Putting a price on resilience
October 2018
Policymakers, investors and practitioners implementing resilience projects, strive to achieve the greatest impact for their investment.
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However, estimating the benefits arising from a project aimed at increasing resilience is difficult. The Asian Development Bank’s (ADB) Urban Climate Change Resilience Trust Resilience Fund (UCCRTF) is working to put a price on the urban resilience benefits of the bank’s infrastructure loans and technical assistance programs.
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Quantifying the economic benefits of resilience at the city-level can help drive new investments in infrastructure, improve the efficacy of urban development and planning, and demonstrate the benefits of existing resilience strategies. However, it is a task that is fraught with challenges. So how can we begin to put a value on urban resilience?
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Investing in climate resilience at the city level can significantly reduce the social and economic costs of climate change for vulnerable communities. Resilient infrastructure also underpins the shift towards more efficient and better functioning cities and can encourage wider economic development and growth. However, limited access to finance and the increasing threat of climate change mean it is important to identify and prioritize those investments likely to offer greatest value for money.
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The socioeconomic benefits of resilience can arise from both hard investments in resilient infrastructure (e.g. improved drainage, flood protection, access roads, storm shelters) as well as from climate-smart planning approaches (e.g. improved land use and zoning policies). These, in turn, can give rise to a range of benefits associated with reduced economic costs of climate change. Examples might include reduced damage to buildings and property, lower levels of injury and loss of life, and avoided loss of incomes and livelihoods.
A flooded street in Dong Hoi, Viet Nam.
Breaking new ground
Several previous studies have sought to value the costs and benefits of investing in resilience. These studies cover a range of sectors and draw from the fields of both climate change adaptation and disaster risk reduction. They generally report positive benefit-to-cost ratios (BCRs) with economic returns usually at least 3 times those of the original investment and some projects delivering BCRs of up to 50:1 .[1]
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However only a few of these studies are directly relevant to the urban context (for example those relating to urban flood management, set back zones, and cyclone shelters). Such studies tend to be far fewer in number than those for other sectors (e.g. agriculture, social protection). In addition, only limited analysis has been undertaken on the benefits of improved resilience planning and capacity on economic outcomes. What evidence exists is also often derived from developed country contexts.
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While urban resilience incorporates benefits associated with both climate change adaptation and disaster risk reduction, it also incorporates wider set of economic benefits (spillover effects) associated with improved urban planning and function, and positive linkages to livelihoods and growth. Greater overall economic resilience can underpin the ability of impacted communities to cope with and respond to external shocks and stresses.
Upgrading infrastructure plan displayed on a billboard in Patuakhali, Bangladesh.
The value of pricing resilience
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While delivering resilience can often be achieved by integrating principles in urban planning and development, it often requires new investment compared to a business-as-usual scenario. This may include building additional infrastructure (such as embankments to protect against changes in flood levels) or upgrading the specification of existing infrastructure to meet higher climate thresholds (such as raising road levels or increasing drainage).
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Putting a price on resilience to ensure value for money is therefore a central focus of the UCCRTF. This involves not only understanding the costs of UCCRTF investments (and their additionality from a climate perspective), but also the benefits of these investments in terms of averting the economic damages associated with climate change.
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These insights create value for the UCCRTF itself and help assess the effectiveness of the program. They also extend the evidence base that underpins the quality of urban resilience programing, investment, and project appraisal approaches.
The UCCRTF has the ambition to reduce the costs of climate change by 15%.
Overall, the UCCRTF project has the ambition to reduce the costs of climate change by 15% in those urban communities where it makes investments. There are, however, several practical challenges in monitoring and/or measuring the benefits of resilience:
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The evidence base for the historic economic costs of climate shocks and stresses in UCCRTF cities is limited, particularly at the catchment level of individual infrastructure investments;
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The resilience benefits of UCCRTF investments are likely to arise after the program has been completed and will accrue over infrastructure lifetime (potentially up to 50 years or more);
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The scale and/or frequency of climate shocks in a given city is unpredictable and will likely change over time, reflecting the trajectory of global warming (which is itself uncertain);
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UCCRTF cities are undergoing rapid socioeconomic change in terms of urbanization, population and infrastructure growth, thereby increasing the economic value of exposure over time;
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Not all economic impacts can be easily captured by market values (e.g. loss of life, eco-system impacts), requiring more nuanced approaches to valuation.
New roadway and drainage being installed in Bagerhat, Bangladesh.
Modeling economic benefits of resilience
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For this reason, UCCRTF is adopting a modeling approach to estimate the economic benefits of resilience. As part of the model, UCCRTF is ‘ground-truthing’ its assumptions – undertaking primary research around the UCCRTF portfolio of investments – as well as drawing upon secondary evidence from the UCCRTF cities and similar urban contexts. The following are important areas of socioeconomic research that are being undertaken as part of the UCCRTF program:
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Building a profile of climate risks in UCCRTF cities (and similar urban contexts) and exploring how return periods for such events might evolve over time given future climate change;
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Building a profile of climate risks in UCCRTF cities (and similar urban contexts) and exploring how return periods for such events might evolve over time given future climate change;
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Identifying economic costs associated with identified climate shocks through a combination of desk research and engagement with key, city-level stakeholders and communities;
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Looking at the likely socioeconomic development pathways of UCCRTF cities in terms of changes in population and asset exposure;
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Reviewing the evidence base for avoided damages associated with typical UCCRTF-type infrastructure investments and planning interventions;
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Identifying emerging climate shocks and stresses during UCCRTF implementation to support real-time assessment of damage costs and the potential for avoided impacts.
Using this data, we are modeling a range of scenarios that will allow the UCCRTF program to identify the potential scope and scale of resilience benefits over time that are associated with its investment portfolio and capacity building activities.
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These insights will be applied to explore ways of integrating the economic costs and benefits of resilience into the more mainstream appraisal of infrastructure projects. They will also help broaden understanding of the potential of resilience to underpin wider economic development in the urban context.
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[1] Price R. (2018) Cost-effectiveness of disaster risk reduction and adaptation to climate change. Institute of Development Studies.