Evaluating Economic Benefits of Hydromet Services

Transcription

1 Evaluating Economic Benefits of Hydromet Services V. Tsirkunov, World Bank (NOAA and WMO materials are used)

2 Overview of Presentation Why measuring economic value of hydromet services is important Highlights of the Russian pilot study on economic benefits of hydromet modernization Assessing economic benefits of hydromet services in the Caucasus and Balkans - what can be recommended

3 Focus of Economics: Getting the Most from Scarce Resources Decentralized decision-making in private markets with appropriate legal structures is usually very effective at maximizing the benefits obtained from scarce resources. Private decision-making governs the allocation of most resources in most countries today

4 But There Remains a Role for Government Provision Some goods would not be adequately provided by private markets and should be provided by government. These are known as public goods. Examples of public goods include national defense, public health, education and weather forecasts.

5 Public Goods Provide Benefits Even to Those Who Don t Pay Key characteristic of a public good--some of its benefits automatically accrue to people who don t have to pay to get those benefits. Classic example is national defense -- all residents receive protection automatically. Thus, people have an incentive to try to avoid paying so collective provision of public goods is appropriate

6 Main products of Hydromet services have public goods characteristics Once a weather forecast is produced, it is difficult to exclude users who do not pay for it. Thus private markets would not provide adequate forecasts, and public provision is appropriate. But private forecast tailoring and provision of other private specialized services do have a role to play, largely because of their superior responsiveness to consumer needs

7 Weather Forecasts Have Value When They Affect Decisions Better information about the weather allows people to make better decisions (1) when dangerous weather threatens life and property (2) in everyday planning (e.g., outdoor activities, take a raincoat) (3) in normal economic activities that have some degree of weather dependence, e.g. agriculture

8 There Are Several Ways to Estimate the Value of Forecasts Modeling decisions, with and without forecasts, and of the expected consequences of these decisions. Asking people for self-assessments -- i.e., surveys to obtain value estimates. Data from actual events -- i.e., observed effects of weather phenomena with and without forecasts or warnings.

9 Value of Forecasts in Many Countries is Very High Weather forecasts, warnings, and emergency responses associated with hurricanes in USA are valued at $3 billion per year (2/3 of this from reduced loss of life). Value of public weather forecasts to households in Ontario, Canada is estimated at US$ 1.26 billion per year

10 Government Must Decide How Much to Spend on Forecasts Weather forecasts have value they save lives, increase the efficiency of economic activities, and improve the quality of life. But other government activities also save lives, increase efficiency, or improve quality of life. Since resources are limited, we need to make the best choices about what activities we support with government funds.

11 Economics Provides Tools for Allocating Resources Efficiently Cost/benefit analysis is the traditional economic tool for decision making in this context. In weather, different types and levels of forecast outputs have different benefits and costs. Cost/benefit analysis facilitates sensible choices among forecasting systems, and between forecasts and other public goods like public health.

12 Cost/Benefit Analysis Helps in Other Ways Too It helps prioritize programs within the organization and justify budgets. It helps set other policies (e.g., user fees or pricing, public/private sector interface). The analytical process itself reveals how forecasts are actually used, which helps improve and target forecasting efforts

13 Russia pilot study an attempt to evaluate benefits and justify massive Hydromet modernization program May 2003 Hydromet requested the Bank to start preparation of the USD 80M modernization project September 2003 Hydromet requested the Bank to undertake a study of economic efficiency of the project Completion of the pilot phase in June 2004 Major role of national experts Assistance from NOAA and WMO Participation of experts from weather related sectors Workshops in November 2003 and June 2004 Initiation of the second phase supported by the loan

14 Methodology of the study is important Methodology has to fit your target, timeframe and budget Main approach was to undertake quick sectoral studies to compare potentially preventable losses with the cost of preventive measures and estimated costs of modernization investments

15 Main weather related sectors were selected Energy sector (power grid, gas sector) Civil aviation Agriculture Forestry River transportation Water resources management Communications Municipal services (Moscow city)

16 Expected results of the investment program were formulated Expected results At present After project completion Lead time of standard forecasts: short-term mid-term 4-5 days 5-10 days 5-7 days days Lead time of warnings of dangerous events (hours) Accuracy of forecasts and warnings (% of accurate ones): short-term mid-term

17 Questionnaires were developed for sectoral experts Information about respondent Generic information about the use of hydromet data in the sector Assessment of losses and damages Assessment of prevention costs Evaluation of efficiency of the investment program

18 Losses to the economy were re-evaluated Study of available data showed that annual direct losses are in the range of USD1-2 billion Largest damages are associated with floods (usually over 50%) Sectoral losses were independently evaluated by sectoral experts

19 Available long-term records of losses were used ,8 18,5 15,8 16,7 13,247 15,7 9,673 10,145 11,983 9,652 9,505 8,81 6,142 3,912 3,386 1,435 0,281 2,423 1,269 1, ущерб (млрд. руб.) по данным "РосНТЦагроЧС" ущерб (млрд. руб.) по данным "Авиалесоохрана"

20 Sectoral assessments of losses were higher than from literature review Sector/Industry Average annual economic losses (bln. Rubles) Power 4.2 Communications 0.11 Water Resources 20 Municipal Services (extrapolation from Moscow) 2.58 Inland water transport 10 Civil aviation (no direct losses) - Forestry (for ) 2.52 Agriculture (for ) 17 Gas industry 1.74 Total: 58.17

21 You have to have formulas to be convincing for the economists Under the given assumptions, the following formula was used to estimate the economic efficiency of the project: Е = (Е1 + G)/PC, (1) where Е1 = V(ΣRiSi CΣΔi)/n; (2) m G = R S Pd ΣGDPpc (1 + r)m. (3) 0 where PC equals the project costs; i is an index denoting economic sector; Ri, and Si are the average percentage value of potentially preventable losses and the proportion of potentially preventable losses that could be avoided due to modernization (for each sector i); V is the average annual level of losses from weather hazards for the economy at the existing forecasting quality level; Δi is the proportion of change in the level of expenditures for activities necessary for prevention of the impact of weather hazards resulting from improvement in the accuracy and increased lead time of hydrometeorological information; C is the average annual expenditure for protective measures; R and S are the coefficients determining the proportion of saved lives as a result of project implementation; n is the total number of sectors/industries reviewed in the study; Pd is the number of human losses from weather hazards; GDPpc is the per capita gross domestic product in 2002; m is the average duration of economic activity per human victim (taken in years); and r is the average annual long-term growth rate of real GDP.

22 Share of weather losses that could be mitigated by implementation of the project, by sector Ri Si RxS Sector (Share of weather losses that are potentially preventable) (Share of Ri that is preventable if the project is implemented) (%) Energy 30% 25% 7.5% Communications 30% 25% 7.5% Water resources 30% 25% 7.5% Housing/Communal 40% 30% 12% Inland water transport 55% 15% 8.25% Civil aviation 30% 30% 9% Agriculture 57.5% 1.5% Up to 2% Gas industry 35% 20% 7%

23 Main results of the study Expected reduction of losses from unfavorable weather due to is improved quality of forecasts is 8.5% Indicative (and underestimated) economic effect of saved lives is about USD7 million Aggregate estimate of expected project economic benefits is in the range from USD 478 to 1,073 million (for 7 years) Efficiency of investment program is 1:4 to 1:8

24 Communication with main clients is equally important as the results of a study Active involvement of sectoral experts Consultation workshops PR campaign Direct interactions with Ministry of Finance and Ministry of Economics

25 RosHydromet: issues and trends severe underfunding (in US$95M, 73% - salaries, 17% - communication + communal) very obsolete equipment, reliance of field observers, growing O&M observation network decreased by about 30%, frequency and quality of observations declined modern observation instruments (e.g. automated stations, Doppler radars) are fully absent ageing staff, difficulties to recruit qualified workforce (average salary in 2002 US$100) Non-compliance with international obligations

26 The oldest Operational CRAY on the Planet

27 Operational Data Exchange Devices

28 Data Storage Facility (Obninsk)

29 Another Storage (Obninsk)

30 Sonde Assembling

31 Modern gas generation technology (Khabarovsk)

32 Hydrological measurements, Amur River, November 2003

33 Potential framework for the study in Caucasus and Balkans Define specific objectives of the study in each country Select or adjust methodology to fit your target, timeframe and budget hydromet service benefits households study sectoral assessment contingent valuation specific investment program cost/benefit analysis improvement of regional cooperation - cost/benefit analysis Better assess existing losses to the economy and the lost lives Formulate clearly the expected outcomes

34 Potential framework for the study (cont.) Select key national experts/economists Involve main sectoral clients and potential beneficiaries Define how you will communicate your results/pr campaign Use WB (and WMO) presence for additional lobbying your case