Cost-benefit analysis for flood protection standards in the Netherlands

Transcription

1 Cost-benefit analysis for flood protection standards in the Netherlands Jarl Kind 1* 1 Deltares, the Netherlands Disclaimer: The governments intention to update flood protection standards as described in this paper is at this moment still subject of social and political debate. Although this paper has been contributed on the request of the Dutch Ministry of Infrastructure and the Environment, the responsibility for the contents remains with the author. No final conclusion on flood protection standards may be drawn on basis of this paper. All numbers in this paper are preliminary and were published earlier. They are not final numbers. Abstract A large part (approximately 59%) of the Netherlands is flood prone. Therefore, avoiding floods (i.e., flood protection) is the core of the Dutch Flood Risk Management Policy. Legal protection standards are determined by the Dutch government and are enforced by law. The existing flood protection standards are partly based on cost-benefit analysis conducted in the 1960s by the Delta commission after the 1953 flood. Since the 1960s, the potential consequences of a flood (economic damages and casualties) have increased significantly. Therefore, on behalf of the Dutch Government, studies are now being executed providing the input for a political and social discussion on updated flood protection standards for the Netherlands. One of those studies focuses on the casualty risk related to flooding. In a second study, a cost-benefit analysis (CBA) is conducted in order to calculate economical efficient flood protection standards. The cost-benefit analysis uses a dynamic model to determine an optimal investment strategy in dike reinforcement. This strategy minimizes the discounted investment costs and residual flood damages over a long time horizon where economic growth and climate change affect the level of flood risk. Optimal design and optimal timing both play a role in this analysis. From the optimal investment strategy, economical efficient flood protection standards for the coming decades (until 2050) are derived. Results of the final CBA are not yet available. From a similar, less detailed and preliminary study, which was conducted in an earlier phase of the same project, results can be shown. Those indicate that, from an economic point of view, especially the flood protection standards for the river areas are relatively low compared to the protection standards for other areas in the Netherlands. * Jarl Kind, P.O. Box AL Utrecht, Tel: , jarl.kind@deltares.nl Ghent, October

2 1. Introduction 1.1 Flood risk in the Netherlands The Netherlands is well known for its historical fight against (high) water. In total 59 percent of the land area is in potential flood prone, of which 55 percent points is protected by dikes or dunes. Almost half of the protected area (26/55) is below sea level; the remainder (29/55) is above sea level but can be flooded from amongst others embanked rivers. Figure 1 shows on the left side the potential flooded areas. Here, dark blue indicates areas below sea level and the light blue areas above sea level. On the right side of Figure 1, the so called flood risk map of the Netherlands is shown. On this map, the maximum occurring water depths are shown taken from different inundation scenarios. Here only dike breaches in the primary flood defenses are included (breaches of dikes and the smaller dunes). Figure 1: Flood risk in the Netherlands. Left: potential flood prone areas (source: PBL 2010). Right: inundated areas from inundation scenario s (source The differences between those two maps are most remarkable for the coastal and river areas. The map on the right side shows water depths along the coast which are much more shallow than in river areas. Those differences can be explained by the limited inflow of water after a dune breach due to the relative short time of the storm surge and tidal movements. On the contrary, in river areas the water depths can be much deeper due to a much longer possible inflow of water after a dike breach and because of the embanked nature of the river, which has led to a river between dikes which lies above the land surface. 1.2 Flood risk management Because of the huge and potential devastating consequences of a flood, Dutch flood risk management policies traditionally rely heavily on protective measures: building storm barriers, dikes, dunes Ghent, October

3 etcetera. Since 1996 legal protection standards against flooding are enforced by law. They range from 1/ till 1/4000 per year for coastal areas to 1/1250 per year for river areas, see Figure 2. Figure 2: Legal protection standards per dike ring area Every 6 years, a safety assessment is conducted in order to see if the flood defenses still meet their legal requirements. After the 2006 assessment, a flood protection program was launched which included the measures necessary to fulfil the legal requirements. The annual expenditures, mainly for flood protection measures, is currently about 0.8 billion euros per year (a little more than 0.1% of GDP). Those expenditures are financed by the central government. 2. History of flood protection standards and need for update 2.1 History of protection standards After the 1953 flood in the south-western part of Holland, which killed almost 2000 persons and caused an economic loss of about 1.5 billion guilders, the first Delta commission was installed. This commission used in 1960 a cost-benefit analysis (CBA) to determine an optimal protection standard for dike ring area 14, Central Holland. This dike ring area is the most important dike ring area, where major cities like Amsterdam, the Hague and Rotterdam are located. For other coastal areas, the Delta commission proposed similar or lower protection standards on the basis of economic reduction factors. Those factors were based on expert opinions on the potential damages of those other areas compared to the potential damages in Central Holland. Subsequently, the protection standards for the coastal areas were determined on 1/ per year for North and South Holland (dike ring areas 13 and 14), and 1/4000 per year for the other coastal areas. Ghent, October

4 In 1977, 1993 and 1995 protection standards of 1/1250 to 1/2000 per year for the river dike ring areas were proposed by several other commissions. In 1996, the protection standards were enforced by law. 2.2 Need for an update of the protection standards There are several reasons why an update of the legal flood protection standards is currently needed. First, since the 1960s, the potential consequences of a flood (in terms of economic damages and casualties) have increased significantly. Gross domestic product in the Netherlands has increased six fold and population has grown with fifty percent. Hence, protection standards for the coastal areas which were judged suitable for the economic and demographic situation of the 1960s may now be too low. Second, nowadays much better tools are available for an assessment and understanding of flood risks, which may lead to other conclusions about desirable protection standards. And third, the existing standards originate from different commissions in different years and hence do not have a common basis. In the National Waterplan , the Dutch Government has announced that studies will be undertaken in order to provide a scientific basis for the update of flood protection standards. One of those studies focuses on the casualty risk related to flooding (Individual Risk (IR) and Group Risk (GR), see Beckers en De Bruin, in prep.). In a second study, a cost-benefit analysis is conducted in order to calculate economical efficient flood protection standards (Kind, in prep.). Figure 3 illustrates the intended policy steps towards the update of legal protection standards. By 2017, a political decision on protection standards should have been made and the law should have been changed to include the new standards. The intention is to choose standards which provide sufficient protection (with respect to expected damages and casualties) until at least The height of those standards will be based on cost-benefit analysis, casualty risk and other considerations. Once the new standards have been determined, cost-effectiveness analysis (CEA) will be used to choose the measures which are needed to bridge the gap between the actual protection levels and the new protection standard. Figure 3: Legal protection standards, role of CBA en CEAs In the National Waterplan, a provision is made for a light evaluation of the height of the protection standards each twelve years. Ghent, October

5 3. Approach for CBA 3.1 Basic principle The basic principle of the cost-benefit analysis is the efficiency rule which states that optimal welfare is achieved when goods are produced up to the point where marginal benefits equal marginal costs. Figure 4 illustrates the application of this principle in the case of optimal flood protection standards. Here, it is optimal to increase the height of the dike with about 35 cm. The total (discounted) cost of investments and expected damages (residual risk) is at this point minimal. At lower increases of the dike height, the marginal investment costs are less than the marginal benefits of a reduction of the flood risk and total costs are higher. At higher increases of the dike, the marginal investment costs are larger than the marginal benefits of a reduction of the flood risk and total cost are higher. Figure 4: Basic principle of CBA of optimal protection standards In order to calculate optimal protection standards, this approach requires that all costs and benefits are monetized. This monetization includes the valuation of statistical life (VOSL). Although this may lead to ethical objections, the valuation of a statistical life is quite common in the Netherlands in CBAs related to road safety, where a VOSL of about 2.5 million euros is used. Within the context of flood protection, research indicates values of around 7 million euros per VOSL (Bo karjova, 2009) 3.2 Dynamic model The actual CBA of optimal safety standards follows a dynamic approach. With the help of an optimization model, an optimal investment strategy in dike enforcements is determined. Optimal in this context means that the total investment costs and the expected flood damages are minimized over a long-term horizon. The investment strategy does not only answer the question of how much to Ghent, October

6 invest, but also of when to invest. The question of when to invest arises for two reasons: potential flood damage in the Netherlands increases more or less in line with economic growth (hence increasing safety standards over time are economically desirable) and the likely consequences of climate change (rise in sea-level and increase in river discharges). The question of how much to invest arises from the fact that measures have both fixed and variable costs. An optimal design needs to be determined whereby economies of scale are balanced with interest costs. The theory behind this general model has been developed by C.J.J Eijgenraam (2005, 2006). From this optimal investment strategy, optimal protection standards for 2050 are derived. Figure 5: Simple illustration of the dynamic approach used in the CBA 4. Results from CBA 2008 The final cost benefit analysis for optimal protection standards is not yet finished. In 2008 a first attempt was made to calculate optimal protection standards on the basis of data and models that were available at that time (see Kind, 2008). Figure 6 shows the results of this study. On the horizontal axis, the optimal return period (1/optimal flood protection standard) is shown. On the vertical axis, the dike ring areas are shown. With blue lines, the existing safety standards are indicated. With colour bars, the optimal flood protection standards are shown (range based on sensitivity analysis) and with a black dot the optimal protection standard calculated for a base scenario. From Figure 6 it may be concluded that the relative lower protection standard for the river areas (dike ring areas 34 53) can not be motivated from an economic point of view. Note that at this moment, the existing protection standards are exceedance frequencies of high water levels while the CBA calculates optimal flood probabilities. Those are not the same and can not yet easily be compared. Ghent, October

7 Figure 6: Optimal protection standards according to the tentative CBA conducted in 2008 Ghent, October

8 5. Conclusions Due to the large percentage of the Netherlands which is flood prone, flood risk management is a national security issue with a strong focus on flood protection. For the primary defences, legal protection standards exist. Flood protection measures necessary tot meet those standards are government funded. The government s intention is to set new standards which are left unchanged until at least The protection standards will partly be based on the results from cost-benefit analysis. Hence, CBA is not very regularly applied to set those standards or to justify flood protection measures. When applying CBA, the optimal flood probabilities range between 1/500 per year and 1/ per year, with an average of about 1/4000 per year. From an economic point of view, the existing relatively lower protection standard for the river areas can not be justified. References Beckers, J. en K. de Bruijn (in preparation). Slachtofferrisico als gevolg van overstromingen. Een studie voor het project Waterveiligheid in de 21e eeuw. Deltares rapport. Bo karjova, M., P. Rietveld en E. Verhoef (2009). First results immaterial damage valuation: VOSL in flood risk context a stated preference study (I). VU Amsterdam, Department of Spatial Economics. Eijgenraam, C. (2005). Veiligheid tegen overstromen Kosten-batenanalyse voor Ruimte voor de Rivier, deel 1 (CPB-document 82). Centraal Plan Bureau. Den Haag. Eijgenraam, C. (2006). Optimal safety standards for dike-ring areas. CPB discussion paper No. 62. Kind, J. (2008). Kengetallen Kosten-batenanalyse Waterveiligheid 21e eeuw. Ministerie van Verkeer en Waterstaat/Rijkswaterstaat. Rapportnummer WD Kind, J. (in preparation). Kosten-batenanalyse Waterveiligheid 21e eeuw. Een economische analyse ten behoeve van nieuwe normen voor de bescherming tegen hoogwater. Deltares rapport. Ministerie van Verkeer en Waterstaat, Ministerie van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, Ministerie van Landbouw, Natuur en Voedselkwaliteit (2009). Nationaal Waterplan Ghent, October