UK Adaptation and Risk-Adjusted Full Value as a Memory Aid

by | Jul 7, 2013 | Uncategorized

What is meant by the resiliency of infrastructure? The UK government has done some thinking in this area with reports on making infrastructure resilient to climate-related risks and I highlight some key items from these reports in this post.

As I explained in another post, what people forget and have to be reminded of, either by news, or events is how likely bad things are to happen and what the consequences will be. We can’t rely on natural disasters or news of advances in scientific evidence to jog people’s memories and get them to open up their wallets to spend on adaptation. So how do we make the case for resilient infrastructure?

Resilient infrastructure is, from this economist’s point of view, a risk mitigation or insurance policy – it involves building redundant infrastructure – just in case. How does the cost of the resilient infrastructure insurance premium stack up against the benefits? What is needed is a forward-looking view of the value of infrastructure that includes its ability to withstand climate risks.

“uncertainty should not be a reason for not acting. It is about examining the potential risks and taking proportionate adaptation action depending on the infrastructure asset.”[1]

One suggestion is to look at the full value that infrastructure brings, in fair weather and foul. This amounts to building a case for the insurance that resiliency brings. Infrastructure proponents have to spend time identifying and quantifying the benefits of risk avoidance or mitigation.

The UK’s National Adaptation Programme

The UK government suggests investors “pull” and infrastructure owners “push” for integration of climate risk into the design and financing of infrastructure projects.

“Infrastructure operators could undertake further information gathering and research to allow them to identify and model their own context specific risks.”[2]

It recommends that investors incorporate climate change impacts in due diligence processes and demand greater disclosure of climate risk and adaptation action by infrastructure organizations. And it suggests that infrastructure owners and operators can: embed adaptation in its decision-making and consider climate change impacts in design, build and operation of new infrastructure.

The business case for redundancy and resiliency:

“future climate and economic circumstances are uncertain, and with uncertainty comes risk that needs to be accounted for. Through good risk management, organisations can become more resilient and potentially gain economic benefit. It has been estimated that, in the wider European context, every £1 spent on adaptation represents 4 times its value in potential damages avoided[3].”

Making the case for resiliency investments through quantifying risks is an important first step. There are tough issues that need to be addressed when quantifying the benefits of resiliency. One such problem is that infrastructure joins modern economies and when it fails it has ripple effects because it is so connected. Each infrastructure sector depends on the resiliency in other sectors.

“A modern, efficient, networked infrastructure creates interdependencies within and between infrastructure in the energy, ICT (information and communications technologies), transport and water sectors. … The impacts of climate change will mean interdependencies and vulnerabilities will be more evident, e.g. availability of cooling water for an inland power station may be reduced, affecting its ability to generate electricity.”

Infrastructure projects must make the case for resiliency. Investors need to demand climate risk be accounted for. Designers need to model adaptation. And the interdependencies of the risks need to be taken into account. With that we can forget less, plan for the long-term and be more prepared and our infrastructure can become resilient.

[1] Ibid.

[2] Op. Cit.

[3] The National Adaptation Programme Making the country resilient to a changing climate July 2013 UK Government – “Calculation based on the ratio between the cost of adaptation and the difference between gross and residual damage for Europe from table 3 page 24 in de Bruin, K.C., Dellink, R.B. and Agrawala, S. (2009) ‘Economic Aspects of Adaptation to Climate Change: Integrated Assessment Modelling of Adaptation Costs and Benefits’ OECD Environment Working Papers No.6, OECD Publishing.”

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