Transcript The Economics of Climate Adaptation (ECA) Methodology
The Economics of Climate Adaptation (ECA) Methodology: Application and a Case Study of New York City
Megan E. Linkin
1
, Mark D. Way
1
, David N. Bresch
2
and Lea Mueller
2
Presented at the US-UK Workshop on Climate Change Adaptation Georgia Tech, February 2014
1 Swiss Re America Holding Company, Armonk, NY 2 Swiss Reinsurance Company Ltd., Zurich, Switzerland
Introduction
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Our interest in weather, climate and modeling
• Natural catastrophe risk is the core driver of the property reinsurance business.
• Our core business is natural catastrophe oriented – It is important for us to understand risk completely as possible • The historical record does not provide a large enough sample of events to determine true or future hazard.
– Must rely on simulations of physically possible events not in the historical record to understand risk landscape • Real non-life premium growth in emerging markets expected to be near 8% in 2014 (Swiss Re).
– Enhanced understanding of extreme weather events in areas historically under-observed • Climate change alters to the risk landscape through a variety in potential shifts in the frequency and severity of events dependent upon hazard and region.
– Without shifts in storm frequency, sea level rise alone will change coastal flood probabilities • Increasing demand for parametric insurance products which settle on event, not loss, characteristics.
– Near real time deterministic model simulation is an event settlement option M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 3
Weather-Related Economic and Insured Losses 1970-2012 (2012 USD)
Source: Swiss Re Economic Research and Consulting • Upward trend in magnitude of annual losses – Between 1970 and 1979, the annual average economic loss was USD 6.4 billion – Between 2000 and 2012, the annual average economic loss was USD 105.5 billion • Increasing gap between total economic loss and insured loss – Between 1970 and 1979, 54% of the total loss was covered by insurance – Between 2000 and 2012, 37% of the total loss was covered by insurance M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 4
Cities at Risk Swiss Re's
Mind the Risk
report
• Currently, 1.7 billion people (25% of global population) reside in major metropolitan areas • Major cities contribute USD 34 trillion, or 50%, to the global GDP.
• New York City: Most storm-surge exposed US city, with 1.1 million people potentially affected by an extreme storm surge event.
• The UN estimates that by 2050, 6.3 billion people will reside in cities.
• High emissions scenarios from the IPCC AR5 predict a global sea level rise of 52-98 cm.
– Increased sea level will change the frequency of floods and storm surges.
• Therefore, it is imperative that cities, states and nations globally understand the risk posed by natural catastrophes, how the risk landscape will change under climate change and take the necessary steps to protect infrastructure, physical structures and citizens.
Source: Swiss Re Catnet M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 5
Economics of Climate Adaptation (ECA) Comprehensive Risk Assessment, from Hazard to Cost
• Assess total climate risk – Today's climate risk – Future climate change scenarios • Using Swiss Re's proprietary catastrophe models, current and future hazards are translated to economic loss potential • Various resiliency strategies can be implemented to demonstrate savings of each measure considered.
• Powerful tool to allow decision makers to understand current and future risk and benefit of long term action M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 6
Swiss Re's proprietary model considers four elements that determine natural catastrophe loss potential
Hazard
How often / how strong?
Example Hurricane “Charley” Aug 2004 Vulnerability
How well built and protected?
Value distribution Cover conditions
What exactly is covered ... where... and how?
Sums insured Cover limits Deductibles Exclusions etc. M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA
The working group studied 18 regions with diverse climate hazards
U.K. / Hull
New York China
North, Northeast
US Gulf coast
Florida
India Maharashtra
Anguilla, Bermuda, Barbados , Jamaica, Antigua and Barbuda, St. Lucia, Dominica Samoa Samoa
www.swissre.com/climatechange Economics of Climate Adaptation (ECA) Working Group, a partnership between the Global Environment Facility, McKinsey & Company, Swiss Re, the Rockefeller Foundation, ClimateWorks Foundation, the European Commission, and Standard Chartered Bank.
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The City of New York: A Case Study
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Hurricane Sandy Facts and figures: Loss Estimates
Source: AON Benfield, PCS, FEMA M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 10
The Aftermath of Superstorm Sandy New York
According to government officials: • Residential damage is estimated at USD 9.7 billion, with over 100 homes burned in Breezy Point.
Breezy Point, NY – October 30, 2012 Source: New York Daily News • The MTA sustained USD 5 billion in damage and lost revenue, with the South Ferry – Whitehall St. station requiring USD 600 million to repair. • Historic Rye Playland lost its log flume ride and estimates USD12 million in damages.
• Total damages in New York City estimated at USD 19 billion.
– USD 13 billion in physical damage – USD 6 billion in lost economic productivity M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA
The Aftermath of Superstorm Sandy New York
According to government officials: • Residential damage is estimated at USD 9.7 billion, with over 100 homes burned in Breezy Point.
Breezy Point, NY – October 30, 2012 Source: New York Daily News • The MTA sustained USD 5 billion in damage and lost revenue, with the South Ferry – Whitehall St. station requiring USD 600 million to repair. • Historic Rye Playland lost its log flume ride and estimates USD12 million in damages.
• Total damages in New York City estimated at USD 19 billion.
– USD 13 billion in physical damage – USD 6 billion in lost economic productivity M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA
The NYC Special Initiative for Rebuilding and Resiliency (SIRR)
• Created by Mayor Michael Bloomberg to address how to create a more resilient New York City in the wake of Hurricane Sandy, with a long-term focus on preparing for and protecting against the impacts of climate change • A final report, released in June, presents actionable recommendations both for rebuilding the communities impacted by Sandy and increasing the resilience of infrastructure and buildings citywide.
Source: Iwan Baan Photography M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 13
The Economics of Climate Adaptation Methodology for the City of New York
• Hurricane models: Swiss Re has built a probabilistic tropical cyclone model based on robust historical data. Swiss Re uses data from the National Hurricane Center that includes nearly 1,200 observed tropical storms and hurricanes in the Atlantic Basin between 1891 and 2008. • Climate change scenarios: The City provided Swiss Re with guidance on projected sea level rise in the 2020s and 2050s, based on work of the New York Panel on Climate Change (NPCC). Specifically, the City instructed Swiss Re to assume of sea level rise by the 2020s, and the 2050s, based on the NPCC’s climate projections. In addition, Swiss Re adjusted the future frequency of different categories of hurricanes (tropical storm through category 5) based on academic research.
• City-level asset and economic activity: The consultants worked closely with City agencies to develop a working model of asset value divided into several categories, including, among other things, buildings, transportation, telecommunications, and utilities. These asset values were further broken down by zip code as was the city’s economic activity (gross city product).
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Swiss Re's Probabilistic Tropical Cyclone Model
• • • • • • Swiss Re uses HURDAT Best Track data set from National Hurricane Center in Miami (includes all tropical cyclones in Atlantic Basin between 1851 and 2008) Each historical track perturbed 199 times via direct random walk process 200 tracks result in a track set containing 223,400 tropical cyclones Holland model, coupled with a roughness layer, produces a wind field for each track SLOSH model, coupled to a digital elevation model, calculates storm surge for each track, using atmospheric pressure, forward speed, size, angle of landfall, and track data Approach did not consider Nor’easters M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 15
Results Loss Frequency Curve
Quantity 2013
USD 19 billion 70 years
2020s
60 years
2050s
50 years 70 year return period loss USD 19 billion USD 35 billion USD 90 billion Source: A Stronger, More Resilient New York M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 16
Results Annual Expected Loss (AEL)
Source: A Stronger, More Resilient New York • Average annual impact to assets and GDP • Some years will have a single or multiple large losses, other years will be zero.
• Today: USD 1.7 billion • 2050s: USD 4.4 billion – USD 1.5 billion from sea level rise – USD 1.2 billion from changes in storm frequency M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 17
Results Annual Expected Loss by ZIP code
• Source: A Stronger, More Resilient New York Current drivers of loss: east and south shores of Staten Island, southern Brooklyn and Queens, Brooklyn and Queens waterfront and southern Manhattan.
• Under future scenarios: Same geographic regions, plus northern Queens and the Bronx • Under 2050s scenario: 400% increase in ZIP codes which have an AEL of USD 30 million M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 18
Results Cost-Benefit Analysis
• Model can be used to assess the financial savings from various mitigation efforts.
• Combining the modeled savings with cost estimates can provide helpful guidance for decision makers when selecting which efforts to focus on.
• NYC decided to focus on efforts where the cost-benefit ratio was less than 2.
Source: A Stronger, More Resilient New York M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 19
Concluding Thoughts
• Increases in population in urban areas requires cities have a comprehensive understanding of risks posed by the current climate.
• Climate change is set to alter the risk landscape, and these changes coupled with a continually growing population, necessitates planning for future risks today.
• The ECA methodology developed by Swiss Re provides policy makers and decision makers with an end to end risk analysis, from hazard to costs.
• The ECA methodology was successfully deployed for the City of New York, and played an important role in shaping the City's fortification and rebuilding plans.
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Thank You
For more information regarding the ECA studies and the
Mind the Risk
report, please visit http://www.swissre.com/rethinking/climate_and_natural_disaster_risk/ To read the SIRR report
A Stronger, More Resilient New York
, please visit http://www.nyc.gov/html/sirr/html/report/report.shtml
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