The costs of urban inaction

2.7 The costs of urban inaction

Most of the discussion of climate change impacts in the urban environment has focused on storm and flood-related damages, heat impacts, water use, and human health and welfare; however it is important to consider explicitly how current and potential changes directly and indirectly impact local economies. Economic impacts can determine future capacity to adapt and cope with the aforementioned issues associated with change. Direct costs from climate change impacts can be staggeringly high, especially when related to natural disasters and sea level rise (Box 2.4). Shoreline retreat in the United States costs between USD 270 billion to 475 billion per meter climb in sea level; analogous costs in developing nations

can amount to one-third of annual GDP. 38 Flooding is one of the most expensive disasters, with a single flood causing England, for example, to spend GBP 1 billion to repair damages in 2000. 39 OECD (2008b)

reported a wide range of estimates for the costs of adapting urban water infrastructures from a variety of empirical studies, on the order of hundreds of millions to billions of dollars per year. In sub-Saharan Africa, adaptations in urban wastewater treatment systems (new and existing facilities), could cost USD 2 billion to 5 billion per year, while in Toronto, Canada, similar improvements were valued at around USD 9 billion annually (Ruth & Gasper in OECD, 2008a).

Indirect impacts can cripple local economic activity as well, when transportation, commercial and industrial activities are interrupted due to severe weather events. Economic impacts can have rebound effects in the job market and reduce tax revenue. These stresses on the local economy may limit investment opportunities and deplete funds for infrastructure innovations, leaving cities more vulnerable to future change (Ruth & Gasper in OECD, 2008a). Ripple effects from outside the city can also result in costs. Decreases in productivity or income outside the city may lead to a decrease in demand and an increase in import prices that could in turn affect the profitability of many economic sectors in the city and the income of city inhabitants, as well as food security (Hallegatte et al., 2008).

Box 2.4. The high costs of storms

Storms are currently the costliest weather events in the developed world and some research, particularly from the insurance sector, quantifies the potential future costs of climate change. For example, ABI (2005) estimated that by the 2080s, there would be a 75% increase in costs of insured damage in a severe hurricane season in the USA, a 65% increase in costs of insured damage in a severe hurricane season in Japan, and a 5% increase in wind-related insured losses from extreme European storms. Swiss Re recently estimated that in Europe the costs of a 100-year storm event could double by the 2080s with climate change (USD50/EUR40 billion in the future compared with USD25/EUR20 billion today), while Nordhaus (2006) assessed the economic impacts of U.S. hurricanes (on the Miami coast and New Orleans) and estimated that the average annual hurricane damage will increase by USD8 billion at 2005 incomes

(0.06% of GDP) due to the intensification effect of a CO 2 -equivalent doubling. Other estimates indicate that the cumulative contribution of changing climate risk and socio-economic development are likely to double worldwide economic losses due to natural disasters every ten years.

Source: Hunt, Alistair and Paul Watkiss OECD (2007a), “Literature Review on Climate Change Impacts on Urban City Centres: Initial Findings”, OECD Environment Directorate Working Paper, 6 December 2007, OECD, Paris.

Most economic loss will come in the form of “hidden” costs, such as the costs of rerouting traffic, lost productivity, provision of emergency and continued aid, relocation and retraining, lost heritage, and urban ecosystem damage. In addition, higher risk and uncertainty stemming from global climate change imposes additional costs on the insurance, banking, financing and investment industries (CIER, 2007). In general,