Volker MEYER1, Nina BECKER1, Vasileios MARKANTONIS1, Reimund SCHWARZE1, Jeroen C. J. H. AERTS2, Jeroen C. J. M. VAN DEN BERGH3, Laurens M. BOUWER2, Philip BUBECK4, Paolo CIAVOLA5, Vanessa DANIEL2, Elisabetta GENOVESE6, Colin GREEN7, Stéphane HALLEGATTE6, Heidi KREIBICH4, Quentin LEQUEUX5, Bernhard LOCHNER8, Ivana LOGAR3, Elissaios PAPYRAKIS2, Clemens PFURTSCHELLER8, Jennifer POUSSIN2, Valentin PRZYLUSKI6, Annegret H. THIEKEN8,9, Paul THOMPSON7, Christophe VIAVATTENE7 1Helmholtz Centre for Environmental Research- UFZ; 2Institute for Environmental Studies, Vrije Universiteit Amsterdam- IVM-VU; 3Institute of Environmental Science and Technology, Universitat Autònoma de Barcelona- ICTA-UAB; 4German Research Centre for Geosciences- GFZ; 5Dipartimento di Scienze della Terra, Università degli Studi di Ferrara- UniFe; 6Société de Mathématiques Appliquées et de Sciences Humaines/Centre International de Recherches sur l'Environnement et le Développement- SMASH-CIRED; 7Flood Hazard Research Centre, Middlesex University- FHRC-MU; 8Institute of Geography, University of Innsbruck, Austria- UIBK; 9University of Potsdam, Germany

1. Source: UFZ, André Künzelmann
Cost assessment of natural hazards
– state-of-the-art, knowledge gaps and recommendations
Volker Meyer, Nina Becker, V Markantonis, R Schwarze, J C J H Aerts, J C J M van den Bergh, L M Bouwer, P
Bubeck, P Ciavola, V Daniel, E Genovese, C Green, S Hallegatte, H Kreibich, Q Lequeux, B Lochner, I Logar, E
Papyrakis, C Pfurtscheller, J Poussin, V Przyluski, A H Thieken, P Thompson, C Viavattene
Davos, August 28, 2012

2. Objectives of cost assessment
Natural hazards: very large and increasing losses
Cost assessment supports
• Ex post:
assessments of recent hazards
• Ex ante:
decisions about allocation of public budget
& efficient risk mitigation (project appraisal)
Requirements
• Different method requirements depending on the objective of target group
• ALL require reliable and comprehensive estimates of costs
Difficulties:
Diversity of terminology and methodological approaches for
different hazards and impacted sectors
Page 2

3. The CONHAZ project
Costs of Natural Hazards
Instrument: Coordination Action Project, EU FP7
(no research project,
i.e. no development of new methods)
Project duration: 2/2010 – 2/2012
Objectives: 1 Compile state-of-the-art methods for cost assessment
2 Analyse and assess these methods
3 Synthesise resulting knowledge into recommendations
and identify further research needs
Page 3

4. Cost types
Working definition of cost types within CONHAZ:
damage costs / mitigation costs
• Direct tangible costs:
Direct physical impact on economic assets
• Losses due to business interruption:
Directly caused by the hazard
(losses due to interruptions in industry, commerce and agriculture )
• Indirect costs:
Induced by direct damages or losses due to business interruption
(production losses of suppliers, traffic disruption)
• Intangible (non-market) costs:
Damages difficult to monetise
(adverse health effects, environmental goods and services)
• Mitigation costs:
Costs of risk reduction
Page 4

5. Project structure
Cost types
WP1: Direct Costs &
WP2: Indirect Costs (SMASH/CIRED)
WP3: Intangible Effects (UFZ)
WP4: Costs of Mitigation (IVM)
Bubeck and Kreibich 2011
Business Interruption (GFZ)
Przyluski and Hallegatte 2011
Markantonis et al. 2011
Bouwer et al. 2011
WP5: Costs of Droughts (UAB)
Logar and van den Bergh 2011
WP6: Costs of Floods (MU)
Hazards
Green et al. 2011
WP7: Costs of Coastal Hazards (UniFe)
Lequeux and Ciavola 2011
WP8: Costs of Alpine Hazards (UIBK)
Pfurtscheller et al. 2011
WP9: Synthesis & Recommendations (UFZ)
Meyer et al. 2012
Page 5

6. Project structure
Cost types
WP1: Direct Costs &
WP2: Indirect Costs (SMASH/CIRED)
WP3: Intangible Effects (UFZ)
WP4: Costs of Mitigation (IVM)
Bubeck and Kreibich 2011
Business Interruption (GFZ)
Przyluski and Hallegatte 2011
Markantonis et al. 2011
Bouwer et al. 2011
WP5: Costs of Droughts (UAB)
Logar and van den Bergh 2011
WP6: Costs of Floods (MU)
Hazards
Green et al. 2011
WP7: Costs of Coastal Hazards (UniFe)
Lequeux and Ciavola 2011
WP8: Costs of Alpine Hazards (UIBK)
Pfurtscheller et al. 2011
WP9: Synthesis & Recommendations (UFZ)
Meyer et al. 2012
Page 5

7. State-of-the-art

8. Current best practices (1)
Direct tangible costs:
General method Specific method Application a/o Examples
(using specific parameters,
hazard-specific)
Susceptibility function Single-parameter models Floods: Model of ICPR (2001); Model of MURL (2000), adopted by Glade (2003);
(based on single hazard impact Model of Hydrotec (Emschergenossenschaft and Hydrotec 2004). Droughts:
parameter) Corti et al. (2009). Alpine hazards: Fuchs et al. (2007), Huttenlau et al. (2010),
Totschnig et al. (2010)
Multi-parameter models Floods: HAZUS-MH (FEMA 2011, Scawthorn et al. 2006); FLEMOps and
(based on several hazard impact FLEMOcs models (Apel et al. 2009, Elmer et al. 2010, Kreibich et al. 2010a,
and /or resistance parameters) Thieken et al. 2008); Model of Multicoloured Manual (Penning-Rowsell et al.
2005); HIS-SSM (Kok et al. 2005); Model of Maiwald and Schwarz (2010).
Coastal hazards: FEMA (2011); HIS-SSM (Kok et al., 2005); Nadal and Zapata
(2010). Alpine hazards: BUWAL (1999a,b), Keiler et al. (2006)
Event analysis Comparison hazard and non- Benson and Clay (1998), COPA-COGECA, (2003), Fink et al. (2004), Martin-
hazard time periods based on Ortega and Markandya (2009), Rijkswaterstaat (2004)
reported cost figures
Integrated Assessment Biophysical-Agroeconomic Models Holden and Shiferaw (2004)
Analysis
CGE Analysis CGE Models Horridge et al. (2005)

9. Current best practices (2)
Losses due to business interruption:
General method Specific method Application a/o Examples
(using specific parameters,
hazard-specific)
Susceptibility Percentage/share of direct ANUFLOOD (NR&M 2002); RAM (NRE 2000)
function damages
Losses to economic flows Booysen et al. (1999), Parker et al. (1987); HAZUS-MH (FEMA 2011); Model of
MURL (2000); Model of Hydrotec (Emschergenossenschaft and Hydrotec 2004);
Event analysis Comparison hazard and non- Benson and Clay (1998), COPA-COGECA, (2003), Fink et al. (2004), Martin-Ortega
hazard time periods and Markandya (2009), Rijkswaterstaat (2004)
based on reported cost figures
CGE Analysis CGE Models Horridge et al. (2005)
Integrated Assessment Biophysical-Agroeconomic Holden and Shiferaw (2004)
Analysis Models

10. Current best practices (3)
Indirect costs:
General method Specific method Application a/o Examples
Event analysis Surveys Firm-level: Boarnet (1998), Kroll et al. (1991), Tierney (1997)
GDP effect assessment Alabala-Bertrand (1993), Cavallo and Noy (2009), Hochrainer (2009), Jaramillo
(2009), Noy (2009), Loayza et al. (2009), Noy and Nualsri (2007), Raddatz (2009),
Econometric Skidmore and Toya (2002)
Gross regional/local approaches Noy and Vu (2009), Strobl (2008)
product effect assessment
Input-Output Analysis I/O Models HAZUS-E (see also McCarty and Smith 2005); Haimes and Jiang (2001), Haimes
et al. (2005), Okuyama (2004), Rose and Liao (2005), Rose and Miernyk (1989)
Computable General CGE Models Horridge et al. (2005), Rose et al. (2007)
Model-based
Equilibrium Analysis
approaches
Hybrid Analysis Hybrid Regional I/O CGE Hallegatte (2008)
Models
Hybrid I/O CGE Model TERM Model (Horridge et al. 2005)
Idealized Analysis Idealized Models Hallegatte and Dumas (2008), Hallegatte and Ghil (2008)
Integrated Assessment Biophysical-Agroeconomic Holden and Shiferaw (2004)
Analysis Models
Coupled Hydrological- Booker (1995), Grossmann et al. (2011)
Economic Models
Public finance coping capacity Public finance model IIASA CATSIM model (Mechler et al. 2006)
Analysis

11. Current best practices (4)
Intangible (non-market) costs:
General method Specific method Application a/o Examples
Revealed preferences Travel Cost (TC) method Hartje et al. (2001)
methods
Hedonic Pricing (HP) method Hamilton M.J. (2007), US Army Corps of Engineers (1998)
Cost of Illness (COI) approach DEFRA (2007)
Replacement Cost (RC) method Leschine et al. (1997)
Production Function Approach n.a.
(PFA)
Stated preferences Contingent Valuation (CV) Birol et al. (2006), Daun and Clark (2000), DEFRA (2004), Leiter and Pruckner
methods method (2007), Pattanayak and Kramer (2001), Turner et al. (1993), Zhai and Ikeda (2006),
Zhongmin et al. (2003)
Choice Modelling (CM) method Brouwer and Schaafsma (2009), Daun and Clark (2000), Hensher et al. (2006),
Olschewski et al. 2011
Life Satisfaction Analysis (LSA) Carroll et al. (2009)
Benefit or Value Martin-Ortega and Markandya (2009)
Transfer methods
(BT/VT)

12. Knowledge gaps
& recommendations

13. Comprehensiveness:
Cost assessments still biased, incomplete
Focus of practice (and methods):
 still very much on direct costs, little on indirect and intangible costs
 not on scale of interest (indirect)
 often single sectors and/ or hazards
Recommendations:
→ consideration of all relevant information for decision support
→ complete picture of the costs of natural hazards
• costs due to business interruption
• indirect costs
• intangible/non-market costs

14. Uncertainty and Validation
Cost assessment still very uncertain
Remaining high uncertainties in all parts of cost assessment
→ improvement of availability and quality of data
(see recommendations on data)
→ advancement of models
(see recommendations on methods)
However: residual uncertainty of all data and cost estimations
→ transparent documentation & communication

15. Data
Lack of ex post data availability and quality
 ex post damage data
 data on costs of mitigation
Recommendations:
→ framework for supporting data collection on European level
→ minimum data quality standards
→ consistency of European and national databases

16. Improvement of methods
1. Direct costs
Simplification and inaccuracy of damage processes
 due to one-parameter models (hazard and resistance parameters)
→ Better capturing of variety of damage influencing parameters
→ multi-parameter damage models
→ Inclusion of resistance parameters
Weak link to indirect cost assessment

17. Improvement of methods
2. Indirect, economic system
output
Insufficient understanding of the (GDP) ?
economic response to external shocks
?
Scale mismatch of interest and models
?
time
Recommendations:
→More research on
 Functioning of markets outside equilibrium
 Dynamics of return
→Improvement of models based on better understanding

18. Improvement of methods
3. Intangible, non-market
Rare consideration of intangible costs in assessments
 Monetary valuation methods available,
not often applied in practice
 Lack of understanding of physical processes/impacts
of natural hazards on environment and health
Recommendations:
→ Better estimation of ecological impacts, health effects
→ Better inclusion into the decision making process:
 Multi-Criteria Analysis framework (non-monetary)
 Cost-Benefit Analysis framework (monetisation necessary)

19. Improvement of methods
4. Costs of mitigation
Focus of costing of mitigation measures on estimating direct costs,
especially investment costs
→ More attention to operation and maintenance costs,
indirect and intangible costs of mitigation measures
Often no consideration of non-structural measures in decision support
frameworks
→ better estimation of costs of non-structural measures for
comparative evaluation of (non-) structural alternatives

20. Future dynamics
Most ex ante cost assessments assume current risk situation
Dynamics of risk drivers and socio-economic developments
not often considered in cost assessment
→ More research is needed on
 effects of climate and socio-economic change
on future costs
 how to integrate such dynamics in cost assessment
approaches

21. Decision support & Conclusions
Cost assessement for better decision support and improvement of
risk management
Incomplete and biased cost estimations, costs,
to some degree uncertain benefits
Optimisation an illusion
(by means of Cost-Benefit Analysis)
R* protection
→ Need for decision support tools & guidance
 integrate multiple criteria in wider framework
 transparent, participatory, iterative processes
 consider & communicate uncertainties

22. See www.conhaz.org
Cost type reports:
• Direct costs and costs due to business interruption (Bubeck and Kreibich 2011)
• Indirect costs (Przyluski and Hallegatte 2011)
• Costs due to intangible, non-market effects (Markantonis et al. 2011)
• Costs of risk mitigation (Bouwer et al. 2011)
Hazard types reports:
• Droughts (Logar and van den Bergh 2011)
• Floods (Green et al. 2011)
• Coastal hazards (Lequeux and Ciavola 2011)
• Alpine hazards (Pfurtscheller et al. 2011)
Synthesis report:
• Meyer et al. 2012
Source: UFZ, André Künzelmann
Thank you very much for your attention!
Davos, August 28, 2012