Assessing and Managing Europe's current and future flood and drought risks

1. Vulnerability and disaster risk mapping workshop EEA, Copenhagen, 2 July 2009 Assessing and Managing Europe's current and future flood and drought risks Hochrainer Stefan International Institute for Applied System Analysis Laxenburg, Austria

2. Point of Departure * Large Scale Events: Odra Flood, 1997: 5.0 billion Euro losses, 0.8 billion Euro insured losses 300.000 people evacuated Flooding, 2002: 14.4 billion Euro losses, 3.4 billion Euro insured losses 400.000 people evacuated * Source: CRED, 2008

3. Point of Departure • Losses from weather extremes such as floods, droughts, and other climate-related events in Europe (and elsewhere) have escalated in recent decades • The increase has been more rapid than population or economic growth can fully account for • According to the IPCC Fourth Assessment Report, anthropogenic climate change is expected to lead to increases in intensity and frequency of weather extremes

4. Point of Departure • Europe vulnerable to disasters already today, key focus for EU adaptation strategy (White paper) is on managing climate variability • Large events: • 2002 large-scale flooding over central Europe: losses > 15 billion Euro • 2003 summer heat wave of unprecedented magnitude resulting in 80,000 additional deaths • led to agricultural losses exceeding 13 € billion and a 30 per cent reduction in gross primary production of terrestrial ecosystems. • Risk information (maps) exist in some EU member states, but ADAM provides the first comprehensive probabilistic maps of riverine flood and drought/heatwave risks across the EU on various scales, e.g. from the regional to the national level • Potential applications • Risk based planning: e.g., flood protection • Identification and comparison of vulnerable and “at risk” countries • Financial and economic planning: Risk sharing

5. Methodological Approach • Extremes are low probability -high consequence events. • To assess and manage extreme risks probabilistic approaches • have to be used to incorporate all possible future scenarios. • Traditional risk measures are inadequate for decision making, e.g. • averages will not give adequate representation of the risk. • The „fat-tails“ and the thickness (of distributions) are important instead. • Traditional coping mechanisms do not work in the case of • extremes, e.g. Law of large numbers not applicable; hence • different risk management/adaptation strategies have • to be considered for catastrophes. • Distinctions between stock and flow effects are important.

6. Advantages of Risk based approaches Efficiency of risk management instruments dependent on the occurrence probability Low probability EU solidarity fund Market based insurance Probability Flood protection High probability

7. Flood

8. Risk based approach: Assessing direct risk Risk is a function of the Hazard, the Exposure and the Vulnerability. Approach used in ADAM:

9. Risk based approach: Assessing direct flood risk Maximum annual average flood damage for European provinces and regions (NUTS 2 level) as a percentage of GDP for today’s climate regime Averages are based on loss distributions on the GRID level. New method developed to upscale losses to the national level, „hybrid-convolution“ Method (Hochrainer, Lugeri)

10. Assessing direct flood risk: Results Minimum and maximum average annual flood risk across European countries measured in percent of GDP  Regions and countries in Eastern Europe are particularly flood risk hotspots

11. Criteria for funding met Extreme value distribution estimated Input: Loss distribution Country A Sampling losses … Threshold criteria EUSF payments Sampling Country Z losses Managing flood risk on the European Scale: EUSF On average, every 7 years one can expect that the EUSF can not meet its obligations.

12. Managing current flood risk on the Country Scale Government is a key actor: Source: Modified after Schick and Polackova Brixi, 2004

13. Managing current flood risk on the Country Scale Cross-country sample of financing modalities of disaster losses by insurance, government assistance, and private sector and net loss (as a percentage of direct losses)

14. Modeling Impacts and Adaptation: Country scale

15. Dynamic Modeling of Impacts and Adaptation: Country scale Climate Change Global Change Ex-post Hazard Sudden onset Exposure Physical Vulnerability Economic Resilience Dynamic direct risk assessment Direct Risk Economic Vulnerability Adaptation and Risk Management Dynamic Indirect risk management Economic Risk Ex-ante

16. Future Floods Climate models remain limited in their reproduction of local weather extremes due, inter alia, to inadequate (coarse) resolution Projections of changes in future extreme weather events remain highly uncertain and hinder us from robustly projecting future flood risk Land use changes very difficult to project Projected change in flood damages in 2071-2100 (% change with respect to 1961-1990 baseline)

17. Managing current flood risk on the Country Scale Need for managing risk on the country level: Hidden government disaster liabilities Government fiscal deficits and hidden liabilities due to flood risk in flood prone European countries

18. Austria case: Reserve Fund as a Risk instrument • The Austrian “Katastrophenfond” (National Disaster Fund): * The Fund became negative in 2002 and 2003 (flooding). To adjust the fund, investments more than 137 million in 2002 and more than 207 million Euros in 2003 were needed. * Source:Hyll et al., 2004

19. Austria case: Changes in fiscal space Fiscal space concept: Fiscal flexibility is decreased due to disaster events Stochastic trajectories of discretionary spending including disaster risk Fiscal space and disaster related reduction in Austria Time period of 10 years, 2009-2018

20. Drought

21. A B C D Approach used:

22. Current drought and heatwave risk Losses in 2009 € millions Similar analyses for winter wheat, soybean and sunflower Annualised monetary risk due to combined heatwave and drought stress for spring wheat calculated for the present period (1975-2005)

23. Future drought and heatwave risk Changes in annualised drought and heatwave risks to spring wheat over a future period in 2030-2060 based on SRES A2 (=2 degree) compared to today (in € millions) Change in 2009 € millions with adaptation: longer cycle variety without adaptation with adaptation: advanced sowing

24. Drought and heatwave: • With regard to drought and heat stress to agriculture, we find Southern Europe to be particularly vulnerable • In a future climate with a north-south precipitation change gradient, and assuming adaptation, many agricultural regions in Europe would actually benefit from a warming climate • However, some regions in Italy and Spain would not be able to benefit and adapt, and face continued stress and substantial associated risks • Drought and heatwave stress operate as slower onset phenomena and are more strongly characterised by mean climate conditions: greater confidence in model projections

25. Conclusions • Our study suggests that regions in Eastern Europe represent disaster hotspots for flood risk, and areas in Southern Europe for drought and heat stress to agriculture: case for increased cohesion funding? • Flood hazards are likely to worsen over much of Europe, yet due to a lack of localised projections from climate models, we considered risk projections not robust • In contrast, we feel more confident in projecting drought and heatwave risk as well as adaptation as a function of changes in broader-scale average climates

26. Conclusions • Although drought and heatwaves are likely to worsen across much of Europe, effective adaptation interventions exist • Yet regional heterogeneity in risk and response will continue, leading to climate change “winners” and “losers”. • Irrespective of future changes, weather-related disasters today already pose substantial burdens for households, businesses, and governments • Risk-based adaptation planning seems important: prevention better than the cure

27. End of Presentation

28. Partners

29. Introduction: Country perspective: Austria • The Austrian “Katastrophenfond” (National Disaster Fund): * The Fund became negative in 2002 and 2003 (flooding). To adjust the fund, investments more than 137 million in 2002 and more than 207 million Euros in 2003 were needed. * Source:Hyll et al., 2004

31. Introduction: European perspective: Solidarity Fund • Fund may be heavily exposed to one (large scale) event only, • as experienced in 2002 with ¾ of the fund depleted due to flood events • Nearly all (13/16) of the rejected applications were regional disaster • events. • Given the fact that a number of new member states are very • hazard-prone and disaster losses are likely to rise, • the Solidarity Fund is likely to be severely under-funded in the future • Question: - How one could model disaster impacts (direct and indirect) • on the Country or European scale • - How to incorporate adaptation strategies

32. Modeling Impacts and Adaptation: Introduction • Risk bearers (aggregate country level): • Public sector: Government: Infrastructure and Relief • Private sector: business and households. • property owners, • insurers, • reinsurers • and the capital market. • Each stakeholder may implement a wide range of risk management • and adaptation strategies, including • risk reduction: Structural or physical mitigation • risk preparedness: Loss absorption, e.g. via savings • and risk transfer: Risk spreading or financing • Furthermore, one can distinguish between ex-post or after-the-fact • approaches, and proactive (ex-ante) approaches.

33. Modeling Impacts and Adaptation: Direct Risk • Standard Approach: Four basic components • Hazard : Characterization of risk • Inventory: The elements at risk • Vulnerability: Susceptibility to damage • Loss: Direct or indirect Structure: • Model output: • - Hazard maps • Exceedance Probability (EP) curves • Probable maximum loss (PML) • Distribution of losses.

34. Modeling Impacts and Adaptation: Direct Risk Exceedance probability curve Loss frequency distribution Direct Risk

35. Modeling Impacts and Adaptation: Indirect Risks It is important to incorporate indirect effects within a risk management framework Possible indirect effects on the macro-level Economic vulnerability, e.g. the ability to finance the losses, is time dependent Risk management/ adaptation strategies on the country level, have to incorporate indirect risks as well in their decision strategy.

36. Modeling Impacts and Adaptation: Resilience Public sector ex-post and ex-ante financing sources

37. Modeling Impacts and Adaptation: Ex-ante Options Catastrophe Reserve Fund Reinsurance Catastrophe Contingent Credit Mitigation

38. Modeling Impacts and Adaptation: Summary • Direct Risk: Probability of Asset losses (in monetary terms) • Economic Vulnerability: Ability to finance the losses • Economic Vulnerability is a function of • Economic resilience: Loss Financing Instruments • Direct Risk • Possible risk measures: Financing gap approach • e.g., shortfall between losses and financing possibilities • Indirect Risk: Probabilistic impacts and economic vulnerability • lead ultimately to macroeconomic effects. • Adaptation Strategies: Increase the economic resilience or • will decrease the direct risk.

39. Possible Hotspots in the European Union: Flood Use direct risk (annual average losses) and debt indicators as first proxies for economic vulnerability of the given country: This approach would lead to the following countries as possible Hotspots: Bulgaria, Romania, Croatia, Hungary, Czech Republic, Slovakia, and Poland

40. Possible Hotspots in the European Union: Flood Solidarity Fund: 0.4 billion Euros needed each year with a standard deviation of around 0.3 billion (large scale events not incorporated)

41. Country Perspective: Austria Flooding Direct Risk: Economic Resilience: • 2.5 percent of the direct losses of the public sector are financed from • outside assistance, namely the European Solidarity fund for losses • higher than 3 billion Euros or 0.6 percent of GDP. • The disaster fund is set to 30 million Euros each year. • The credit buffer, e.g. the maximum amount of credit from abroad the • government can or may use is set to 5 billion Euro.

42. Country Perspective: Austria Flooding Ability to start new projects Risk Time Fiscal consequences due to flooding in the next 10 years

43. Modeling Impacts and Adaptation: Direct Risk Standard Approach:

44. Einführung in die Problematik: Effekte auf Landesebene Oben: Mögliche Entwicklungslinien nach einer Katastrophe Links: Durchschnittliche Wachstumsraten nach einer Katastrophe Source: Hochrainer, 2006.

45. I: Operationalisation of economic vulnerability

46. I: Public sector ex post and ex ante financing sources for relief and reconstruction

47. CatSim: Software und Algorithmusstruktur

48. Financial vulnerability

49. Hazard Floods, Droughts Exposure Capital stock, population Physical Vulnerability Susceptibility to physical damage • Economic resilience • Financial resilience • Economic redundancy Direct Risk Probabilistic asset losses Economic vulnerability Ability to recover and refinance from disaster events Risk Management/ Adaptation Development of risk management strategies Indirect risk Probabilistic fiscal and Macroeconomic impacts