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Grey and Green Infrastructure Benefit Cost, Return on Investment Analysis for Flood Control and Asset Management


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This presentation was made to the Southern Ontario Municipal Stormwater Discussion Group on September 27, 2018 in Brantford, Ontario. It describes benefit-cost analysis to show the return on investment (ROI) of infrastructure improvements to reduce flood damages (insured and total), and to achieve other benefits including erosion mitigation and water quality improvements. Earlier benefit cost analyses for projects ranging from the Winnipeg floodway to the Stratford, Ontario storm system master plan are shown. The benefit-cost ratio of an Ontario flood control study is shown including a comparison of grey and green infrastructure cost effectiveness - analysis shows the grey infrastructure solution can meet the current Disaster Mitigation Adaptation Fund (DMAF) benefit/cost threshold of 2:1 required to be eligible for federal funding. In addition, city-wide analysis of grey infrastructure storm and sanitary system upgrades and green infrastructure / low impact development infrastructure strategies is summarized.
Results show that the grey infrastructure solution can meet the DMAF benefit/cost threshold of 2:1 but that the benefit/cost of green infrastructure is substantially below it considering flood reduction benefits. When other benefits are considered, and targeted implementation of green infrastructure is considered (e.g., representing 25% of the urban area with limited overland drainage design standards) and considering additional benefits including a substantial 'willingness to pay' estimate for water quality improvements, costs continue to exceed benefits. The insurance industry and some affiliated research groups have suggested that natural infrastructure or green infrastructure should be considered to improve climate resilience and reduce flood damages - this analysis would suggest that approach is misguided and could misdirect scare resources to ineffective strategies.

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Grey and Green Infrastructure Benefit Cost, Return on Investment Analysis for Flood Control and Asset Management

  1. 1. Municipal Stormwater Discussion Group Cost-Benefit / Return on Investment Analysis for Grey and Green Infrastructure to Support Asset Management Strategies & Disaster Mitigation Adaptation Funding Robert J. Muir, M.A.Sc., P.Eng. Manager, Stormwater, City of Markham September 27, 2018 - Brantford, Ontario 1
  2. 2. OUTLINE 1) Regulations & Policies on Cost Efficient Infrastructure 2) Examples of Benefit/Cost : Canada, Ontario 3) Disaster Mitigation Adaptation Fund ROI Threshold 4) Flood Control Class EA Example (Don Mills Channel) 5) City-wide Flood Control Example (Grey vs. Green) 6) Triple Bottom Line Sensitivity Analysis (Erosion Mitigation, Total Uninsured Losses, Water Quality Improvement) 2
  3. 3. Provincial Policy Statement (2014): “Infrastructure … shall be provided in a coordinated, efficient and cost-effective manner ….” Infrastructure for Jobs and Prosperity Act (2015) O. Reg. 588/17 (2017) : In asset management plans “For each asset category, the lifecycle activities that would need to be undertaken … and the costs of providing those activities.” Class Environmental Assessments (2015): For wastewater projects “Economic Environment includes commercial and industrial land uses and activities. It also includes the financial costs associated with the alternatives, including construction, operation, maintenance, and property costs.” Flooding problems may include: serious property damage, economic business loss, damage or interruption of municipal services Ontario Drivers for Assessing Cost Efficiency 3Provincial Policy Statement 2014 Infr. for Jobs and Prosperity O Reg 588/17 Municipal Class EAs
  4. 4. 4 • Ontario’s LTIP released November 2017 • Themes mentioned: ▫ Proactive asset management integrates climate change mitigation and adaptation considerations to build resilience and ensure continuity and quality of service levels ▫ Evidence-based decision making ▫ Ensuring that the best available evidence and analysis informs the government’s decisions ▫ Make the right infrastructure investments in the right locations at the right time ▫ Infrastructure investments require the application of a “risk lens” ▫ Infrastructure planning and investment based on the outcomes of this risk assessment will allow for a more strategic approach to adaptation by government, helping ensure that decisions are evidence-based and resilient. This will save Ontarians and the Ontario government money in the long term. ▫ If the consequences of [extreme] weather events are not understood, it can be difficult to justify these investments. A step in the right direction (Good language, not perfect; execution is next)
  5. 5. Why Calculate ROI For Flood Mitigation? • Consistent with principles for flood reduction (Watt, 1984) “It is therefore reasonable to require that all projects that provide or improve flood protection be justified economically before public funds are allocated” … “expected benefits should exceed cost by a sufficient margin and the level of protection should not be pushed beyond the point where the additional costs exceed the incremental benefit.” https://files.on
  6. 6. 6 First Example in Canada? • Need for comprehensive cost- benefit analysis to guide flood mitigation planning and policy (1956 Manitoba Commission on Flood Cost Benefit).
  7. 7. 7 0.77 0.06 • Benefit-Cost Ratios • Range: ▫ 0.06 to 0.77 • Establish priorities • One size certainly does not fit all! Stratford SWM Master Plan 2004 0.53 0.15 Invest $1 to Defer 77 cents of damage Invest $1 to Defer 6 cents of damage
  8. 8. Why Calculate ROI For Flood Mitigation? (OSPE) 8 • OSPE comments on Long Term Infrastructure Plan “recommends that the Government of Ontario: – i. Critically apply the proposed ‘risk lens’ to infrastructure investments related to extreme weather adaptation, recognizing variations in observed and predicted trends across the province. – ii. Evaluate adaptation measures such as green infrastructure for stormwater management, often cited as key mitigation measure, using the same ‘risk lens’ and consider the cost-effectiveness of those infrastructure investments.
  9. 9. Why Calculate ROI For Flood Mitigation? (OSPE) 9 – iii. Recognize that green infrastructure must be viewed through the same lens as conventional infrastructure, adhering to established asset management principles and full cost accounting—meaning it must be addressed up-front and directly, considering system-wide costs.”
  10. 10. Why Calculate ROI For Flood Mitigation? 10 • Disaster Mitigation Adaptation Fund Eligibility “The ROI is measured by the projected climate and disaster related losses avoided. An ROI ratio for the DMAF of 2:1 means that for every dollar spent under DMAF at least two dollars are anticipated to be saved in future natural disaster losses.”'s-Guide.pdf • ROI often defined using net benefits i.e., (damages deferred – cost) / cost *
  11. 11. To Not Be Reckless With Taxpayers Dollars 11
  12. 12. Don Mills Channel Flood Control ROI 12 • Recently completed Class EA included evaluated grey (culverts and central storage) and green infrastructure (on-site LID) solutions.
  13. 13. Don Mills Channel Flood Control ROI 13 • Flood damage estimates at various return periods used to calculate reduction in average annual damages (benefits for preferred solution). Existing Damages $1.74M / yr Net Benefits = $1.5M / yr
  14. 14. 14 • Solutions compared in terms of their economic efficiency, considering ‘payback period’ to recover costs with average annual benefits of damage reduction.
  15. 15. Don Mills Channel Flood Control ROI 15 • Application for DMAF funding must show benefit/cost of > 2 • Benefits = 100 year service life x $1.5M deferred damages per year = $150 M • Costs = $69 M Benefit / Cost = 2.2 (slightly low with shorter service life of culverts) Benefit / Cost = 0.6 for LID solution (distributed on-site storage)
  16. 16. Ontario-wide Evaluation of Green & Grey Infr. Benefit / Cost • Approach: – Step 1 – Average Annual Losses (IBC, CatIQ Data) – Step 2 – Cumulative Losses over Service Life – Step 3 – Lifecycle Costs of Mitigation Infrastructure – Step 4 – Benefit / Cost = Deferred Losses / Costs • Sensitivity Analysis (Erosion Mitigation Benefits, Total Loss Benefits, Lost Work Hours Benefits) • Green Infrastructure Surface Water Quality Benefits 16
  17. 17. Step 1 – Average Annual Losses • IBC has identified yearly insured losses in Ontario for catastrophic flood/storm events. • Expected annual losses have been estimated by fitting a probability distribution to recent losses from 2000-2017 – the expected annual losses are $292 M. $292M
  18. 18. Step 2 - Cumulative Damages Prevented by Flood Mitigation Efforts (Benefits) 18 • Cumulative damages prevented over the service life for Ontario flood mitigation measures would be : i) 25 Year Service Life Measures : $292 M x 25 = $7.3 B ii) 50 Year Service Life Measures : $292 M x 50 = $14.6 B iii) 100 Year Service Life Measures : $292 M x 100 = $29.2 B
  19. 19. Step 3 - Flood Risk Mitigation Lifecycle Costs Green Infrastructure 19 • Unit capital, O&M costs: Phil. Final Report and Ontario lifecycle cost model
  20. 20. Step 3 - Flood Risk Mitigation Lifecycle Costs Green Infrastructure 20 • Ontario lifecycle: Phil. Final Report and Ontario lifecycle cost model • $15.8 B annual cost • Markham = 1.8% of Ontario
  21. 21. Step 3 - Flood Risk Mitigation Lifecycle Costs Grey Infrastructure 21 • Markham's flood reduction program costs: i) $234 million (2014 dollars) for storm upgrades (see Council Rpt Item 7). ii) Wastewater system upgrades to meet a 100-year level of service against basement flooding, and further to prevent sewer surcharge during 25-year storm events cost $26.1 M.
  22. 22. Step 3 - Flood Risk Mitigation Lifecycle Costs Grey Infrastructure iii) Storm and wastewater system upgrade costs equate to 5.9% of storm and wastewater system asset values based on the city's Asset Management Plan ($2,075 million in wastewater assets, $2,335 million in storm water assets). iv) The cost is approximately $260 M, representing capital cost alone. An average service life duration of 100 years would result in lifecycle costs of $260 million for grey infrastructure implementation (assume 100% depreciation of investment over 100 years).
  23. 23. Step 4 – “ROI” Benefit/Cost Ratio Green Infrastructure 23 • GI, LID benefit / cost ratios in Ontario can be evaluated considering: i) average 50 year service life benefits (deferred flood damages) up to $14.6 B (see Step 2) ii) lifecycle cost over 50 years of $790 B (see Step 3) iii) benefit / cost = 14.6 / 790 = 0.018 The benefit/cost ratio is less than 1.5% of the ratio of 1.3 that Watt has recommended for publically funded flood control projects.
  24. 24. Step 4 – ‘ROI’ Benefit/Cost Ratio Grey Infrastructure 24 • Grey infrastructure benefit/cost ratios in Markham can be evaluated considering: i) average 100 year service life benefits (deferred flood damages) up to $29.2 B (see Step 2) prorated by Markham/Ontario population (2.4%) or urban area (1.2%), say Markham represents 1.8% of Ontario losses, i.e., $29.2 B x 1.8% = $526 M. ii) lifecycle cost over 100 years of $260 M equivalent to capital costs (see Step 3) assuming full asset depreciation over 100 years.
  25. 25. Step 4 – ‘ROI’ Benefit/Cost Ratio Grey Infrastructure 25 iii) benefit / cost = 526 / 260 = 2.02, say 2.0 The benefit/cost ratio exceeds Watt’s recommended ratio for flood mitigation and DMAF ROI threshold for federal funding of disaster mitigation projects.
  26. 26. Step 4 – “ROI” Benefit/Cost Ratio - Markham 26 Scenario - Benefits Grey Benefit Grey Cost Grey B/C Green Benefit Green Cost Green B/C A – Insured Flood Loss $526 M $260 M 2.02 $263 M $8.76 B 100% 0.030 A’ – Insured Flood Loss $526 M 2.02 $263 M $2.19 B 25% 0.12 B – Insured Flood + Erosion $526 M 2.02 $283 M 0.13 D – Total Flood Loss (2.7 x) $1.42 B 5.46 $710 M 0.32 F – Total Flood + Lost Time + Willingness to Pay for Water Quality Improvements $1.46 B 5.61 $1.94 B 0.88
  27. 27. 0.1 1 10 100 1000 10000 Policies / Standards Downspout Disconnection (I&I) Subsidize Backwater Valves Etc. Sanitary Sewer Upgrades (Isolated) Storm Sewer Upgrades (Isolated) Green Infr. Retrofit Cost($M) < $0.1 M Do Deferred Flood Damage Benefits Justify Costs? 27 $1.3 M $1.4 M + $26.1M $234 M $8.76 B for 100% $2.19 for 25% Yes Grey Infrastructure Benefits / Cost 2.0 – 5.5 No Green Infrastr. Costs / Benefits 0.03 – 0.88 • Considering deferred insured flood damages, erosion reduction, total losses, water quality
  28. 28. Conclusions • Benefit/cost ratios can be used to evaluate the economic efficiency of infrastructure investments and whether they are worthy of public funding – help meet asset management goal of lifecycle cost assessment. • B/C ratios vary by technology (grey vs. green), help prioritize solutions. • Based on Markham Class EA, B/C of > 2 can be realized with proposed central storage (green-ish) and grey infrastructure (culvert enlargement). • Deferred losses (Benefits) can be based on many methods (% of MPAC value), scaled provincial losses, considering insured and total damages. • Benefits can include indirect benefits (deferred erosion damage), and intangible benefits estimated using ‘willingness to pay’ methods for water quality upgrades. 28
  29. 29. Conclusions • In a pair-wise comparison of grey and green solutions in Markham shows: – Grey is 17 to 67 times more cost effective than green at reducing flood damages – Grey can achieve DMAF B/C minimum in city-wide storm & sanitary plan: • 2 : 1 considering insured loss reduction (minimum allowable) • 5 : 1 considering total loss reduction – Green cannot achieve DMAF B/C minimum: • 0.03 : 1 with insured loss reduction & 100 % LID implementation • 0.32 : 1 with total loss reduction & 25 % LID implementation • 0.88 : 1 adding $1.2B in water quality benefits (1.7x flood damage value) Green infrastructure B/C is below 1 even assuming it achieves total loss reduction and achieves significant willingness to pay for water quality 29
  30. 30. Thank You Questions ? More Rob : Blog: Podcast: Open During Construction on iTunes Twitter: @RobertMuir_PEng More City of Markham : Web: Twitter: @CityofMarkham 30