IPCC_Managing Risks of Extreme Events.pdf - Climate Access

Chapter 4Changes in Impacts of Climate Extremes: Human Systems and Ecosystemsecosystem services. In short, it attempts to value the impact of thedisaster on society.Overall, measuring the many effects of disasters is problematic, prone toboth overestimation (for example, double counting) and underestimation(because it is difficult to value loss of life or damage to the environment).Both over- and underestimation can be issues in different parts of the sameimpact assessment, for example, ecological and quality of life impacts maybe ignored, while double counting occurs in the measurement of indirectimpacts. As discussed earlier in this section, most large-scale estimatesleave out significant areas of cost and are therefore underestimates.Biases also affect the accuracy of estimates; for example, the prospectof aid may create incentives to inflate losses. How disaster impacts areevaluated depends on numerous factors, such as the types of impactsbeing evaluated, the objective of the evaluation, the spatial and temporalscale under consideration, and importantly, the information, expertise,and data available. In practice, the great majority of post-disasterimpact assessments are undertaken pragmatically using whatever dataand expertise are available. Many studies utilize both partial and generalequilibrium analysis in an ‘integrated assessment’ that attempts to captureboth the bottom-up and the economy-wide impacts of disasters (Ciscar,2009; World Bank, 2010).4.5.3.2. Methods and Tools for Evaluating the Costs of AdaptationOver the last few years, a wide range of methodologies using differentmetrics, time periods, and assumptions has been developed and appliedfor assessing adaptation costs and benefits. However, much of theliterature remains focused on gradual changes such as sea level rise andeffects on agriculture (IPCC, 2007). Extreme events are generallyrepresented in an ad hoc manner using add-on damage functions basedon averages of past impacts and contingent on gradual temperatureincrease (see comment in Nordhaus and Boyer, 2000). In a review ofexisting literature, Markandya and Watkiss (2009) identify the followingtypes of analyses: investment and financial flows; impact assessments(scenario-based assessments); vulnerability assessments; adaptationassessments; risk management assessments; economic integratedassessment models; multi-criteria analysis; computable generalequilibrium models; cost-benefit analysis; cost effectiveness analysis;and portfolio/real options analysis.Global and regional assessments of adaptation costs, the focus of thissection, have essentially used two approaches: (1) determining thepure financial costs, that is, outlays necessary for specific adaptationinterventions (known as investment and financial flow analyses); and(2) economic costs involving estimating the wider overall costs andbenefits to society and comparing this to mitigation, often usingIntegrated Assessment Models (IAMs). The IAM approach leads to abroader estimate of costs (and benefits) over long time scales, butrequires detailed models of the economies under study (UNFCCC,2007). One way of measuring the costs of adaptation involves firstestablishing a baseline development path (for a country or all countries)with no climate change, and then altering the baseline to take intoaccount the impacts of climate change (World Bank, 2010). Then thepotential effects of various adaptation strategies on development orgrowth can be examined. Adaptation cost estimates are based onvarious assumptions about the baseline scenario and the effectivenessof adaptation measures. The difference between these assumptionsmakes it very difficult to compare or aggregate results (Yohe et al.,1995, 1996; West et al., 2001).An example illustrating methodological challenges comes from agriculture,where estimates have been made using various assumptions aboutadaptation behavior (Schneider et al., 2000). These assumptions aboutbehavior range from the farmers who do not react to observed changes inclimate conditions (especially in studies that use crop yield sensitivity toweather variability) (Deschênes and Greenstone, 2007; Lobell et al., 2008;Schlenker and Lobell, 2010), to the introduction of selected adaptationmeasures within crop yield models (Rosenzweig and Parry, 1994), to theassumption of ‘perfect’ adaptation – that is, farmers have complete or‘perfect’ knowledge and apply that knowledge in ways that ensureoutcomes align exactly with theoretical predictions (Kurukulasuriya andMendelsohn, 2008a,b; Seo and Mendelsohn, 2008). Realistic assessmentsfall between these extremes, and a realistic representation of futureadaptation patterns depends on the in-due-time detection of the climatechange signal (Schneider et al., 2000; Hallegatte, 2009); the inertia inadoption of new technologies (Reilly and Schimmelpfennig, 2000); theexistence of price signals (Fankhauser et al., 1999); and assessments ofplausible behavior by farmers.Cost-benefit analysis (CBA) is an established tool for determining theeconomic efficiency of development interventions. CBA compares thecosts of conducting such projects with their benefits and calculates thenet benefits or economic efficiency (Benson and Twigg, 2004). Ideally CBAaccounts for all costs and benefits to society including environmentalimpacts, not just financial impacts on individual businesses. All costsand benefits are monetized so that tradeoffs can be compared with acommon measure. The fact that intangibles and other items that aredifficult to value are often left out is one of the major criticisms of theapproach (Gowdy, 2007). In the case of disaster risk reduction (DRR)and adaptation interventions, CBA weighs the costs of the DRR projectagainst the disaster damage costs avoided. While the benefits createdby development interventions are the additional benefits due to, forexample, improvements in physical or social infrastructure, in DRR thebenefits are mostly the avoided or reduced potential damages and losses(Smyth et al., 2004). The net benefit can be calculated in terms of netpresent value, the rate of return, or the benefit-cost ratio. OECDcountries such as the United Kingdom and the United States, as well asinternational financial institutions such as the World Bank, AsianDevelopment Bank, and Inter-American Development Bank, have usedCBA for evaluating disaster risk management (DRM) in the context ofdevelopment assistance (Venton and Venton, 2004; Ghesquiere et al.,2006) and use it routinely for assessing engineering DRM strategiesdomestically. CBA can be, and has been, applied at any level from theglobal to local (see Kramer, 1995; Benson and Twigg, 2004; Venton and267