Chapter 2: Adopting a risk‐based approach

2.1 Adopting a risk-based approach to climate change 2.2 Definitions and fundamentals 2.3 Flexible Adaptation Pathways 2.4 Application of a risk-based approach for New York City 2.5 Conclusions and recommendations A significant message accompanying the call for greenhouse gas mitigation actions from the Intergovernmental Panel on Climate Change (IPCC) 2007 Fourth Assessment Report is the increasing need to identify a decision framework for climate change that encompasses both mitigation and adaptation. Through the IPCC, governments have begun to acknowledge risk management as a unifying theme for both climate change mitigation and adaptation. Their unanimous approval of this message underscores the importance of providing more information about climate risks (in addition to providing information about impacts and associated vulnerabilities) and suggests that consideration of risk plays a critical role in all facets of climate change decision making: “Responding to climate change involves an iterative risk management process that includes both adaptation and mitigation, and takes into account climate change damages, co-benefits, sustainability, equity and attitudes to risk” (IPCC, 2007c; our emphasis). These words make clear that governments throughout the world now understand that managing the risks associated with climate change will be a central theme for present and future planning and policy decisions. For climate change adaptation, particularly in a large city like New York, a risk-based approach can serve as a valuable guide to policy and action. A critical aspect is that it can promote support of expenditure of evermore scarce city resources to reduce risks from both high-probability events and low-probability events. This chapter reviews the common underpinnings of a response portfolio that includes both mitigation and adaptation, although the focus of the New York City Panel on Climate Change (NPCC) is on adapting in order to protect existing and anticipated infrastructure. This dual approach of mitigation and adaptation to climate policy is essential, and risk management concepts can be applied side-by-side to both types of responses. First of all, the ability of both developed and developing countries to adapt to climate change can be overwhelmed by unabated climate change (IPCC, 2007b), so mitigation is essential. The implications of mitigation on the timing and severity of local vulnerabilities must be understood so that adaptation can proceed effectively and efficiently. Alongside mitigation, adaptation also needs to be a priority because the climate is already changing, and mitigation responses may not begin to moderate projected climate changes for several decades. (See Chapter 3 for a fuller discussion of climate science.) Mitigation and adaptation are therefore equally essential. To ensure consideration of both simultaneously, we cast adaptation and mitigation into a common framework within which consideration of long-range goals and their translation into short-term objectives can be accomplished. To make a risk management approach to climate change adaptation operational, we must craft iterative and flexible adaptation plans whose relative efficacy can and will be influenced by investment in mitigation. Figure 2.1 offers a schematic portrait of several possible futures for interactive climate change adaptation and mitigation. It presents a societal “acceptable level of risk” as a wavy horizontal line, indicating the ever-fluctuating threshold of this concept. If we remain on a current risk trajectory with no regard to either mitigation or adaptation, depicted by the blue line, the acceptable level of risk is crossed relatively soon. The orange line represents setting inflexible adaptation standards done in conjunction with mitigation actions. While this is better than simply maintaining the status quo, it will still eventually result in crossing into a state of “unacceptable level of risk.” The yellow line represents creating “Flexible Adaptation Pathways,” a sequence of adaptation strategies policy makers, stakeholders, and experts develop and implement that evolve as our knowledge of climate change progresses. However, without mitigation actions, adaptation alone will likely not be enough to sustain society in an acceptable level of risk. The green, therefore, is better because it combines mitigation actions along with Flexible Adaptation Pathways to create a future scenario in which we will remain below an “acceptable level of risk” indefinitely. This concept is based on work done by the City of London and the UK Environment Agency for the Thames barriers (Lowe, et al.). Further information about Flexible Adaptation Pathways is provided in the Adaptation Assessment Guidebook (AAG) in Appendix B. Flexible adaptation and mitigation pathways. Adapted from City of London, “The Thames Estuary 2100 Plan,” April 2009. Benefit-cost approaches (e.g., Nordhaus, 1991), which entail detailed financial calculations of the advantages (benefits) and harms (costs) associated with specific efforts to address climate change, have been a mainstay of economic analyses of climate policy for nearly two decades.1 In recent years, though, many authors and commentators have argued that comparisons of benefits and costs are not really appropriate in the climate arena. Practitioners within both the public and private sectors have come to recognize that some benefits (and even some costs) cannot be monetized.2 They have also recognized problems with specifying appropriate discount rates in order to calculate present-day values for dollars that will be spent or saved in the future. Other problems include coping with pervasive, persistent, and multidimensional uncertainty and accommodating the profound distributional consequences of climate change. As a result, a risk management approach to confronting climate change has emerged as a complementary analytic tool that is designed to ameliorate or at least account for many of the limitations of traditional cost-benefit analysis (IPCC, 2007c).3 Risk management approaches to decisions begin with a statistical definition: Risk = the probability of an event multiplied by some measure of its consequence. Risk-based approaches have gained favor among many decision makers because their direct application can be supported on the basis of the same economic-efficiency criteria (i.e., the maximization of goods and services provided to society at any given level of resource expenditure), which support other approaches to economic analysis. Risk management is also a technique that policy makers, stakeholders, and finance directors in both public and private sectors understand and adopt on a regular basis. The key insight for all stakeholders is that risk management techniques show how diversification and risk-spreading mechanisms can improve social and/or private welfare in situations of profound uncertainty. Diversification cannot eliminate risk completely, and that is why the risk-spreading value of insurance is so important. Indeed, insurance is the primary means by which residual risk can be spread across a wider population so that no one person or small group of people face disproportionate exposures to losses (see Chapter 6 for further discussion of the role of insurance in responding to climate change). At the most fundamental level, first principles of economic efficiency support the pursuit of robust responses to uncertain circumstances—responses that work reasonably well across a wide range of possible futures even if they do not work optimally for any single outcome.4 Since uncertainty is ubiquitous in regard to climate change and its impacts, it is not surprising that deliberations about how to respond are now couched explicitly in terms of risk. Moreover, a risk-based approach gives policy makers a method for evaluating hedges—that is, investments undertaken to reduce or eliminate certain risks. The IPCC (2007c) builds on this understanding among its stakeholders when it asserts that risk management tools and approaches should be used in public discussions regarding what to do about climate change. At present, such discussions are often stuck in an unproductive standoff between strained claims of certainty (“the verdict is in, now is the time for significant action regardless of cost, it won't cost much anyway, etc…”) and impassioned invocations that generic uncertainty justifies inaction (“climate change is uncertain, we lack proof, mitigation is too expensive, research and development alone will solve the problem, etc…”). Sensible decisions and prudent management of risks require actions that work in the murky arena between these two extremes. Risk management acknowledges that coping with uncertainty will play an important role in both the identification of policy objectives and the design of specific policy initiatives. Many questions about how to apply risk management knowledge in the climate arena still remain, but this knowledge is evolving rapidly. For example, the IPCC has concluded that it is “virtually certain” that the climate is changing at accelerating rates (IPCC, 2007a),5 and there is “very high confidence” that anthropogenic emissions are the principal cause (IPCC, 2007a).6 We know now that anthropogenic climate change is the strongest contributor to the conditions that created the 2003 heat wave across central Europe (IPCC, 2007b). This knowledge alone is sufficient to establish the reality and seriousness of the climate change issue. Even though substantial uncertainties persist about specific sources of risk, this knowledge is also sufficient to establish the need to respond in the near term in ways that will reduce future emissions and thereby ameliorate the pace of future change. In short, uncertainty makes the case for near-term action through hedging against climate risks denominated in terms of both monetary damages and other indicators, such as billions of additional people who might be facing hunger, water stress, or hazards from coastal storms.7 It also follows that near-term mitigation actions should begin immediately if we are to minimize the expected cost of meeting the long-term objective to reduce the ultimate rate and magnitude of climate change. Risk-based approaches clearly support the case for mitigation of greenhouse emissions. But questions remain about whether current understanding of the climate system can support a similar approach in the area of climate adaptation. A limited number of risk assessments have already compared the costs of mitigation with the corresponding changes in climate risks, and more are appearing every month.8 Taken together, these studies show that risk assessment can productively complement benefit-cost calculations.9 While a risk-based approach can certainly be applied to many types of adaptation decisions, the requisite data may not always exist. Identifying information needs and knowledge gaps is thus one reason why it is essential to begin a process of planning for and prioritizing across adaptation options as soon as possible. Table 2.1 shows climate hazards that contribute to risk expressed in terms of sea level rise projections, produced by the NPCC. One NPCC scenario for sea level rise, projected for three time slices, was derived from global climate models using the methods used in the IPCC (2007a). Because of uncertainties associated with that approach, the NPCC provided an additional scenario for sea level rise that reflected the potential for additional sea level rise contributions primarily from the Greenland and West Antarctic ice sheets. Offering decision makers information about a possible future that has not yet been modeled satisfactorily may sound peculiar. Yet decision makers cannot simply ignore highly unlikely triggers that might lead to irreversible impacts of extraordinary consequence. It is reassuring, in this regard, to remember that the conduct of monetary policy by national governments frequently represents a real-world of how hedging strategies have been against large risks whose and/or consequences cannot be As by of the in to the at their meeting in conduct of monetary policy in the has come to at its of risk This framework understanding as much as possible the many sources of risk and uncertainty that risks when and the costs associated with of the risks This framework also in of risks, a for policy at the of time our policy a risk management at be to actions to insurance against In other we must into account low-probability but when developing risk management strategies even in when we know about Risk management strategies used in the monetary to with such as have a direct to the of climate change, low-probability but events a large risk. 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This is in and it is for New York To this process into their governments and other must work to establish mechanisms by which they can and key of climate change, impacts, and to reduce both and to impacts, and the of these responses with other private and public initiatives. of the to responding to climate change has on the potential for climate change mitigation, particularly on options that to be for city because they work to reduce greenhouse gas emissions and economic cost Adaptation to climate change has been more to in because have to and because many options have in the of The of the NPCC work show that a may be To some a risk-based approach changes the decision at the it immediately to consideration of that complement existing risk and management This suggests that decision makers develop a process by which climate derived from existing standards and and through the of maintaining of risk are into design tools and design Appendix However, this process needs to recognize that it is in a that will evolve As a result, design like that the risk of within a for coastal and may be to and even to changing for adaptation in a should to Flexible Adaptation makers can identify in and social in terms of critical of irreversible or particularly impacts, based on These can be an essential of these but if they can be expressed in terms of that when an adaptation measure is This represents a of possible future studies on the of evaluating the of the risk management approach and the potential of of existing design standards and as of an adaptation New York City has this more has recognized that Flexible Adaptation Pathways will be if climate change are (see Chapter These designed with the of with will and the of change for key climate change their associated impacts, and the efficacy of existing adaptation in the of evolving with this on the one be to near and impacts by changes in, for example, and can be to the that low-probability but events may more It is in responses along this that it is to and understand and and to decision that when and how to adopt types of adaptation In these conditions will require It will be for New York City stakeholders to the change and the of their risk responses in order to and make