Financing Climate Resilience: Mobilizing Resources and Incentives to Protect Boston from Climate Risks. David Levy

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1 Financing Climate Resilience: Mobilizing Resources and Incentives to Protect Boston from Climate Risks David Levy Professor and Academic Co-Director Sustainable Solutions Lab, UMass Boston Sustainable Solutions Lab Quarterly Climate Adaptation Forum April 13, 2018

2 Thanks to: EBC Barr Foundation City of Boston UMass-Boston SSL team! David L. Levy Professor, Department of Management University of Massachusetts Boston April 13, 2018

3 Costs of Inaction $306 billion US damage weather-related disasters NOAA Climate Ready Boston assessments of damage from sea level rise, flooding, extreme precipitation + heat

4 Source: Climate Ready Boston Dec Last Mass Climate Adaptation Report

5 Based on existing assets. Source: CRB 2016

6 Scale of Investments Needed

7 Cost of Investing in Resilience Boston Harbor Barrier 6 km+ $8-15 billion? 520 m. $2.5 bn (2017 dollars)

8 District Level Investments, $ million Scenarios for Boston: Total $ billion near to medium term

9 East Boston Investments: Source: City of Boston, 2017

10 Building-Level Investment Needed

11 Resilience Finance Fairness and Equity Climate Change can exacerbate vulnerabilities and disparities: - low insurance levels, few resources for recovery - non-resilient housing - access to employment and healthcare Adaptation Investments can stimulate gentrification Investments can revitalize neighborhoods - local employment, workforce training, resilient housing and infrastructure

12 Fairness and Equity Principles Fairness: cost burden broadly reflects benefits provided Equity: cost burden reflects ability to pay, investments address disparities Spread the Cost Burden: over multiple levels (state, city, district, parcel) and a range of funding mechanisms (carbon, property taxes, water/sewer fees) Channel Investments to revitalize neighborhoods Inclusive planning and decision-making

13 Market Failures Inadequate information on costs and benefits Incorrect pricing of risk Collective action challenges need for value capture Capital budget constraints Misaligned incentives

14 Key Principles for Resilience Finance Revenue generation potential Economic effectiveness low interest / transaction cost Leverage public funding PPP and to galvanize action Administrative Effectiveness - complexity and capacity Fairness and equity Appropriate alignment of incentives: - Leverage the price of risk - Accurate information and awareness

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16 Key Conclusions More accurate risk pricing, resilience metrics - Price of: insurance, property, mortgages/debt - FORTIFIED, LEED/RELi at building, company, city levels New revenues needed Value Capture No silver bullet - Use a mix of funding sources Build in resilience for new spending on buildings + infrastructure Refine the business case Who pays and who benefits? Structure for equity Creatively combine finance and insurance

17 Return on Investment PV of inaction till 2100: $10.3 3% $2.7 6% New green buildings costs 0.5-3%, rent premium 6-20% Business case less clear for retrofits, neighborhood level investments Investing $1 saves $4 or $6?? Refine the business case

18 Coupled Finance and Insurance Resilienc e Bond Insurance Invest Resilience: Reduce physical risks Lower cost of debt Lower insurance Parametric Insurance: Reduce financial risks Ensure project compltn. Lower cost of debt

19 Leverage existing federal programs

20 6 Financial Recommendations Create a Climate Resilience Finance Implementation Working Group for the Region Use multiple layers and types of funding sources Establish a State-level Climate Resilience Fund Issue Municipal General Obligation Bonds with new funding streams Establish District Resilience Improvement DRI entities Expand Mass Save program to incentivize building resilience retrofits

21 Spread the Cost Burden: over multiple levels (state, city, district, parcel) and a range of funding mechanisms (carbon, property taxes, water/sewer fees) financially and politically feasible can fine tune for value capture, fairness and equity

22 District Resilience Improvement Business Improvement District model Risk-based charge Negotiate payments from infrastructure owners (utilities, MBTA etc.) Align parcel redevelopment plans with district, negotiate payments

23 Thank You! David L. Levy Professor, Department of Management University of Massachusetts Boston