Quantifying the Non-Market Benefits of Coastal Adaptation and Natural Infrastructure: Implications for Benefit-Cost Analysis Robert J. Johnston Clark University Webinar for the New Brunswick Environmental Network November 6 th , 2019
What Adaptation Choices are Optimal? Among the predicted implications of climate change are sea level rise and an increased incidence and severity of coastal storms. All adaptation to these hazards requires tradeoffs. What can economics tell us about the benefits and costs (and optimality) of different adaptation options? How do we know whether the benefits of an adaptation action outweigh the costs? There are many ways to adapt. How can we balance the benefits and costs different adaptation strategies? How should we balance protection of built versus natural capital?
No One-Size-Fits-All Approach
Predetermined Notions Good decisions can sometimes be hindered by misguided assumptions about the economic benefits and costs. For example, it is often assumed that the economics of coastal adaptation primarily concerns cost-effective protection of built capital/infrastructure. Giving automatic priority to homes, infrastructure and markets can lead to policies that reduce net economic benefits. Even when the biophysical outcomes of adaptation can be projected, the socioeconomic consequences are not always obvious.
Common Example — Damage Costs Among the most commonly cited estimates of economic cost due to coastal hazards are replacement or damage costs to homes and infrastructure. Reduction or avoidance of these costs is often reported as an economic benefit of adaptation. But replacement or damage costs alone are usually not valid measures of either economic cost or benefit. These costs can either under- or overestimate true benefits or costs.
Damage Costs versus Economic Costs Example #1: A rarely-used bridge-to-nowhere damaged by a flood. Repairing this bridge would cost a $100 million. Is the benefit of protecting this bridge $100 million? No — because the bridge has little real value to society. Example #2: A heavily-used dirt road damaged by a flood. Due to flooding emergency vehicles cannot reach residents who require assistance. Other people cannot evacuate. Repairing this road would cost $20,000. Is the benefit of protecting this road $20,000? No — because real losses due to road damage are much greater.
Quantifying Economic Benefits and Costs Economic benefits and costs do not necessarily equate to monetary flows in markets. Economic activity does not equal economic benefit. An economic benefit simply reflects a change in the welfare of an individual or group. An economic cost is the loss of something that would otherwise provide a benefit (or the loss of a benefit). Benefits and costs can result from activity in markets (e.g., consumption of market goods) or from changes in nonmarket goods and services.
Types of Economic Values Total Value Non-Market Market Use Non-Use Consumptive Non-Consumptive Existence Bequest Altruistic
Economic Values For market goods, people make purchases that express values (we can see the tradeoffs they make). Values typically measured as consumer and producer surplus. For non-market goods, no markets exist. Non-market valuation is required to asses these values. Examples — clean water, air, wildlife, climate, recreation, natural flood protection. The economic theory underlying value estimation is the same for market and non-market goods, but the methods used to measure these values differ.
What’s the Net Value to Consumers? Common Non-Market Valuation Methods Consumer’s Surplus Revealed Preference (Use Value) — Quantify values based on observed behavior in or out of markets – Recreation Demand Models – Hedonic Property Value or Wage Methods – Ecological Productivity Methods P – Defensive Behavior Methods R – Factor Input Methods I C – Related Market Behavior E Stated Preference (Use + Nonuse Value) — Quantify values based Surplus to consumers for on responses to carefully designed surveys all units of production – Contingent Valuation – Choice Experiments Benefit Transfer — Use results from a study elsewhere to quantify QUANTITY values for a site where no results are available
Illustrative Example from Delaware Example: A 2012 study for the Delaware Dept. of Natural Resources and Environmental Control quantifies benefits and costs of management for Delaware Bay Beaches. Narrow beaches on Delaware Bay supporting local communities, recreation and natural services. Key policy question – what should the State do to address erosion and loss of these beaches and communities?
Project Area
The Economic Analysis Beach width, housing loss and other biophysical projections provided by Johnson, Mirmiran & Thompson (2012) for each beach, under four management scenarios. The analysis considers predicted changes in beach width through 2041, along with associated effects on housing, infrastructure, ecosystem services, and other benefits and costs. Four options identified by the state: Scenario 1 — Beach Nourishment Scenario 2 — Managed Retreat Scenario 3 — Basic Retreat Scenario 4 — Do Nothing
Example – Non-Market Recreational Values Beach Basic Enhanced Beach and Visitor Type Nourishment Retreat Retreat Pickering (total) $659,832 $306,567 $169,168 Kitts Hummock (total) $625,966 $330,514 $278,198 Bowers (total) $1,173,049 $579,326 $927,590 South Bowers (total) $393,726 $82,450 $290,372 Slaughter (total) $2,391,604 $1,583,761 $2,194,251 Prime Hook (total) $1,092,704 $63,236 -$365,880 Broadkill (total) $9,729,112 $7,837,672 $7,268,543 TOTAL ALL BEACHES $16,065,994 $10,783,525 $10,762,243 Note. All estimates represent Present Value over 2011 to 2041, discounted at 4% and compared to No Action Scenario. Recreation demand model estimates annual recreational benefits for different beach widths, based on visitation patterns (Parsons et al. 2013). Table shows change in non-market benefits realized by beach visitors, compared to a default of No Action.
Net Benefits Compared to No Action (A) (B) (C) (D) (E) (F) (G) (H) Sand, Fill Housing Housing Recreation Housing Reduction Net Net and Acquisition Acquisition Services in Benefits Benefits not (PV, Demolition Payments Payments Additional Including $mill) (PV, (PV, $mill; (paid by (received Flood and Additional Scenario (PV, $mill) $mill) sum of A State) by property Erosion Flood and through F) owners) Damages Erosion (PV, $mill) (PV, Damages (PV, $mill) $mill) (PV, $mill) Beach Nourish- -$26.8 -$61.1 -$0 $0 $16.1 $18.2 $2.7 -$24.1 ment (Scenario 1) Basic -$32.8 -$0.5 -$61.3 $61.3 $10.8 -$43.1 $3.0 -$29.8 Retreat (Scenario 3) Enhanced -$124.6 -$4.5 -$149.1 $149.1 $10.8 -$130.9 $10.6 -$114.0 Retreat (Scenario 2)
No Action Provides the Greatest Social Benefit Nourishment benefits a small group of coastal homeowners but imposes large costs on others. Retreat requires substantial costs of removing homes and immediate loss of housing value. The option with the greatest net economic benefit is No Action (beaches erode and homes are continually lost). Nourishment Basic Retreat Enhanced Retreat Community Net Benefit (PV, Net Benefit (PV, Net Benefit (PV, $mill) $mill) $mill) Pickering -$3.2 -$0.5 -$1.8 Kitts Hummock -$4.6 -$1.6 -$6.9 Bowers -$3.1 -$2.9 -$5.8 South Bowers -$3.8 -$0.4 -$1.4 Slaughter -$11.6 $0.7 -$8.5 Prime Hook -$4.6 -$3.4 -$36.4 Broadkill $6.8 -$21.9 -$53.2 Total -$24.1 -$29.8 -$114.0 Notes: Net benefits calculated relative to the No Action Scenario. The table reports all figures in 2011 dollars. The reported values are the present value of the stream of annual estimates aggregated across 30 years (from 2011 to 2041) and discounted at 4%.
Common Wisdom Can be Wrong Such outcomes highlight the benefits of looking at each area objectively, on a case-by-case basis. Preconceived notions and objectives can lead to misguided actions and priorities. Even when the biophysical outcomes of adaptation can be projected, socioeconomic consequences and values are not always obvious. Findings such as this highlight the importance of tradeoffs in adaptation.
Example #2: Quantifying Residents’ Values Choice Experiments are survey-based stated preference methods that estimate values from survey respondents’ choices over alternative, hypothetical policy options. Questions mimic public votes. Respondents choose among policies with different environmental effects and costs. By evaluating respondents’ choices over many different multiattribute alternatives, we can calculate tradeoffs that reveal values (or willingness to pay). Methods such as these are the only means of measuring use and nonuse values.
Simple Conceptual Example Management Status Quo (No Option A Outcome Policy) Quantity of X 1 X 1 Outcome X Quantity of Y 1 Y 1 +A Outcome Y Change in Annual $0 $10 Household Taxes □ □ HOW WOULD YOU VOTE?
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