IPCC_Managing Risks of Extreme Events.pdf - Climate Access

Chapter 6National Systems for Managing the Risks from Climate Extremes and DisastersTable 6-2 | Government liabilities and disaster risk. Modified from Polackova Brixi andMody (2002).LiabilitiesExplicit: Governmentliability recognized bylaw or contractImplicit: A ‘moral’obligation of thegovernmentDirect: obligation inany eventForeign and domesticsovereign borrowing,expenditures by budget lawand budget expendituresFuture recurrent costs ofpublic investment projects,pensions, and health careexpenditureContingent: obligation ifa particular event occursState guarantees for nonsovereignborrowing andpublic and private sectorentities, reconstruction ofpublic infrastructureDefault of sub-nationalgovernment as public orprivate entities provide disasterreliefConsequently, a risk-neutral stance in dealing with catastrophic risk(implying that the consideration of risk broadly in terms of means – thestatistical expectation – is sufficient) may not be suitable for exposeddeveloping countries with limited diversification of their economies orsmall tax bases. Accordingly, assessing and managing risks over thewhole spectrum of probabilities is gaining momentum (Cardenas et al.,2007; Cummins and Mahul, 2009). As the Organization of American Statessuggests: “Government decisions should be based on the opportunitycosts to society of the resources invested in the project and on the lossof economic assets, functions and products. In view of the responsibilityvested in the public sector for the administration of scarce resources,and considering issues such as fiscal debt, trade balances, incomedistribution, and a wide range of other economic and social, andpolitical concerns, governments should not act risk-neutral” (OAS,1991). Also, in more developed economies, less-pronounced but stillconsiderable effects imposed by events linked to climate variability canbe identified. This has been shown by the Austrian political and fiscalcrisis in the aftermath of large-scale flooding that led to billions ofEuros in losses in 2002 (Mechler et al., 2010).Budget and resource planning for extremes is not an easy proposition.Governments commonly plan and budget for direct liabilities, that is,liabilities that manifest themselves through certain and annually recurrentevents. Those liabilities are of explicit (as recognized by law or contract),or implicit nature (moral obligations) (see Table 6-2). Yet, governmentsare not good at planning for contingencies even for probable events, letalone improbable events. Explicit, contingent liabilities deal with thereconstruction of infrastructure destroyed by events, whereas implicitobligations are associated with providing relief – commonly consideredas a moral liability for governments (Polackova Brixi and Mody, 2002).In many countries, governments do not explicitly plan for contingentliabilities, and rely on reallocating their resources following disastersand raising capital from domestic and international donations to meetinfrastructure reconstruction needs and costs.More recently, some developing and transition countries that face largecontingent liabilities in the aftermath of extreme events and associatedfinancial gaps have begun to plan for and consider contingent naturalevents (also see Section 6.5.3). Mexico, Colombia, and many Caribbeancountries now include contingent liabilities in their budgetary processand eventually even transfer some of these risks (Cardenas et al., 2007;Linnerooth-Bayer and Mechler, 2007; Cummins and Mahul, 2009; seeBox 6-3). Similarly, many countries have also started to focus onimproving human development conditions as an adaptation strategy forclimate change and extreme events, particularly with the help ofinternational agencies such as the World Bank. These deliberations areReduceVulnerabilityReduce RisksReduce Hazardsand ExposureRisks AcceptanceThresholdPool, Transfer, andShare RisksManage Residual Risks and UncertaintiesPrepare andRespond EffectivelyIncrease Capacity toCope with “Surprises”• Poverty reduction• Health improvements• Access to services andproductive assetsenhanced• Livelihood diversification• Access todecisionmakingincreased• Community securityimproved• Mainstream riskmanagement intodevelopment processes• Building codes andretrofitting• Defensive infrastructureand environmentalbuffers• Land use planning• Catchment and otherecosystem management• Incentive mechanismsfor individual actions toreduce exposure• Mutual and reservefunds• Financial insurance• Social networks andsocial capital• Alternative forms ofrisk transfer• Early warning andcommunication• Evacuation plan• Humanitarian: reliefsupplies• Post-disaster livelihoodsupport and recovery• Flexibility indecisionmaking• Adaptive learning andmanagement• Improved knowledgeand skills• Systems transformationover timeFigure 6-3 | Complementary response measures for observed and projected disaster risks supported by respective institutional and individual capacity for making informed decisions.361