ACRP UPDATE Climate Resilience and Benefit-Cost Analysis

Transcription

1 Preliminary: Subject to Change Do Not Quote ACRP UPDATE Climate Resilience and Benefit-Cost Analysis 12 A January Handbook 2018 for Airports with LMI Government Consulting AECOM Richard F. Marchi CHPlanning Headquarters: 115 West Avenue Suite 201 Jenkintown PA USA Washington, DC Office: 1800 Diagonal Road Suite 600 Alexandria VA frankb@gra-inc.com (direct); bills@gra-inc.com

2 This presentation was created as part of ACRP Climate Resilience and Benefit Cost Analysis A Handbook for Airports. This presentation is a first draft of a living briefing document created as part of ACRP Climate Resilience and Benefit Cost Analysis A Handbook for Airports Climate change may expose airport infrastructure to potential damage and service interruptions. Team: GRA, Inc. (prime contractor), AECOM, LMI, Dick Marchi and CH Planning The risk is growing over time. The presentation focuses on developing benefit-cost and financial analysis to make wise investment decisions when presented with the risk and uncertainty of climate change impacts. The timing of the exposure and potential losses are uncertain. This presentation outlines progress to date and some analytical methods for addressing the problem Team: GRA, Inc. (prime contractor), AECOM, LMI, Dick Marchi and CH Planning 1 March 28, 2018

3 Climate Related Risks Faced by Airports Physical Risks Regulatory/Business Risks Rising air and ocean temperatures* Business interruptions* Rising sea level and surge* Costs for mitigation and compliance* Changes in precipitation amounts and/or intensity Changes in habitats Changes in natural resources and materials Changes in social and political systems Increased wind, storm intensity and frequency *Primary focus of this study (due to data availability) *Primary focus of this study 2 January 12, 2018

4 Climate Induced Changes May Affect an Airport s Most Valuable Assets and Vital Operations Airport infrastructure and design (both airside and landside) Aircraft Deicing capacity Storm water management Watershed management, flood protection Water resources and supply Water and wastewater treatment Vegetative ground cover and dust control Insurance and legal liability 3 January 12, 2018

5 This Project Focuses on Two Steps to Assessing Climate Risk How to assess vulnerability to climate risk and which assets are critical or worth protecting Basic Risk Calculation Likelihood High Medium High High Medium Low Medium High Low Low Medium Low Medium High Cost to the Airport Step 1: Screen for potential problems using an existing ACRP model Ask a simple question: is it worth protecting key assets that are vulnerable assuming the worst climate scenario If the answer is NO, then plan to revisit the question in the future as more is known about climate change If the answer is YES, move on to step 2. Step 2: Evaluate the full range of climate risks and possible mitigation projects Apply the most recent and more localized climate data which encompasses the full range of uncertain climate outcomes. For example, the probability of 10 hot days a year vs the probability of 50; and the number of flights cancelled and at what cost. Objective is to estimate the value at risk to the airport and its operators: 5 January 12, 2018 What percentage of the time would a project to mitigate climate risk pay off? How often would airport or operator losses be unacceptably large if the airport did nothing?

6 Step 1: Screen for Potential Problems 6 March 28, 2018

7 ACROS Screening Tool Initial screening method based on ACROS (Airport Climate Risk Operational Screening) tool from ACRP Report 147 Use existing ACROS tool to identify vulnerable and critical infrastructure at commercial US airport Make an initial evaluation whether adaptation projects designed to mitigate climate risks that threaten an airport make economic sense Most airports will be able to undertake this method internally Tool is downloadable Consistent with traditional benefit-cost and capital budgeting analysis 7 March 28, 2018

8 Using the ACROS tool Steps: Assume the worst climate change scenario in the ACROS model for a specific airport Find the maximum number of annual days of exposure to disruption Estimate the cost to the airport and users of the maximum disruption (e.g., payload and/or departure restrictions) Identify and estimate the cost of an adaptation project (e.g., runway extension) Use standard benefit-cost or capital budgeting tools to decide whether the project makes economic sense If the best adaptation does NOT make economic sense in the worst climate scenario, then adaptation is not warranted. Revisit later. Example: Count of Annual Very Hot days at Pensacola (PNS) Assume the worst case 8 March 28, 2018

9 Sample results from Step 1 PNS runway extension that reduced cancellations by 50% would not pay off (B/C ratio of 0.81). 9 March 28, 2018

10 Interpreting results from Step 1 The ACROS screening methodology is useful to identify if projects are unlikely to make sense today projects that do not make sense even in the worst climate scenario Revisit periodically Note: ACROS uses circa 2013 data which is less complete than what is available today; an alternative would be to use a worst case scenario from more local and recent climate data (described below). If the screening analysis shows that a project would be justified in the worst case climate scenario, then ideally a more detailed evaluation should be undertaken which accounts for risk i.e., how likely is it that a mitigation project would payoff? Proceed to Step 2 10 March 28, 2018

11 Step 2: Undertake Analysis Explicitly Accounting for Climate Uncertainty 11 March 28, 2018

12 New data on climate change has been published Fourth National Climate Assessment is now being developed by multiple Federal agencies Estimates for certain climate impacts are available out to the year 2100, with localized resolutions down to <4 miles Different models provide different estimates, which reflect the uncertainty inherent in future climate projections Airports can take advantage of this data to identify critical infrastructure that may be vulnerable Density of Latest Available Climate Data Example for Chicago Area 12 March 28, 2018

13 Example: Very Hot Days at PHX Can Cause Cancellations Use the probabilities of different climate outcomes from the latest climate data There are four different climate scenarios (best to worst) and more than 30 circulation models for each; there are large variations in potential outcomes Range of Average Annual Projected Days per Year > 118 F at PHX (across 31 GCM models; worst case) Notice the very wide range of Very Hot days forecast for PHX Incorporate the probabilities into a Monte Carlo simulation model Explicitly account for risk and uncertainty by identifying value at risk, which represents the distribution (probabilities) of financial risks with or without undertaking a mitigation project State of the art methodology designed to account for the inherent risk and uncertainty of climate change 13 March 28, 2018

14 PHX example: Conduct Monte Carlo simulations showing the number of days when flights could be disrupted Conduct simulations after selecting a specific climate scenario Project Handbook will discuss how to sample from the different climate models for each simulation in order to project how many Very Hot days may occur each year in the future Example: Each simulation covers 70 years into the future, with projections of number of Very Hot days (temperature > 118 F) in each year Repeat process: each row is one of 5,000 simulations showing growth in number of Very Hot days over time Monte Carlo Results: Days Each Year > 118 F 14 March 28, 2018

15 PHX example: Results for a $30M runway extension (assuming certain flights are cancelled when temperatures exceed defined limits for each aircraft type) Summary Results Monte Carlo results show the distribution of possible outcomes or value at risk: What are the chances that the avoidable losses (Base Case) exceed the $30M cost of the project? Mean (2017$) Std Deviation (2017$) Avg NPV of Project -$5,124,032 $5,003,213 Avg B/C Ratio If the airport does nothing, there is a 3% chance of losing $35M or more There is a 15% chance that the project would be justified (where avoidable losses would exceed the $30M project cost) Average B/C ratio = 0.83 Value at Risk analysis allows airport to consider how much risk it is willing to take Real options (like delaying the project) can also be considered 15 March 28, 2018

16 Advantages of more detailed evaluations Incorporate risk and uncertainty explicitly in the analysis Create decision-making evaluation tools to help: Financial analysis (with risk) Benefit -Cost Analysis for FAA Grants (with risk) Process plugs directly into Enterprise Risk Management (how much risk should the airport undertake?) and CIP functions of airports Risk to Airport Infrastructure of Climate Change Likelihood Basic Risk Calculation High Medium High High Medium Low Medium High Low Low Medium Low Medium High Cost to the Airport Worst Case: Highly Likely (Vulnerable) & High Cost if Interrupted (Critical) 16 March 28, 2018

17 Project content and schedule Handbook Real-world case studies (to help inform Handbook) Project scheduled to be completed by late March 28, 2018