Economic evaluation of climate change impacts

Transcription

1 Economic evaluation of climate change impacts Part of the suite of documents for the Economic of climate change North East England study Page 1 of 122

2 Foreword This is the Economic Evaluation of Climate report, which provides one of the key outputs from the overall study into the Economic Implications of Climate for the North East. This report should not be read in isolation, as it forms part of an integrated suite providing detailed analysis. The evidence contained within the suite of reports provides the North East of England with unprecedented intelligence of how our economy may perform both in terms of the challenges it faces and the opportunities presented from the physical impacts of a changing climate and existing and emerging greenhouse gas emissions regulation. The was commissioned in March 2009 and builds on intelligence derived from other research and tools at a national and North East England scale. The primary objective is to provide a robust and comprehensive evidence base on the implications of climate change for the North East England economy. The study provides sound underpinning evidence to allow the development of coherent and robust measures and policy to address risks and exploit the opportunities presented by climate change and the move to a low carbon economy. It is not intended to describe or recommend individual measures or policy. Due to the reach of the work undertaken, identification of impacts and opportunities is limited to those defined as economically significant for the North East of England Considerable scope is available for interventions beyond these areas to offset identified risks and exploit a myriad opportunities as we move toward a resilient and low carbon economy. Identification of these falls beyond the remit of this study, as noted by Andrew Sugden, Director of Membership & Policy at the North East Chamber of Commerce: The study clearly indicates that failing to adapt and build resilience will hinder our ability to realise the economic opportunities presented by the move to a low carbon economy. While the data from the study is important, to capitalise fully on the economic potential identified we now need North East businesses to bring their considerable acumen and entrepreneurial skills to bear and begin to develop and exploit the genuine commercial opportunities that tackling and responding to climate change can present. This report shows what is at stake for the economy of the North East of England from the issues around climate change and variability, and the wide scope of work needed to secure the opportunities. Mark Goldthorpe, UK Climate Programme The green economy offers enormous potential to North East England. There is no doubt that moving to a low-carbon and resilient economy offers significant commercial opportunities. I believe that ClimateNE is invaluable in supporting businesses to achieve this ambition. This issue Economic is now Implications central of to Climate the extent that it North is no East longer Study the green agenda or the climate change agenda. This is the business agenda. James Ramsbotham, Page 2 of North 122 East Chamber of Commerce

3 Contents Executive summary Introduction Aims Approach, data gaps and uncertainties Climate science meets economic analysis Structure of the report 10 2 Economic assessment methodology Introduction The economic cost of adapting to climate change Theory vs. practice Economic assessment methodology Regional climate change risk assessment: climate effects Regional climate change risk assessment: climate impacts Economic analysis of non-adaptation Economic analysis of adaptation 23 3 Results Regional climate change risk assessment Economic analysis of the consequences of not adapting to likely climate change impacts Economic sector analysis Economic analysis of adaptation 44 4 Cost-benefit assessment 47 5 Conclusions and recommendations Conclusions Recommendations 50 Appendices 52 Appendix A: UKCIP socio-economic scenario: national enterprise 52 Appendix B: climate change impacts and economic evaluation matrices 59 Appendix C: economic sector analysis: BACLIAT results 104 Appendix D: climate impact verification workshop delegates 107 Appendix E: summary economic assessment calculations 109 Appendix F: adaptation response examples 114 Appendix G: references and bibliography 118 Page 3 of 122

4 Executive summary The aim of this report is to provide an evaluation of the consequences that man-made climate change is predicted to have on the North East s economy by the year It provides one of the key outputs from the overall study into the Economic Implications of Climate for the North East and should be read in conjunction with other outputs from the study, particularly the evaluation of the impacts of activities related to the mitigation of the effects of climate change on the economy of the North East. This report is focussed on climate change adaptation. There is no recognised methodology for conducting assessments of this type and this study set out to develop a methodology that is replicable and that can be easily updated by practitioners involved in assessing and implementing adaptation at various scales, as further information becomes available. The development of the methodology was fundamentally desk based and did not involve any additional climate impact modelling or dynamic economic modelling. It uses a risk based approach to focus the economic evaluation on the most significant climate change related risks facing the North East and its success is dependent on being able to make two principal steps: 1. Quantify the magnitude of each climate change impact; and 2. Assign a monetary value to each unit of impact. The analytical framework was constrained by the following three parameters: 1. UKCIP09 Medium Emissions Scenario 2. UKCIP Socio-economic Scenario National Enterprise 3. Timeframe to 2050 The quantification of the magnitude of climate impacts on a wide range of receptors proved to be very difficult. This reflects the many knowledge gaps within the cause-effect chain between climate impact science and receptors at all spatial scales. There are also significant gaps in the available knowledge base related to the economic value of key receptors within the broadest North East context. The report describes where the costs of climate change impacts will fall on the primary economic sectors and consequently what the overall impact may be on the economy of the North East. Expected loss is expressed as Expected Annual Damage (EAD), which allows Page 4 of 122

5 for the fact that climate change impacts will not occur uniformly across time and geographies. It is an annualised average of the estimated costs in a given time period expressed in today s prices and it is important to note that a single event of significant severity could cause significantly more economic damage than the estimated EAD. A simplistic cost benefit analysis of the costs of climate change adaptation versus the costs to the North East of not adapting (i.e. impact costs) is also included. It is important to note that the risks and economic costs identified within this study are the minimum that the North East could be facing by The climate change effects and associated significant impacts for which costs were able to be estimated were: 1. Increased extreme rainfall events, leading to increased flooding; and 2. Increased frequency of heat waves leading to overheating. The following climate change effects and associated significant indirect impacts could not be quantified with any degree of accuracy for this first iteration, so were not taken forward for economic evaluation. However, it is recommended that these climate effects are researched and quantified as they could have significant economic implications for the North East. 1. Increased marine temperatures leading to impacts on marine biodiversity and ecosystem health e.g. decline in commercial fishery stocks; 2. Increased average seasonal temperatures leading to impacts on biodiversity e.g. changes to key upland economic habitats and species; 3. Increased average seasonal temperatures leading to impacts on land/soil quality e.g. potential changes to agricultural yields and land productivity; 4. Increased average seasonal temperatures leading to increased weeds, pests and disease (non-human) e.g. changes to ecosystem health and resilience. Based on the significant impacts for which costs could be estimated, the total Expected Annual Damages (EAD) of climate change impacts without adaptation is approximately 600m per annum for the North East. However, this estimate only includes the impacts that have been quantified and therefore represents a partial estimate of the full cost of climate change impacts for the North East. This figure comprises the economic costs of flooding for the region, estimated to be around 560 million per annum and for overheating events, estimated to be 31 million per annum. Page 5 of 122

6 The adaptation costs are estimated at around million per annum, giving a benefit cost ratio of 7 to 1. The climate change impacts that were valued economically mainly included those associated with public health, property and infrastructure damage. It is also important to be aware of the impacts that have not been estimated but will nevertheless be significant. These include the less tangible impacts and wider spatial impacts that may fall outside the North East but will still affect the economy e.g. energy costs and security of supply, food prices, damage to global ecosystem services, impact on external markets affecting import and export conditions, shifts in tourism and migration patterns. The range of economic impacts that have not been estimated explains in part the difference between the EAD estimation above and that implied for the North East by applying pro-rata global estimates using integrated assessment models. For example, the IPCC 2007 estimate of 3 per cent of GDP and Stern s 2006 estimate (market impacts only) of 5 per cent of GDP, which equate to around 1,200 million and 2,000 million respectively are clearly much high than this study s estimate, based on quantifiable impacts, of 600 million. The report draws some important conclusions and recommendations from the analysis: 1. Damage as a consequence of increased occurrence and severity of weather events, e.g. flooding, will lead to the most significant costs to the North East s economy by far. 2. The economic costs will result as a function of direct damage to property, agricultural land and infrastructure and indirect damage and disruption to businesses. Moreover, there will be additional indirect costs owing to fatalities and the long-term negative impacts on the well-being of those affected by flooding damage. 3. The cumulative economic impacts from a range of other climate change effects such as damage to ecosystems, reduced agricultural productivity and impacts on human health as a function of increased average temperatures, extreme overheating events and increased seasonality of rainfall could equal or exceed the economic impacts from flooding, but they are difficult or impossible to quantify with any degree of certainty based on current research and available data. 4. Not adapting will increase the risk of climate impacts impeding the North East s ability to realise opportunities and will have a detrimental effect on the areas identity and sense of place. 5. Estimates of annual damage have been made on the basis of the UKC09 medium GHG emissions scenario and are the bare minimum expected up to Page 6 of 122

7 6. While the estimated annual damage costs are high it is important to note that the economic impacts of climate change in the North East are likely to be less than in other areas of the UK. 7. The cost benefit effect of early adaptation across and within all economic sectors in the North East, delivered through improved governance structures, will reduce the estimated annual damage to ensure the North East s economy is more resilient and thus able to maintain a competitive advantage over other areas. 8. There are double opportunities that can accrue from joint consideration of mitigation and adaptation action, such as retro-fitting homes for energy efficiency and climate change resilience, flood management and construction and flood management and land management. 9. As with any approach that is reliant on input data, the quality and accuracy of the final output analysis depends on the quality of this data. Further primary research in the North East should develop and collate datasets on the magnitude of climate change related impacts and their monetary valuation. The challenge for decision makers is to use the outputs from this study and from the mitigation study to catalyse mutually supporting and effective climate change adaptation and mitigation responses beginning with integrated policy making, throughout all tiers of governance and within the key economic, social and environmental receptors who are most at risk. Page 7 of 122

8 1. Introduction 1.1 Aims The aim of this report is to provide an evaluation of the consequences that man-made climate change is predicted to have on the North East s economy by the year It provides one of the key outputs from the overall study into the Economic Implications of Climate for the North East and should be read in conjunction with other outputs from the study, particularly the evaluation of the impacts of activities related to the mitigation of the effects of climate change on the region s economy. This report is focussed on climate change adaptation. There is no recognised methodology for conducting assessments of this type and this study set out to develop a methodology that is replicable and that can be easily updated by practitioners involved in assessing and implementing adaptation at various scales, as further information becomes available. The report describes where the costs of climate change impacts will fall on the primary economic sectors and consequently what the overall economic impact may be for the North East. A simplistic cost benefit analysis of the costs of climate change adaptation versus the costs to the North East of not adapting (i.e. impact costs) is also included. 1.2 Approach, data gaps and uncertainties It is important to recognise and understand from the outset the extent of knowledge gaps and uncertainties that have been encountered at each stage of developing the methodology and its application to provide the economic evaluation. The methodology uses a risk based approach to focus the economic evaluation on the most significant climate related risks facing the North East. The costing of a specific climate change impact is dependent initially on quantifying the magnitude of the impact and then assigning an appropriate monetary value to that impact; this is fraught with uncertainty. World leading climate science (e.g. UK Climate Projections 09) provides a good understanding of how the future climate of the North East will differ from the climate today, but there are significant gaps in the understanding of how changes in climate parameters will translate into specific impacts on a range of receptors. These knowledge gaps widen when attempts are made to convert a broad-order climate impact (e.g. flooding) into its constituent parts or indirect impacts (e.g. damage to property and disruption to services) and widens again in trying to quantify the magnitude of each indirect impact. Moreover, the knowledge gap becomes a chasm when attempts are made to Page 8 of 122

9 assign a relevant cost to each impact. This is an international and national issue, not one that the North East faces alone. 1.3 Climate science meets economic analysis Whilst this report provides the results of a sound and transparent analysis for the UK s first regional economic evaluation of climate change impacts, it is as much a document that describes a multi-disciplinary research project that has provided many valuable lessons that must be shared. Fundamentally the report tells a story of the uncomfortable marriage of climate change science with economic analysis at the regional scale. It is a document written neither for climate scientists nor for economists; rather it is aimed at regional decision makers who have to draw on both areas of knowledge and evidence to decide courses of action. In other words, this report is for policy makers who require a sound evidence base that not only recognises and captures the uncertainties and knowledge gaps, but also provides useful intelligence, in order to stimulate the development of effective and long-term regional resilience in response to the threats and opportunities of climate change facing us all. 1.4 Structure of the report Following this introduction: Section 2 Section 3 Section 4 Section 5 Describes the methodology used for the economic evaluation and climate change impact assessment. It includes a detailed description of each key stage within the overall cost benefit analysis and the various tools that were used within the methodology. Contains a summary of the climate change impact assessment and presents the economic evaluation of non-adaptation and the economic analysis of adaptation. The full climate change impact assessment is provided in the Appendices. Draws on the results from Section 3 to present a simple cost benefit analysis and discusses the adaptation response required for the region, including timings and the scale of intervention. Draws together the key messages and findings from the report in conclusions and recommendations Page 9 of 122

10 All summary calculations, project databases and references are contained within the Appendices. Key points are highlighted in red boxes and recommendations for further work made throughout the report and subsequently drawn together in Section Economic assessment methodology 2.1 Introduction This section describes how the costs of climate change adaptation are built-up in simple terms, explains some of the uncertainties associated with economic assessments of this nature and explains Arup s methodology used for the economic evaluation and climate change impact assessment. It includes a detailed description of each key stage within the overall cost benefit analysis and the various tools that were used and developed within the methodology. The economic assessment methodology has been developed to estimate the cost of climate change adaptation and non-adaptation for the North East. The methodology aims to be replicable and applicable by practitioners involved in assessing and implementing adaptation at the regional scale. 2.2 The economic cost of adapting to climate change The economic cost of adapting to climate change is essentially the cost of undertaking adaptation actions, both pre-emptive (to avoid adverse effects) and reactionary (in response to a climate related event), plus the residual costs associated with not adapting: Economic cost of adapting to climate change = Cost of climate change impacts (without adapting) + Cost of adapting - Value of damage avoided through adapting (i.e. residual impacts) It follows that initially it is necessary to understand and calculate the cost of climate change without adaptation and then to assess appropriate adaptation actions and calculate their cost and level of effectiveness in reducing the economic costs of climate change impacts. In short, the key questions driving the economic assessment are: What will be the potential climate change related loss to the North East economy over the coming decades? How much of this can be averted through adaptation measures? Page 10 of 122

11 What investment will be required? and Will the benefits of that investment outweigh the costs? 2.3 Theory vs. practice In theory the overall concept and process of the economic assessment of adaptation are relatively straightforward. There are peculiarities inherent in the process, however, which in practice make it very complicated, complex and uncertain. For example, on one hand it will be virtually impossible to adapt to some climate change impacts, such as irreversible damages to natural ecosystems; on the other, however, human society will automatically and perhaps almost unconsciously adapt to some climate change consequences, particularly where the alternatives would otherwise result in larger costs from non-adaptation. An example of this could be where people start to make lifestyle changes such as changing their mode and distance of regular travel. In addition, there are many uncertainties in the climate change projections, socio-economic futures, and the climate impact science as well as the uncertainty in economic evaluation methods. The economic assessment of climate change adaptation is further complicated by the fact that effective adaptation is closely intertwined with physical and economic development, which makes it difficult for any economic assessment, both conceptually and practically, to distinguish normal development from adaptation responses. Related to this is knowledge of the value of assets at risk at some future point in time. This value will depend upon how the economy develops and will be influenced by how future generations value their assets. These uncertainties in combination only serve to complicate the economic assessment. Various studies, such as Stern s report (STERN, 2007) have estimated the cost of climate change at national or international scales and costs at this scale are referred to in this report as global estimates. However, comprehensive estimates of the cost of climate change at a regional scale are not available. Where regional studies do exist they are usually focussed on specific climate change impacts such as flooding and regional estimates of the costs of adaptation measures are thus very limited. This is largely because the economic analysis of climate change adaptation is generally a new research area and no standard methodology to assess overall costs has yet emerged. Moreover, data limitations make assessments complicated and difficult to undertake. An understanding of the cost of non-adaptation and of adaptation options, including institutional and policy changes required to deliver effective adaptation, however, is crucial to allow decision makers to prioritise the most effective adaptation strategies at all spatial and governance scales. Page 11 of 122

12 2.4 Economic assessment methodology Assessment framework To link the cause and effect of climate change with the economic evaluation the first key step was to develop an assessment framework. Essentially, the cause-effect-evaluation chain, see Figure 2.1, started with the identification of the climate change effect (e.g. increased heat wave frequency). This effect was then converted into direct impact(s) (e.g. overheating) and then broken down again into the most obvious indirect impacts that will result (e.g. increased heat related mortality and increased heat related morbidity). Where possible, using available data, the magnitude of each indirect impact was then quantified and then a criterion based test (described below) applied to identify the most significant impacts. The most significant impacts were then taken forward for economic evaluation. Figure 2.1 Cause--Evaluation Chain Once the assessment framework, or cause-effect-evaluation chain, was set up, the economic evaluation process was relatively straight forward and can be described as an accounting approach, as opposed to formal econometric modelling (which is the type of assessment model used in global studies). The accounting approach is, however, restricted by the need to obtain data that: a. Quantifies the magnitude of physical impacts; and b. Subsequently enables the monetary valuation of these impacts. It is important to note that the methodology did not involve any additional climate impact modelling or dynamic economic modelling. Essentially the methodology was desk-based and relied on available existing data and references; no new primary research was undertaken. In addition, the methodology is restricted to assessing climate change impacts within the North East and on its economy. Inter-regional and/or national, international climate change impacts and their potential effects are only considered via a qualitative assessment during the economic sector analysis. Page 12 of 122

13 As with any approach that is reliant on input data, the quality and accuracy of the final analysis depends on the quality of this data. Further research in the North East should continue to develop and collate datasets for the magnitude of climate change related impacts and their monetary valuation Sequential tasks With the assessment framework, or cause-effect-evaluation chain, clearly established, the assessment methodology was then developed to support each of the key steps in the chain. This consisted of the following sequential tasks, summarised here and explained in more detail below: Climate change effect Updating the regional climate change risk assessment Direct impacts, indirect impacts, magnitude and significance test Obtaining data on the occurrence/severity and physical consequences of regional severe weather events Economic evaluation Obtaining economic costs relative to the physical impact of historical severe weather events; Producing costs of non-adaptation for specific weather events by applying the UKCIP costing methodology (i.e. to estimate magnitude of expected loss); Describing and selecting adaptation options; Estimating the cost of adaptation related to the climate risk assessment and predicted impacts; Qualifying and analysing economic sector impacts using the UKCIP Business Areas Climate Assessment Tool (BACLIAT); and Comparing the costs of adaptation against the benefits of adaptation. In summary, the economic evaluation is split into three inter-related stages, as shown in Figure 2.2: 1. Climate change risk assessment effects and impacts 2. Economic evaluation - analysis of non-adaptation 3. Economic evaluation - analysis of adaptation Page 13 of 122

14 Page 14 of 122 Figure 2.2 Economic assessment methodology

15 2.4.3 Analysis of main economic sectors Although the main economic assessment considers the costs of adaptation and non-adaptation on North East GVA, understanding which sectors and what elements of these sectors the impacts of climate change are likely to fall on is a fundamental requirement if there is to be an increase in the building of economic resilience through effective adaptation. It was important, therefore, to perform some analysis of the North East s primary economic sectors in addition to the evaluation of effects on GVA. To assist with the identification of climate impact risks or hot spots within the North East s main economic sectors, the UKCIP s Business Areas Climate Assessment Tool (BACLIAT) was used. The BACLIAT tool provides a simple checklist for organisations to assess the potential impacts of climate change either on their business or on an entire business sector. It recognises that a changing climate affects all business areas, and not just the more obvious ones of product design or service delivery. It encourages a comprehensive assessment, by inviting consideration of the opportunities as well as the threats from a changing climate, under the following headings: Markets: changing demand for goods and services. Finance: implications for investment, insurance and stakeholder reputation. Logistics: vulnerability of supply chain, utilities and transport arrangements. Premises: impacts on building design, construction, maintenance and facilities management. People: implications for workforce, customers and changing lifestyles. Process: impacts on production processes and service delivery. These headings are termed business areas in this study. It is also important to note that whilst a standard BACLIAT assessment considers general climate impacts such as warmer summers and wetter winters on these business areas, particular North East impacts have been developed for this study. This qualitative BACLIAT analysis for each economic sector is described in Section 3 and is summarised in Figure 2.3. Page 15 of 122

16 Figure 2.3 Economic Sector Analysis Methodology Figure 2.3 Economic Sector Analysis Methodology 2.5 Regional climate change risk assessment: climate effects Coming back to the regional economic assessment, as noted above the first stage involved understanding the climate effects and updating the regional climate change risk assessment. This initial stage of the economic assessment methodology used data sources from existing climate projections to identify the climate change effects that are predicted to occur for the North East during the 21st Century. These projections were then used in association with the regional climate change risk assessment to identify what the most significant climate impacts will be for the North East. Two primary sources of climate projections are available for the region and were used in this study: the UK Climate Projections 09 (UKCP09) and the North East England Climate Adaptation Study No other climate change projection sources were used. 1 North East England Climate Adaptation Study, Royal Haskoning, 2008 Page 16 of 122

17 2.5.1 UKCP09 Climate Projections The UK Climate Projections 09 (UKCP09) provided information on the probabilistic projections of climate change effects at various spatial and temporal scales. UKCP09 also contains supporting data on uncertainty and allowed the generation of climate change information specific to particular issues, such as sea level rise data, using the UKCP09 online User Interface. The key findings from the UKCP09 climate projections for the North East administrative region are described in Section North East England Climate Adaptation Study Published in 2008, the award-winning North East England Climate Adaptation Study was the first of its kind in the UK. It provides detailed climate projections to the year 2050 for ten representative locations within the region. These climate projections were made using the Environment Agency s Rainfall and Weather Impact Generator (EARWIG), which operates at a 5km by 5km scale of resolution. The study also reviewed the UKCIP02 climate projections for the 2050 s medium-high emissions scenario. The key findings from the North East Climate Adaptation Study climate projections for are described in Section Analytical boundaries used in the methodology Greenhouse gas emission scenario and temporal boundary To ensure broad comparability with the North East England Climate Adaptation Study and other climate impact research (such as the North East Climate and Biodiversity Study) it was important to agree a greenhouse gas emissions scenario and a temporal boundary. Figure 2.4 shows the combinations of emissions scenarios and timeslices for which UKCP09 data is available. Page 17 of 122

18 Figure 2.4 UKCP09 emissions scenarios and temporal boundaries The greenhouse gas emissions scenario and temporal boundary for the climate change risk assessment were selected as the UKCP09 Medium Emissions Scenario and the year The use of the medium emission scenario therefore effectively captures the minimum cost of climate change that will occur in the North East UK socio-economic scenarios The UK is fortunate to have readily available guidance on possible future socio-economic scenarios (SES) 2. The UKCIP s four socio-economic scenarios (see Figure 2.5) are intended to ensure that any climate change risk assessment is framed within the wider social, economic and global context. The four scenarios were developed following a review of the global futures literature, which identified the following principal elements of socio-economic change: The composition and rate of economic growth The rate and direction of technological change The nature of governance Social and political values The UKCIP s socio-economic scenarios cover a broad spectrum of potential futures and are characterised by two parameters: governance and values. 2 Socio-economic scenarios for climate change impact assessment: a guide to their use in the UK. UKCIP, Oxford, 2000 Page 18 of 122

19 For governance, the spectrum of potential futures ranges from the retention of national decision making or autonomy to absolute interdependence driven down from European policies and international frameworks. For values, it ranges from consumerism, which is dominated by the freedom of the individual, to community, where values are dominated by the common good and the individual is considered part of a collective. The UKCIP socio-economic scenarios are: National Enterprise Local Stewardship World Markets Global Sustainability Figure 2.5 illustrates the relative position of each scenario within the governance and values spectrum. Figure 2.5 UCKIP socio-economic scenarios For the purposes of this study the National Enterprise scenario was selected as the single scenario for the economic evaluation and is broadly commensurate with the medium greenhouse gas emissions scenario. A full description of this National Enterprise scenario is set out in Appendix A. To summarise, the main assumptions and analytical boundaries used for this element of the study were: National Enterprise UKCIP Socio-economic Scenario Timeframe to 2050 Page 19 of 122

20 2.6 Regional climate change risk assessment: climate impacts The North East has a strong and growing evidence base for the anticipated impacts of climate change. This evidence base has been used to update the regional climate change risk assessment in order to steer the economic evaluation. In addition, a wide range of supporting national studies, references, data and evidence were also used. The detailed regional climate change risk assessment and associated reference material form the evidence base for and are a critical part of this study. They are summarised in Section 3 and are presented in full in Appendix B North East Climate Adaptation Study The North East Climate Adaptation Study (2008) describes the risks and opportunities presented by the impacts of climate change. As noted above the study contains a detailed risk assessment of the likely climate change impacts that will affect the North East by This study formed the principal source material for the updated climate change risk assessment North East Climate Biodiversity Study The North East Climate Biodiversity Study (2009) 3 identifies the implications of climate change for biodiversity in the region. The study modelled how climate change will affect a range of selected species and habitats. The findings emphasised that species and their habitats are already being affected by climate change and that a high proportion will be at greater risk in the future Other reference material Various additional reference materials were used to inform the regional climate change risk assessment. This ranged from the scientific literature, to published studies and sector-specific research. Example references included the NHS Heatwave Plan for England (2009) and Foresight Future Flooding (2004) Significance testing and impact verification While the North East climate change impacts evidence base is robust for some impact receptors, it was important to quantify the magnitude of each particular impact. This aspect of the methodology was very challenging as the majority of the impacts identified in the evidence base were based on qualitative expert judgement. Where possible, using the evidence base and the scientific literature, the climate effects and impacts have been quantified. Each climate effect and impact was then tested for significance against the decision making criteria shown in Table North East Climate Biodiversity Study, AEA Technology, (2009) Page 20 of 122

21 Significance Rating Very High High Medium Low Very Low Decision Making Criteria Major change in climate parameter/variable Catastrophic impact Impact likely to be permanent (irreversible) Regional scale Major change in climate parameter/variable Major impact Long-term irreversible impact Regional scale Moderate change in climate parameter/variable Moderate impact Long-term impact but reversible Sub-regional scale Minor change in climate parameter/variable Minor impact Temporary Local scale No change in climate parameter/variable Limited impact Temporary Very local scale Table 2.1 significance ratings and decision making criteria The regional climate change risk assessment and significance ratings were verified at an impact verification workshop, which was attended by key stakeholders and members of the study s steering group. A list of workshop delegates is included in Appendix C. For the purposes of this study only the impacts with a very high or high significance rating were taken forward for economic assessment. Page 21 of 122

22 2.7 Economic analysis of non-adaptation Overview This stage of the economic assessment methodology linked the significant impacts identified through the climate change risk assessment and described in the impact matrices in Appendix B, to the economic analysis of climate related losses or damage. It is important to remember that any predictions of future economic damage are informed by a range of factors, such as current weather risk, asset growth and the future increase in risk from climate change. To calculate the expected loss over time, the magnitude of the climate impacts, the value of assets at risk from those impacts, and, finally, the vulnerability of those assets to climate change were assessed. Expected loss is expressed as Expected Annual Damage (EAD), which allows for the fact that climate change impacts will not occur uniformly across time and geographies. It is an annualised average of the estimated costs in a given time period expressed in today s prices and it is important to note that a single event of significant severity could cause significantly more economic damage than the estimated EAD. The climate change impacts matrices (described above) set out the likely effects and impacts of climate change in detail and provide the framework to enable these impacts to be quantified. The quantification of physical impacts then allows monetary values to be applied to a unit of physical damage, thus facilitating the assessment of the potential economic cost of non-adaptation. This approach to the economic analysis is summarised in three principle tasks: 1. Identification of the direct and indirect physical impacts 2. Quantification of the magnitude of impacts 3. Application of monetary values to estimate the overall economic cost Moreover, this approach enables potential opportunities or economic benefits from climate change to be identified, such as warmer winters leading to reductions in the number of excess deaths resulting from cold periods. Where possible the evaluations and the supporting data have been included in the matrices in Appendix B The UKCIP spreadsheet costing tool UKCIP has developed a very useful spreadsheet-based costing tool that enables the user to calculate the future economic costs of particular weather events across a range of future socio-economic scenarios. Currently this is limited to analysing flood and extreme heatrelated weather events. Page 22 of 122

23 The basics of the process are outlined below: 1. Identify the climate related event and change in future frequency and severity of event by use of climate projections data. 2. Identify receptor groups that are impacted by a) exposure to hazard and b) sensitivity to hazard. 3. Measure and quantify the impact in terms of number of units affected within the selected time-slice based on interpretation of the socio-economic scenario. 4. Determine the appropriate economic unit value or price using past studies, benchmark values, or forecast future values. 5. Estimate the cost of climate risk to the receptor group by applying future prices/values to the physical impacts. Data on historical severe weather events were used as an analogue for future events and climate change projections for the North East from the risk analysis were then used to forecast the change in severity and frequency of the analogue weather events in the future. 2.8 Economic analysis of adaptation Overview It is important to recognise that changes to the climate are already occurring and will be ongoing as a result of previous greenhouse gas emissions that are already locked-in to the global climate system. The North East already needs to implement adaptation measures to respond to these committed changes. Adaptation measures vary depending on geographical location, climate effect, the level of economic development, maturity of governance and technological ability. They can be broadly classified as follows, although these classifications are not mutually exclusive and adaptation actions can fall into more than one category: Autonomous or spontaneous adaptation: Independent adaptation by households, businesses and communities without public policy led intervention or local authority or other government led adaptation. May sometimes result from a policy decision which creates favourable conditions and leads to individuals deciding to adapt; Proactive or anticipatory adaptation and reactive adaptation: Classification depends on whether adaptation takes place before or after the impacts of climate change have been experienced; Hard and soft adaptation measures: Hard adaptation includes physical measures taken to protect against damage, such as flood defences. Soft measures are those based on behavioural change, education and information and often involve a community or personal response, like changing practices or increasing preparedness. Page 23 of 122

24 The first stage in an assessment of the costs and benefits of adaptation options is to understand climate change risks and the cost of non-adaptation, and thus where and when the adaptation response is required. This gives the basis for estimating the costs avoided and provides the benefit side of the cost-benefit equation. It is then necessary to decide the most appropriate adaptation response to climate change related impacts and when to apply it. It is also important to understand on whom the cost burdens (or benefits) of climate change impacts are likely to fall. As well as identifying the magnitude of the regional cost burden (or benefit) there is a need to predict the relative proportion that will fall on businesses, individuals or households, and/or public sector bodies with greater clarity. Predicting cost burdens will raise awareness of the financial risks (and opportunities) of climate change and should also help to provide a catalyst for the development of adaptive capacity, allowing adaptation responses to be better tailored and using the region s often scarce resources effectively. The UKCIP Business Areas Climate Assessment Tool (BACLIAT) (see Section 2) provides an excellent resource for increasing the understanding of how different economic sectors and individual businesses are likely to be impacted by climate change. This appreciation and new knowledge will assist organisations in their identification of the adaptation actions that are required. For economic sectors a large part of the adaptation response is likely to be autonomous, through a reaction to market forces or via a proactive effort to protect valuable assets. Notwithstanding the above, it is important to assess what adaptation actions the private sector could undertake independently from the public sector, how public sector climate change adaptation policies and/or investment decisions can complement the private sector s response, what adaptation measures are needed to protect critical public assets and vulnerable people and where the cost burden will fall outside of business sectors, either on individuals, households or Government. The costs for the minimum level of adaptation noted in this report is broadly commensurate with the level of adaptation required for the UKCIP medium emissions scenario used for the study. Depending on the actual trajectory of global greenhouse gas emissions (currently high, not medium) and the improvement in our understanding of the effects and impacts as a consequence of advances in climate science, however, the magnitude and hence cost of the adaptation responses required to maintain quality of life in the region may be far greater higher than those calculated in this report. Page 24 of 122

25 2.8.2 Methodology Approach and data limitations Ideally a local level or bottom-up benefit analysis would be carried out, based on regionally specific data for the costs of adaptation. Site or location specific appraisals and cost assessments would be based on locally specific data derived from local studies and the costs would be allocated to the affected economic sectors and communities. The vulnerability of any one receptor, such as people, agriculture or property, however, is not uniform across the region. Vulnerability to climate change effects varies temporally and geographically, across business sectors and as a function of demographic and socioeconomic factors, for the following reasons: Exposure: Climate impacts vary according to location e.g. flood risk. Sensitivity: There are differences in the ability of various receptors to mediate climate impacts e.g. heat-wave stress is more damaging to elderly populations than the young. Adaptive Capacity: There are differences in the ability of various receptors to adjust to climate impacts and to moderate potential damage, cope with consequences, or take advantage of opportunities e.g. ability to invest in building refurbishment. It would require a very great number of local studies and reliable data to be able to build up a complete picture of the economic impact of climate change, sector by sector at the regional scale. There is no question that a bottom-up approach would improve accuracy, however, but the time and scope of this study did not allow this extensive review. Moreover, it must be said that the study team s review of the regional data that is available made it clear that currently there is simply insufficient information on which a bottom-up analysis could be based. It follows that both the quantity and the quality of data to underpin this detailed level of analysis would need to improve vastly Global estimates applied regionally Rather than developing a bottom-up analysis based wholly on local impacts, a methodology has been developed and employed which estimates top-down regional adaptation costs. This has relied on the application of global costs from other adaptation studies to estimate an indicative value for the level of adaptation costs for the North East. This estimate can be set against the cost of non-adaptation to provide a starting point for more detailed analysis in the future. To increase understanding of the economic cost of adaptation it is also sensible to consider how global estimates apply to the region. In order to provide a guide and sense check to the Page 25 of 122

26 top down regional adaptation costs, the study team also applied global estimates to regional GVA. As noted above, obtaining comprehensive bottom-up estimates for the adaptation measures required for all of the climate impacts was severely hampered by the scarcity of published studies and publicly available data sources. Therefore, the economic impacts calculated through bottom-up analysis represent only part of the cost of climate change for the region. The full cost will lie between this study s estimates (based on top-down regional estimates) and those provided by applying global estimates. The analysis focussed on estimating the economic cost of adaptation for the main climate impacts or hot-spots in the region, with these policy hot-spots identified through the significance testing. The quantitative analysis was supported and informed by regional case studies and verified by regional and national experts and discussions with stakeholders. The quantitative analysis is supported by qualitative analysis of each of the main economic sectors (see Appendix C), which provides intelligence at the regional level. However, there remains a level of subjectivity and many uncertainties when it comes to the economic analysis of climate change impacts; indeed many of the studies used restrict themselves to a qualitative analysis. This will lead to the economic estimates having a very wide range. Two of the challenges for the region going forward are: 1. Not to generalise the estimates from either the bottom up or top down approaches, but to link the two approaches so they support each other and build on all available data and evidence. 2. To develop a unified and practical assessment framework for the economic analysis of regional impacts and adaptation measures. It will be useful to link the specific impacts to a database of unit monetary values to refine any future estimates of the cost of nonadaptation and costs of adaptation Future improvements The development of a unified and practical assessment framework for determining adaptation responses the region, based on a far more extensive data base derived from specific local studies could be aided by the following methodology, adapted from Shaping Climate Resilient Development: a framework for decision making, (2009), A report of the Economics of Climate Adaptation Working Group. Page 26 of 122

27 The key stages are: Stage 1: identify potential adaptation measures Consider a broad range of alternative adaptation measures and consult with stakeholders. Adaptation measures can be considered in four categories: 1. Adaptation of infrastructure or assets 2. Technology or process adaptation 3. Systemic or behaviour adaptation including all risk mitigation or prevention measures 4. Financial responses including risk transfer Stage 2: determine feasibility and applicability of potential measures The list developed in Stage 1 is screened against appropriate feasibility criteria, including available technology or engineering, local setting and cultural constraints. Stage 3: calculate societal costs Assess quantitatively each measure that passes the feasibility screening in Stage 2 using a net present value approach, as follows: 1. Determine the discount rate, based on local government infrastructure decision discount rates where possible, or on the expected rate of return for the next best investment. 2. Define scale of the measure by determining the maximum potential for implementing the measure in the local context. 3. Calculate costs of each measure, including capital expenditure, operating expenditure and operating savings. 4. Calculate expected loss averted for each measure. For cost-benefit analysis the benefit is defined as the costs of climate impacts averted plus any additional benefits or revenue streams resulting from the adaptation response. 5. Generate cost-benefit estimates in ratio form for adaptation measures considered. This allows the ranking of adaptation measures according to the cost-benefit ratio of each as well as the absolute value of the expected loss averted. Page 27 of 122

28 3. Results 3.1 Regional climate change risk assessment The detailed and referenced Regional Climate Risk Assessment is contained in the Climate and Economic Evaluation Matrices, in Appendix B. As described in Section 2, the risk assessment used existing climate change projections and the available climate change literature to identify the main climate change related impacts for the North East up to In addition, significance criteria were applied to the impacts to identify the most significant impacts that would be taken forward for economic assessment. The results for the risk assessment are presented in two related parts: 1. Regional climate change effects (i.e. climate variables, precipitation etc). 2. Regional direct climate impacts (e.g. increased flooding) and indirect impacts (e.g. increased flood damage: residential and commercial property) Regional climate change effects The predicted climate effects for the North East were obtained from the UKCP09 and the North East Climate Adaptation Study. Table 3.1 summarises the UKCP09 climate effect key findings data for 2020, 2050 and 2080 for the medium emissions scenario. Illustrative selected climate effects are also listed for the low and high emissions scenarios. Medium emissions scenario 50% ile data in brackets refers to 10% ile and 90% ile respectively Climate effect By 2020 By 2050 By 2080 Mean annual temperature (0.8) 1.4ºC (2) (1.4) 2.3ºC (3.3) (2) 3.2ºC (4.7) Winter mean temperature (0.5) 1.2ºC (2) (1.1) 2ºC (3.1) (1.4) 2.6ºC (4.1) Summer mean temperature (0.6) 1.5ºC (2.5) (1.2) 2.5ºC (4.1) (2) 3.7ºC (5.8) Summer mean daily maximum temperature Summer mean daily minimum temperature (0.3) 1.9ºC (3.5) (1) 3.2ºC (5.7) (1.6) 4.7ºC (8.2) (0.5) 1.4ºC (2.6) (1) 2.5ºC (4.4) (1.6) 3.6ºC (6.3) Annual mean precipitation (-4) 0% (5) (-5) 0% (5) (-5) 0% (5) Winter mean precipitation (-4) 4% (14) (1) 11% (24) (2) 14% (32) Summer mean precipitation (-19) 6% (8) (-30) 15% (1) (-36) 18% (1) Relative sea level rise at North Shields (0.04) 0.08 (0.08) 0.19 (0.31) (0.13) 0.32 Page 28 of 122

29 (m) (0.13) (0.51) [cell 14887] Selected data from high and low emissions scenarios Mean annual temperature [High scenario] Mean annual temperature [Low scenario] (0.8) 1.4ºC (2) (1.5) 2.5ºC (3.7) (2.6) 3.9ºC (5.7) (0.8) 1.4ºC (2) (1.2) 2ºC (3) (1.6) 2.6ºC (3.9) Relative sea level rise at North Shields (m) [High scenario] Relative sea level rise at North Shields (m) [Low scenario] (0.04) 0.11 (0.16) (0.04) 0.07 (0.11) (0.09) 0.23 (0.37) (0.14) 0.39 (0.64) (0.07) 0.16 (0.25) (0.12) 0.26 (0.41) Table 3.1 UKCP09 key findings for the North East Table 3.2 illustrates and compares the predicted changes in climate effects for the North East for both the UKCP09 and the North East Adaptation Study. Climate change effect adaptation study (medium emissions, 2050) Climate change effect UKCP09 (medium emissions, 2050) Marine climate effects Increased sea level of 0.3m Increased sea surge levels m No equivalent changes to marine temperatures Increased sea level of 0.19m [50% ile] [very unlikely to be <0.08%, 5% ile or >0.32%, 95% ile] Same as today [no significant increase at 5% significance level all return periods, storm surge grid box: 10713] Increased marine air temperature 1.9 C Increased marine temperature approx. 2 C [marine and coastal projections report UKCP09] Precipitation climate effects 10% annual rainfall reduction No change, 0%, in annual rainfall [50% ile] [very unlikely to be <5%, 10% ile or >5%, 90% ile] Increased rainfall seasonality, +21% winter, -37% summer Increased rainfall seasonality as a result of: Increased winter mean precipitation +11% [50% ile] [very unlikely to be <1%, 10% ile or >24%, Page 29 of 122

30 Increased extreme rainfall events Temperature climate effects Increased average seasonal temperatures Average daily increase approx 2 C Reduction in frost days Increased extreme hot temperatures 3 C Increased frequency of heat waves Wind climate effects Variability in wind climate, increase in some areas 90% ile] Decreased summer mean precipitation -15% [50% ile] [very unlikely to be <-30%, 10% ile or >1%, 90% ile] Increased extreme rainfall events Increased average seasonal temperatures Average daily increase approx 2.3 C [50% ile] [very unlikely to be <1.4 c, 10% ile or >3.3 c, 90% ile] No equivalent Increased summer mean daily temperature 3.2 C [50% ile] [very unlikely to be <1 c 10% ile or >5.7 c, 90% ile] Increased frequency of heat waves No equivalent Table 3.2 Summary of North East Climate s Regional climate change impacts The economic assessment required the climate change risk assessment to convert the predicted climate change effects (Table 3.2) into real world impacts. As described in Section 2, the cause-effect chain was used to identify the main direct and indirect impacts that would occur from each particular climate change effect. Appendix B contains the detailed impact and economic evaluation matrices. The impact matrices contain a wide range of indirect impacts that could not be quantified with any real degree of certainty or accuracy, owing to inadequacies in data availability or gaps in scientific knowledge. Consequently, the impact matrices are intended to identify key climate change data gaps, such as expected impacts on agricultural yields. Table 3.3 summarises the very high significance (red) and high significance (orange) indirect impacts that were identified through the regional climate change risk assessment and which were taken forward for economic evaluation. Then, by using the available evidence base and referencing the scientific literature, the quantification of each impact was attempted. The quantification of impacts was fundamental, both to drive the subsequent economic assessment and to ensure that the significance rating was relevant to the North East context and the study s terms of reference. Page 30 of 122

31 Climate change effect Direct impacts Significant indirect impacts Increased marine temperatures Increased extreme rainfall events Increased average seasonal temperatures Increased average daily temperature on marine biodiversity and ecosystem health Increased flooding on biodiversity on land/soil quality Increased weeds, pests and disease (non-human) on commercial fish stocks on marine habitats and species Increased flood damage: residential and commercial property Increased flood damage: agricultural land Increased flood disruption and damage Public health, fatalities and wellbeing impacts Hydro-morphological impacts Species distribution changes, populations effects, habitat change, decline in ecosystem health and resilience, loss/decline of species s to agricultural yields s to carbon cycle Reduction in ecosystem health and resilience Reduced agricultural productivity Increased extreme hot temperatures Increased frequency of heat waves Overheating Increased heat related mortality Increased heat related morbidity and hospital admissions Increased heat related disruption Table 3.3 summary of significant climate change impacts (see Table 2.1 for classification of significance rating) 3.2 Economic analysis of the consequences of not adapting to likely climate change impacts Economic evaluation of significant climate change impacts The first stage in estimating the cost of adapting to climate change is to assess the economic cost of climate change i.e. the cost of non-adaptation. Initially an assessment was made of the costs associated with the climate change indirect impacts rated with a significance of either very high (red) or high (orange), from Table 3.3. Page 31 of 122

32 The significant impacts for which costs were able to be estimated were: 1. Increased extreme rainfall events, leading to increased flooding causing: Increased flood damage: residential and commercial property Increased flood damage: agricultural land Increased flood disruption and damage Public health, fatalities and well-being impacts 2. Increased frequency of heat waves leading to overheating causing: Increased heat related mortality Increased heat related morbidity and excess hospital admissions Increased heat related disruption The following significant indirect impacts could not be quantified with any degree of accuracy, so were not taken forward for economic evaluation: 1. Increased marine temperatures leading to impacts on marine biodiversity and ecosystem health, causing: on commercial fish stocks on marine habitats and species 2. Increased extreme rainfall events leading to increased flooding, causing: Hydro-morphological impacts 3. Increased average seasonal temperatures leading to impacts on biodiversity, causing: Species distribution changes, populations effects, habitat change, decline in ecosystem health and resilience, loss/decline of species 4. Increased average seasonal temperatures leading to impacts on land/soil quality, causing: s to agricultural yields s to carbon cycle 5. Increased average seasonal temperatures leading to increased weeds, pests and disease (non-human), causing: Reduction in ecosystem health and resilience Reduced agricultural productivity The total economic cost of these un-quantified impacts could potentially be very significant for the North East. Page 32 of 122

33 Although the practical application of economic estimation methodologies and monetary valuation of non-traded goods has advanced in recent years, the main constraint in this part of the study was not being able to quantify the impact of climate change on a range of ecosystem services and biodiversity, as these are areas that are poorly understood. Where examples of indicative values of ecological goods and services have been found they have been included in the impact and economic evaluation matrices in Appendix B, together with how these may be applied if the physical impacts could be quantified. Whilst it has not been possible to provide a full economic evaluation, the impacts of climate change on biodiversity and ecosystem services are likely to be very significant and potentially of major economic significance for the North East. A more detailed study, with the collection of primary data, would be required to provide a useful and accurate economic evaluation for these impacts. There are other climate impacts included in the assessment matrices that are considered to be significant in physical terms and potentially in economic terms. The reliance on secondary data, however, has meant that it has not been possible to quantify the physical impact of climate change and then to apply monetary values for these services in a way that would be appropriate. It is important to encourage more detailed analysis and data collection in these areas, regionally and nationally, so any future estimates can be built on robust data. Examples of data points that could be used are included in the impact matrices in Appendix B and where a North East impact was known with a high degree of confidence, an example of an estimate has been provided. The study s estimates of the cost of non-adaptation are set out in the following paragraphs. Due to uncertainties in both the magnitude of climate impacts and economic valuation data these results should be only regarded as indicative costs. Estimates are presented as annualised averages (Estimated Annual Damage) in current prices Costs of flood damage - very high significance The direct economic costs associated with damage caused by floods are fairly well understood. These include direct costs associated with infrastructure damage, property damage and loss of economic output. The primary data source used was the estimates produced by the Foresight Future Flooding project, DTI The foresight study estimated the future costs of increased flood risk using spatial climate and socio-economic data. Page 33 of 122

34 Foresight estimates were produced for hydrometric areas which unfortunately do not correspond with Government Office administrative regions. Thus, the Foresight North East region includes Yorkshire and Humber. Yorkshire and Humber is at greater risk of flooding than the North East therefore these results were recalibrated by Arup to reflect more accurately the North East administrative area. Also, as all Foresight estimates are to the year 2080 and this study s analytical time period was the 2050 s timeslice, the estimates needed to be scaled back. To adjust the Foresight estimates, the underlying assumptions for GDP growth for the National Enterprise scenario were examined in order to estimate GDP in The results for 2050 were based on applying the percentage of current GDP to GDP in that time period. It is recognised that this is not ideal but it presented a pragmatic solution. Foresight estimates are limited to calculating the cost of damage to property, but this represents only part of the full cost of a flood event on the economy. Therefore, the Environment Agency s analysis 4 of the 2007 flood events in Gloucester was used to assess the full range of economic damages. From this data the relative proportions of property damage and other damage categories were determined. These proportions were then applied to the adjusted Foresight cost data on property damage to estimate the total cost of flooding in the North East. The results are presented below. The cost of climate change related flooding for the North East is estimated to be around 560 million per annum. This comprises the following and is summarised in Table 3.4: 1. Flood damage: residential and commercial property EAD = 329m The majority of the economic cost falls into this category. This includes insured and uninsured losses and the cost of replacing motor vehicles. 2. Flood damage: business disruption and wider damage EAD = 171m Wider business disruption losses of flood events are estimated to be a further 5 per cent and around 25 per cent for damage to infrastructure, communications, utilities and the cost of emergency response. This estimate includes costs of business disruption (loss of productivity/stock damage etc), school closures, temporary accommodation and disruption of public services. EAD Business disruption = 28m EAD Infrastructure, utilities and communications = 143m 4 The Cost of the Summer 2007 Floods in England, (EA 2010) Page 34 of 122

35 3. Flood damage: agricultural land EAD = 11m The EAD for agricultural land is based on flood inundation to a depth of 0.5m multiplied by potential losses depending on the grade of agricultural land. Loss estimates include damage or loss to crops and yield reduction. Forecast economic damages for agriculture are less certain than property damage estimates owing to various factors that change the value of asset at risk - including the time of year that a flood event occurs and the relative importance of agriculture to GVA. 4. Flood damage: public health, fatalities and well-being impacts EAD = 51m Public health costs are a significant portion of the cost of flooding. These include potential for fatalities and physical harm arising from severe flood events; emotional distress and longer term psychological impacts of flood victims. Direct costs include loss of life and personal injury; indirect costs include longer term psychological effects and public health impacts e.g. counselling. EAD flooding by category: m Property damage including motor vehicles 329 Business disruption 28 Other costs - infrastructure, emergency services, EA, utilities and communications 143 Agriculture 11 Public health fatalities and well-being impacts 51 Total - EAD of flooding 562 Table 3.4 estimate annual damage: flooding Costs of overheating and analysis of heat waves - high significance Recent heat waves in the UK and Europe have demonstrated the impact heat waves have on mortality and morbidity rates. For example, the July 2006 heat wave event saw the NHS Heat Plan Health Watch Warnings for the North East reach Level 3. July was the first time the NHS Heat Plan thresholds were breached in the North East (day threshold temperature of 28 C and night threshold temperature of 15 C), Rapid Evaluation of 2006 Heatwave, HPA Economic costs include the direct value of health related impacts and increased cost to the NHS and other health and care service providers. Additional indirect costs include loss of economic productivity and output, perhaps due to absenteeism, sick leave, or as a result of diminished ability to work effectively. Page 35 of 122

36 To estimate the EAD of overheating events, the July 2006 heat wave was used as an analogue. The UKCIP Spreadsheet Tool for Costing Extreme Weather Event of Climate was used to estimate future costs. Applying this methodology the results are: The economic cost of overheating events is estimated to be 31 million per annum. This comprises the following and is summarised in Table 3.5: 1. Overheating: increased excess mortality EAD = 13.7m Heat waves can cause fatalities in various at risk sectors of the population e.g. elderly, breathing problems. It is estimated that the 2006 heat wave event caused 30 fatalities in the North East. 2. Overheating: increased heat related morbidity and excess hospital admissions EAD = 8.8m There was a significant increase in the number of hospital admissions and recorded cases of morbidity during the July 2006 heat wave. 3. Overheating: increased heat related disruption EAD = 8.5m This includes additional disruption due to caring for dependents, closure of public/private buildings and rising discomfort levels; absenteeism, loss of earnings, productivity and additional cooling will add costs to businesses. There will also be increased repair and maintenance costs associated with disruption to utilities, buildings and infrastructure. EAD for heat waves by category m Excess deaths 13.7 Hospital admissions 8.8 Wider damage and disruption 8.5 Total - EAD cost of heat wave 31 Table 3.5 estimate annual damage: heat waves It should be noted that these results have a high level of uncertainty attached to them. The results are based on data from a single event and therefore the level of confidence is low. It is difficult to attribute increased rates of hospital admissions at the time of the July 2006 heat wave with a high degree of certainty without carrying out a more detailed analysis of NHS data and admissions. Page 36 of 122

37 The level of uncertainty with the estimates of the costs of wider disruption is even higher. Regional expert opinion, obtained at the impact verification workshop, agreed that although the impact of overheating on business logistics, operations and infrastructure was not considered to be major it was not insignificant. It was also reported that other economic costs associated with heat waves would cause increased disruptions to social order (e.g. anti-social behaviour) and other health effects of increased alcohol consumption. A more detailed analysis is recommended to determine these impacts and the associated economic cost. The estimate EAD presented here is a proxy of sorts, based on the wider disruption costs (see Point 3 above) associated with heat waves Costs of temperature changes - high significance Warmer winters - reduced cold related mortality and morbidity Similar to overheating impacts, it is difficult to isolate the effects of warmer winters resulting from climate change on mortality rates without more detailed study. Arup is not aware of any available studies that measure the impact of warmer winters on winter mortality rates. However, it is considered that there will be an economic benefit from avoiding public health impacts of colder winters. The estimate is highly uncertain and requires some refinement and further detailed analysis of how mortality and morbidity rates will be change. Warmer winters: reduced cold related mortality and morbidity EAD = - 7.5m Benefit The majority share of the benefit will be the avoidance of health impacts, including a reduction in absenteeism Temperature change biodiversity and ecosystem impacts Temperature effects of climate change on biodiversity and ecosystem services are considered to be of high significance for the North East. s in species distribution, changes in population, habitat change, decline in ecosystem health and resilience, loss/decline of species are all areas where climate change is already having an impact in the North East. There are various facets to the economic value of ecosystem services. Valuing the effects of changes to ecosystem services is a complex process and it is a considerable and difficult task to comprehensively map the full range of ecosystem services and subsequently to estimate the economic value. This is because two layers of uncertainty are involved: 1. Understanding and quantification of the physical impacts of climate change on the ecosystem providing the service. Page 37 of 122

38 2. Assessing and assigning monetary values to those impacts. The difficulty in assigning monetary values is a function of data gaps in the market price for the full range of values provided by ecosystem services and also due to not fully understanding the economic value of ecosystem goods and services that are not necessarily directly supporting economic activity in the North East. Owing to lack of data, it was not possible to quantify these impacts or estimate the economic cost. Nevertheless these impacts will potentially have significant economic and welfare losses and therefore should not be ignored in any analysis of the economic cost of climate change Temperature change - agricultural impacts The impact of temperature change on agriculture in the North East is somewhat ambiguous. There are a variety of potential costs and benefits that made it difficult to quantify the economic impact. For example, there may be a benefit from being able to grow an increased range of higher value crops. On the other hand, there is an increased risk of diseases that are not currently prevalent affecting crops and livestock. However, it is important to note that the agriculture sector is one where there will be a high degree of autonomous adaptation as farmers and agriculturalists respond to growing and market conditions Summary of the economic analysis of non-adaptation In total the Expected Annual Damages of climate change impacts without adaptation is approximately 600m per annum for the North East. This includes only for impacts that have been quantified, however, and therefore represents only a partial estimate of the full cost of climate change. The economic impacts that were quantified mainly included the direct impacts on public health, property and infrastructure damage. It is also important to consider the economic impacts that have not been estimated but will nevertheless be significant. These include the less tangible impacts and wider spatial impacts that may fall outside the North East but will still affect the economy, like energy costs and security of supply, food prices, damage to global ecosystem services, impact on external markets affecting import and export conditions, shifts in tourism patterns and migration patterns Comparison with global estimates The range of impacts that have not been estimated, in part, explains the difference between the EAD estimated above and that implied for the North East by applying pro-rata global estimates using integrated assessment models. Page 38 of 122

39 For example, the IPCC 2007 estimate of 3% of GDP and Stern s 2006 estimate (market impacts only) of 5% of GDP, which equate to around 1,200 million and 2,000 million respectively; this study s estimate, based on quantifiable impacts is 600 million. 3.3 Economic sector analysis Overview For the economic sector qualitative analysis, the significant climate impacts from the climate change risk assessment were summarised into compound indirect impact categories. These impact categories, including a broader category reflecting impacts outside the region, were used as the assessment parameters within the UKCIP Business Areas Climate Assessment tool (BACLIAT) for the primary economic sectors. This sequence is illustrated in Figure 3.1 below. The detailed BACLIAT assessment is contained in Appendix C. Figure 3.1 developing assessment parameters for the economic sector analysis The BACLIAT assessment identified the main climate risks and economic impacts on the six business areas 5 for each economic sector and consequently what the sectors will need to address through adaptation measures. The assessment is mainly concerned with the physical impacts of weather-related events. 5 BACLIAT business area categories are: Markets, Finance, Logisitics, Premises, People and Process Page 39 of 122