Mainstreaming of climate extreme risk into fiscal and budgetary planning: application of stochastic debt and disaster fund analysis in Austria

While ageing-related costs are perceived as the major drivers of fiscal pressure in the EU, concerns over climate-related public expenditures have received comparatively little attention in securing the EU’s long-term fiscal sustainability. Using the Shared Socioeconomic Pathways (SSPs) scenarios as bridging concept for linking the assessment of public cost of demography- and climate-related expenditures, this study proposes a climate risk mainstreaming methodology. We apply a stochastic debt model and assess the potential flood risk in Austria to the public debt and the national disaster fund. Our results indicate that public debt under no fiscal consolidation is estimated to increase from the current level of 84.5% relative to GDP in 2015 to 92.1% in 2030, with macroeconomic variability adding further risk to the country’s baseline public debt trajectory. The study finds that the estimated public contingent liability due to expected flood risk is small relative to the size of economy. The existing earmarked disaster risk reduction (DRR) funding will likely reduce the risk of frequent-and-low impact floods, yet the current budgetary arrangement may be insufficient to deal with rising risk of extreme floods in the future. This prompts the need for further discussions regarding potential reforms of the disaster fund. As many EU member states are in the early stages of designing climate change policy strategies, the proposed method can support the mainstreaming of climate-related concerns into longer-term fiscal and budgetary planning

A methodological framework to operationalize Climate Risk Management: Managing sovereign climate-related extreme event risk in Austria

Despite considerable uncertainties regarding the exact contribution of anthropogenic climate change to disaster risk, rising losses from extreme events have highlighted the need to comprehensively address climate-related risk. This requires linking climate adaptation to disaster risk management (DRM), leading to what has been broadly referred to as climate risk management (CRM). While this concept has received attention in debate, important gaps remain in terms of operationalizing it with applicable methods and tools for specific risks and decision-contexts. By developing and applying a methodological approach to CRM in the decision context of sovereign risk (flooding) in Austria we test the usefulness of CRM, and based on these insights, inform applications in other decision contexts. Our methodological approach builds on multiple lines of evidence and methods. These comprise of a broad stakeholder engagement process, empirical analysis of public budgets, and risk-focused economic modelling. We find that a CRM framework is able to inform instrumental as well as reflexive and participatory debate in practice. Due to the complex interaction of social-ecological systems with climate risks, and taking into account the likelihood of future contingent climate-related fiscal liabilities increasing substantially as a result of socioeconomic developments and climate change, we identify the need for advanced learning processes and iterative updates of CRM management plans. We suggest that strategies comprising a portfolio of policy measures to reduce and manage climate-related risks are particularly effective if they tailor individual instruments to the specific requirements of different risk layers. (authors' abstract

National systems for managing the risks from climate extremes and disasters

This chapter assesses how countries are managing current and projected disaster risks, given knowledge of how risks are changing with observations and projections of weather and climate extremes, vulnerability and exposure, and impacts. It focuses on the design of national systems for managing such risks, the roles played by actors involved in the system, and the functions they perform, acknowledging that complementary actions to manage risks are also taken at local and international level

Pan-European Assessment of Fiscal Consequence of Climate Extremes

While it remains debatable whether extreme hazard events can be attributable to climate change, disaster events at the European and global scales have already begun to impose significant costs on the public and private sectors. In light of these concerns, work package 5 of the ECONADAPT project comprises a case study of climate risk management, providing comparative analysis of adaptation and disaster risk management for EU member countries. The present analysis focuses on both short- to longer-term changes in the frequency, severity and duration of extreme weather events resulting from climate change. Building on the recommendations outlined in D 5.1, the aim of report D5.2 is to provide further analytical bases for climate risk analysis, within an iterative risk management framework. In particular, this study focuses on the domain of public finance and fiscal planning, and illustrates how climate risk concerns could be ‘mainstreamed’ into decision-making processes. Through the pan-European assessment of the fiscal consequences of extreme weather events in the EU, this deliverable (1) quantifies extreme event risks (in terms of potential capital stock losses) across an illustrative range of climate scenarios (with a time horizon of 2030 in the short-term and 2050 in the long-term); (2) identifies the fiscal repercussions in terms of public debt trajectories and, (3) identifies options for better stochastic planning to reduce and finance fiscal risks. Two distinct approaches - fiscal risk scorecard and stochastic debt-assessment- are used to gain both a broader understanding of fiscal and climate risks facing the EU28 member states and a more-in-depth understanding of Austria (the focus of our case study). The results of our analysis (which focuses on increased flood risk), indicate that the economic risk of climate extremes (relative to the size of economic and public finance resources) are estimated to be high in countries such as Hungary, Slovenia Latvia, Lithuania and Slovakia. Furthermore, these countries also have significant need for fiscal consolidation in the medium to long-term, thus proactive fiscal risk management is especially important. The fact that many EU member states are still in the early stages of designing and implementing their climate change adaptation strategies means that there are ample opportunities to consider an iterative risk management process, where state-of-the art scientific information on risk (hazard, exposure and vulnerability) is mainstreamed into economic and fiscal decision-making. Looking ahead, while EU member states strive for fiscal consolidation, sustainable growth and climate risk management, the mainstreaming of climate risk into fiscal planning will become all the more important. The new methodologies developed and presented in this deliverable will be useful in informing these discussions

Inventory Existing Risk Scenarios

This report provides an inventory of existing hazard data, spatial data sets and socioeconomic projections to process scenario information and future risk projections for the ENHANCE case studies. As a basis for this inventory, we conducted a small survey across the EHNHANCE cases study on their data needs. Table 1.1 provides a preliminary overview of the hazard- and socioeconomic data and scenario's required within the different case studies. This overview on the case study data needs and the data availability within the different case study partners, was discussed during the project meetings in Venice, May 2013 and Ispra (September 2013). During the meeting in Ispra, the case studies were offered a 2 days hands on workshop on how to use scenario and risk data or their case studies. This workshop was offered by IVM and JRC. Since the ENHANCE project follows a risk based approach, we similarly have focused this report on (1) data and projections for different types of natural hazards (Chapter 2) and (2) trends in socioeconomic factors that influence exposure and vulnerability to the natural hazard (Chapter 3). In addition, we have specifically outlined methods to process socioeconomic scenarios (Chapter 4) and probabilistic methods (Chapter 5) to describe extreme events with a very low probability. The main objectives of this report are to: - Provide an inventory of dynamic hazard scenarios at the pan-European scale, based on existing information at JRC or other institutes; - Provide an inventory of socioeconomic data and projections in Europe as well as some global outlook projections, possibly relevant for ENHANCE; - Develop a probabilistic risk framework for identifying probabilities of extreme events in the case studies

Adaptive risk management strategies for governments under future climate and socioeconomic change: An application to riverine flood risk at the global level

Climate-related disaster risks pose a threat to sustainable development today and in the future. Major global agendas, such as the Sendai Framework for Disaster Risk Reduction and the Sustainable Development Goals, address ways of developing effective management strategies for tackling such risks. Risk management is increasingly focusing on low probability but high impact events, next to the more traditional attention on expected losses. We focus on urban riverine flood risk across 200 countries for today, 2030, and 2080, and develop a risk-threshold approach for identifying whether a country is exposed to risk of extreme events and, if so, when and how much. Furthermore, we apply a risk-layer approach to delineate the kinds of risk reduction or financing instruments that may be needed to manage emerging risks at the national level. Based on these country-level results, we analyze the macroeconomic consequences of setting up a global fund as one international option for coping with floods today and in the future. An additional macroeconomic analysis of different funding schemes for capitalizing the global fund provides insights into linking national risk management efforts with global efforts to manage risks. The global fund could be capitalized according to different equality principles. Our results provide an argument for an equity-based capitalization principle rather than a risk-based one, as the former makes damages at the local level a global responsibility

Bouncing Forward Sustainably: Pathways to a post-COVID World. Governance for Sustainability

The ongoing COVID-19 crisis is generating massive adverse socio-economic impacts for societies around the globe and brings many issues of relevance for ongoing sustainability transformations into the spotlight. One such issue is the role of governance for sustainability, for which COVID-19 provides encouraging as well as challenging lessons. In this background note, we draw first, tentative lessons on how COVID-19 management has been governed across levels of governance, focusing on identifying opportunities for enhancing governance for sustainability including for tackling climate change

Flood Proofing Low-Income Houses in India: an Application of Climate-Sensitive Probabilistic Benefit-Cost Analysis

Poor communities in high risk areas are disproportionately affected by disasters compared to their wealthy counterparts; yet, there are few analyses to guide public decisions on pro-poor investments in disaster risk reduction. This paper illustrates an application of benefit-cost analysis (BCA) for assessing investments in structural flood proofing of low-income, high-risk houses. The analysis takes account of climate change, which is increasingly viewed as an important consideration for assessing long-term investments. Specifically, the study focuses on the Rohini river basin of India and evaluates options for constructing non-permanent and permanent residential structures on a raised plinth to protect them against flooding. The estimates show a positive benefit-cost ratio for building new houses on a raised plinth, while the ratio is less than one for demolishing existing houses to rebuild on a raised plinth. Climate change is found to significantly affect the BCA results. From a policy perspective, the analysis demonstrates the potential economic returns of raised plinths for ‘building back better’ after disasters, or as a part of good housing design practice