events happen. Due to the costs of risk reduction measures, these actions need to be justified and as a result there is an increasing need to utilize decision-support tools, which can help to make the case for action to reduce disaster risks and build flood resilience when faced with limited resources. Across stakeholders, the specific objectives from the use of decision-support tools include (i) demonstrating the efficiency of the action ex-ante (before the flood); (ii) aiding in the selection of a particular intervention in enhancing community flood resilience from a suite of possible options; (iii) helping communities make the right choice when faced with limited investments; (iv) demonstrating the benefits of donor funding of community flood resilience projects; and (v) monitoring the successes and weaknesses of past interventions to generate lessons learned for future work. Typically, discussion on decision-support for disaster risk reduction (DRR) in floods (as well as for other hazards) has focused on cost-benefit analysis (CBA), however there are a number of other tools available to support decision-making. These include cost-effectiveness analysis (CEA), multi-criteria analysis (MCA) and robust-decision-making approaches (RDMA), which have been applied to similar problems, and can also be used to aid decision-making regarding flooding. This white paper provides an overview of the opportunities and challenges of applying these different tools, and guides the reader to select among them. Selection depends on the desired objective, circumstances, data available, timeframe to perform analyses, level of detail, and other considerations. We first focus on the CBA decision-tool, as this has been the mainstay of research and implementation. We then go beyond CBA to consider the other techniques for prioritising DRR investments. While our analysis is specific to flood DRR actions, the conclusion are also applicable to other hazards. The key findings arising from this white paper with relevance to research, policy and implementation of flood DRR decision-support tools, are: (1) Following a comprehensive review of the quantitative CBA flood DRR evidence, we find that flood DRR investments largely pay off, with an average of five dollars saved for every dollar spent through avoided and reduced losses; (2) Using CBA for flood risk reduction assessment should properly account for low-frequency, high-impact flood events, and also tackle key challenges such as intangible impacts; (3) Decision-making can be improved by using various decision support tools tailored to the desired outcomes and contexts. This white paper is the foundation upon which the Zurich flood resilience alliance work on integration of a decision toolbox will proceed "on the ground," with established community-based risk assessment tools, in particular Vulnerability Capacity Assessments (VCA) or Participatory Capacity and Vulnerability Assessments (PCVA). Based on these findings we propose a way forward over the next several years on informing risk-based decision making as part of the alliance program

Climate policy without intertemporal dictatorship : Chichilnisky criterion versus classical utilitarianism in DICE

Unidad de excelencia María de Maeztu MdM-2015-0552Unlike discounting and the damage function, the social welfare function has not received so much attention in the debate on climate economics. An important challenge has been to combine efficiency and equity considerations in a single social welfare framework. The Chichilnisky criterion is one way to resolve this. We consider its implementation in the climate-economy model Dynamic Integrated Climate-Economy (DICE), and compare results for different damage functions, namely the standard one in DICE and the one proposed by Weitzman implying potential large climate damages at high temperature increases. We calculate optimal climate policy for different parameter settings and compare the results with those under the green golden rule (only final utility matters) and classical utilitarianism (no discounting). Optimal emission abatement trajectories turn out to be very different between standard discounted utilitarianism, classical utilitarianism and Chichilnisky specifications. The results are very sensitive to the damage function, the climate sensitivity parameter and especially the "Chichilnisky weight" given to utility of generations in the far future. We discuss conditions and reasons for preferring either classical utilitarianism or the Chichilnisky criterion, and conclude that a critical factor is the time horizon used in climate policy analysis. Adopting sustainable preferences as formalized by the Chichilnisky criterion in climate policy analysis has the advantage that the very long-term implications of greenhouse gases in the atmosphere on the environment and human welfare are not downplayed

Individual hurricane evacuation intentions during the COVID-19 pandemic: insights for risk communication and emergency management policies

The U.S. 2020 hurricane season was extraordinary because of a record number of named storms coinciding with the COVID-19 pandemic. This study draws lessons on how individual hurricane preparedness is influenced by the additional risk stemming from a pandemic, which turns out to be a combination of perceptions of flood and pandemic risks that have opposite effects on preparedness behavior. We conducted a survey in early June 2020 of 600 respondents in flood-prone areas in Florida to obtain insights into households’ risk perceptions and preparedness for the upcoming hurricane season under COVID-19. The results show that concerns over COVID-19 dominated flood risk perceptions and negatively impacted people’s evacuation intentions. Whereas hotel costs were the main obstacle to evacuating during Hurricane Dorian in 2019 in the same geographic study area, the main evacuation obstacle identified in the 2020 hurricane season is COVID-19. Our statistical analyses investigating the factors influencing evacuation intentions show that older individuals are less likely to evacuate under a voluntary order, because they are more concerned about the consequences of becoming infected by COVID-19. We observe similar findings based on a real-time survey we conducted in Florida with another group of respondents under the threat of Hurricane Eta at the end of the hurricane season in November 2020. We discuss the implications of our findings for risk communication and emergency management policies that aim to improve hurricane preparedness when dealing with additional health risks such as a pandemic, a situation that may be exacerbated under the future climate

Charity hazard and the flood insurance protection gap: An EU scale assessment under climate change

The flood insurance protection gap, the level of uninsured flood risk, is a problem faced by many European countries and is expected to increase due to climate change. In some countries a cause of low demand for flood insurance is the crowding out of private insurance uptake due to the anticipation of government compensation for uninsured damage, a phenomenon known as charity hazard. This study applies a partial equilibrium model of flood insurance markets to explore the extent of charity hazard and the insurance protection gap for EU-countries until 2050. For this analysis, we apply an expected utility framework with insurance purchase decision functions that capture the probability, ambiguity and extent of government compensation. By accounting for country-level insurance systems and government compensation types, as well as regional flood risk, we aim to assess how charity hazard develops under different conditions. The extent of charity hazard decreases with uncertainty of government compensation, as well as with higher flood risk. Considering current and future conditions, the highest impact of charity hazard is observed in regions of Germany and Italy. The projected insurance protection gap is highest in Germany, followed by Spain, Poland and Italy, and is expected to grow towards 2050

Regional Inequalities in Flood Insurance Affordability and Uptake under Climate Change

Flood insurance coverage can enhance financial resilience of households to changing flood risk caused by climate change. However, income inequalities imply that not all households can afford flood insurance. The uptake of flood insurance in voluntary markets may decline when flood risk increases as a result of climate change. This increase in flood risk may cause substantially higher risk-based insurance premiums, reduce the willingness to purchase flood insurance, and worsen problems with the unaffordability of coverage for low-income households. A socio-economic tipping-point can occur when the functioning of a formal flood insurance system is hampered by diminishing demand for coverage. In this study, we examine whether such a tipping-point can occur in Europe for current flood insurance systems under different trends in future flood risk caused by climate and socio-economic change. This analysis gives insights into regional inequalities concerning the ability to continue to use flood insurance as an instrument to adapt to changing flood risk. For this study, we adapt the “Dynamic Integrated Flood and Insurance” (DIFI) model by integrating new flood risk simulations in the model that enable examining impacts from various scenarios of climate and socio-economic change on flood insurance premiums and consumer demand. Our results show rising unaffordability and declining demand for flood insurance across scenarios towards 2080. Under a high climate change scenario, simulations show the occurrence of a socio-economic tipping-point in several regions, where insurance uptake almost disappears. A tipping-point and related inequalities in the ability to use flood insurance as an adaptation instrument can be mitigated by introducing reforms of flood insurance arrangements

Framework Report as Guidance for Case Studies

The main goal of the ENHANCE project is to develop and analyse new ways to enhance society's resilience to catastrophic natural hazard impacts. Key for achieving this goal is to analyse new multi-sector partnerships (MSPs) that aim at reduce or redistribute risk, and increase resilience. This document introduces a working definition of partnership, where MSPs are understood as: "...voluntary but enforceable commitments between partners from different sectors (public authorities, private services/enterprise and civil society), which can be temporary or long-lasting. They are founded on sharing the same goal in order to gain mutual benefit, reduce risk and increase resilience." (Rhodes, 1997) New forms of MSPs are needed, since it appears that existing partnerships are often not effective in managing risk from natural hazards. For example, the different responses to heat-waves and floods in Europe demonstrate that the roles of public, private, and civil society actors (including individuals) in preparing for and responding to catastrophic impacts are often neither clear nor effective. Moreover, actors must often base their risk management strategies on scarce, limited, or inaccurate risk information. Together, these factors can lead to the development of ineffective (prevention and mitigation) and unacceptable measures and unexpectedly large impacts of natural disasters (financial, ecological, health, and social). Moreover, in preparing for and responding to natural hazard impacts, there is also often a lack of clarity on financial responsibilities about who pays what, how much, and when. Hence, knowing the challenge of managing risks resulting from natural hazards has increased, it becomes clear that these risks cannot be handled by either private sector of the government as single actors, and strategies to increase resilience should therefore incorporate all sectors of society (including closer cooperation between sectors)