The Economics of Climate Change Adaptation, Applied to the GB Railway
Matthew Dillon, Arup, Peter Gist, Arup, Zoe Jankel, Arup
This paper describes work carried out as part of the Tomorrow's Railway and Climate Change Adaptation (or TRACCA) programme to capture knowledge and provide guidance on how to improve the investment decision on climate change adaptation measures.
As discussed in the RSSB’s TRACCA research brief, “an effective method for assessment of the future impact of climate change will allow the industry to develop options for managing railway assets in the longer-term.” We review approaches to climate change adaptation investment appraisal, and suggest improvements to the approach to investment appraisal of adaptation measures in the UK rail industry, focusing on the economic aspects of the investment decision.
Our literature review of the economics issues identified different approaches. It also highlighted the main shortfalls in existing approaches when assessing climate change resilience measures, both in the UK and internationally. It found that there is no standard approach to investment appraisals for resilience decisions, and that the use of appraisal methods, discount rates and analysis time periods vary considerably across industries and countries. The scope of analysis also varies (i.e. where the boundary of the analysis is drawn).
Our review of the GB industry’s current approach to investment appraisal found that the industry’s investment assessment framework is well structured and is acknowledged by stakeholders as identifying the major costs and benefits (including the value of travel time and delay) that are most relevant to the rail industry. We therefore suggest that a future climate change resilience appraisal framework is best based upon the existing comprehensive WebTAG and Green Book frameworks. The principal areas of discussion, including some suggestions for improvements, include the following:
• The discount rate;
• The time period of analysis;
• Uncertainty and missing information;
• Budget constraints; and
• The equity of impacts distribution.
In accordance with a “system of systems” approach, we recommend encouraging the development of integrated solutions on a cross-sector basis, covering all modes of transport, to account for the possible perturbation (and resulting low or high demand) for rail services during times of extreme weather.
The rail industry might also consider adopting a common approach in other agencies to appraising investments that offer increased climate change resilience. This approach uses the level of protection to define the scheme being appraised, and the appraisal itself is carried out on the basis of a move from an existing system-wide level of protection of “1 in X years” to a greater level of protection of “1 in Y years” (e.g. by building a higher sea wall, or having sturdier bridge supports). This method to determining the weather events that lead to protection requirements is expected to place increased burdens on other work streams. We expect that this could be significant at first, but note that in the UK, the Environment Agency and the Met Office now have a well-established relationship of defining flood risk and carrying out flood appraisals using this process.
Identifying responsibility for decision-making through localising standards where possible appears to be a robust approach to assist with consistent decision making. Where standards cannot be localised practicably, we suggest that an investigation into new national standards should not be tackled in the same level of detail as an investigation of local schemes. Instead, it could be done by taking averages and extremes from the data set, to build an analysis of the national variance in order to assist decision-making. This would be likely to encompass some of the WebTAG approach to uncertainty through employing sensitivity tests to ascertain the likely range of results that might be expected.
Given the spatial nature of the spread of costs and benefits of climate change resilience (particularly flooding, where one area might be made to suffer to protect another), we suggest consideration of an assessment of spatial impacts. Nevertheless, we note that even with these types of assessments in place, and fully taken account of by decision makers, there might remain equity issues with current generations effectively paying for benefits that will be enjoyed by future generations. These issues that might be addressed by adopting phased approach to resilience.
We suggest that a new framework may best be applied to climate change resilience projects in the first instance, and then to regulatory settlements and standards relating to climate change later.
These changes to the current investment appraisal framework require testing on a series of case studies for practicable use, and testing for a fit with the existing regulatory and appraisal tools, which will be carried out later in 2015 (in time for the results to be incorporated into the final paper to be presented at the conference).
Association for European Transport