Written with Camilla Gardner
When deciding to act on a resilience project, we often linger on the price tag and let it control our decision-making. Perhaps it’s time to focus our attention on the costs of inaction.
2020, for sure, has forced each of us to contend with many “new normals.” For many municipalities, budget constraints exacerbated by COVID-19 are forcing them to rethink how to allocate available resources. Wage cuts compounded by health challenges and, for many, a hellish hurricane and fire season have precipitated a multi-crisis reality. At a time when resilience is key more than ever, municipalities increasingly axe sustainability positions and projects.
Why are our priorities so severely shuffled? A primary culprit is the traditional strategy that municipalities employ to make decisions. This process – known as cost-benefit analysis, or CBA – weighs the sum of the benefits of an action against the negatives, or costs, of that action. Frankly, the conventional CBA approach is an archaic process that is incompatible with the modern climate crisis. Here’s why:
For starters, the dollar values placed on resilience and mitigation projects (and which, ultimately, dictate whether to pursue a project or not) are an incomplete picture of the outcome. CBA is myopic in the sense that it is structure-centric and lacks a holistic, human-focused tone. It excludes the social and environmental benefits that accrue over time, even decades after project completion.
So many of the most important outcomes of resilience projects – the intangibles that make a city livable and bolster people’s well-being and capacity to thrive – aren’t communicated within the bottom line. Similarly, the costs are immediate and upfront while taking mitigatory action usually has remote, delayed and uncertain benefits. Consequently, economic and social needs and desires that are felt immediately seem more pressing than climate resilience efforts.
Consider a green infrastructure (GI) project, which involves a network that provides the “ingredients” for solving urban and climatic challenges by building with nature. In addition to maintaining water quality and mitigating flooding, GI installations can clear and cool the atmosphere, increase local property values, enhance aesthetics, and improve local health outcomes and social connectivity.
Yet not all of these co-benefits can be reaped right away. When trees are involved, the rate of carbon sequestration, stormwater capture, or urban heat island mitigation may be greatest 20 to 50 years after a project’s completion.
It is increasingly essential to enhance the visibility of the local impacts derived from climate resilience projects by communicating these co-benefits in the one language that drives decision-making: dollar value. We are losing out a lot by allowing seemingly unfavorable cost-benefit ratios to inhibit progress toward a future we cannot afford not to create. To do so, the following needs to become standard practice for conducting cost-benefit analyses:
Conduct a triple bottom line (social, environmental and financial) CBA
The triple bottom line (or otherwise noted as TBL or 3BL) is an accounting framework with three parts: social, environmental (or ecological) and financial.
Collectively, we rely too heavily on technical and infrastructural solutions to address a much more holistic problem. Too often, the dialogue around climate resilience investment only weighs avoided losses against the physical costs of the (grey) infrastructural investment. Likewise, this conversation usually occurs after disaster strikes. We must shift to highlight proactively that these investments yield a triple dividend.
These include development potential to local communities by stimulating innovation and economic activity bolstered by reduced climate risk, as well as a web of improved social and ecological outcomes that enhance wellbeing for all involved, even if disaster doesn’t strike. Recently, FEMA incorporated ecosystem benefits into its CBA tool. It is a critical first step forward toward legitimizing nature-based climate solutions. But much more needs to be done to move forward.
Pursue innovative strategies to monetize the “intangible” benefits.
Certain values, such as avoided energy costs, can be determined easily via their market price. However, many values don’t have a direct market value – such as the value of social connectivity, the costs of trauma, the loss of community caused by a hurricane or wildfire, or the costs of having to relocate from one’s community.
One solution is contingent valuation. This is an economic survey technique for eliciting willingness to pay for outcomes such as health or that don’t have an obvious price tag.
The United Kingdom’s Sheffield Hallam University study used this process to determine the value of feeling part of the community or of having neighbors looking out for each other: $16,700 and $13,000, respectively. This method has even been used to value human life by determining people’s willingness to pay for risk reduction devices or services that could prove life-saving. For example, the Environmental Protection Agency had valued “statistical life” at an average of $7.4 million in 2006 dollars.
These examples are just the tip of the iceberg of what can and must be valued to make the business case for a more livable future. Unfortunately, contingent valuation is both time and resource-intensive. Moving forward, it is critical to fund research into innovative strategies to monetize these more holistic costs and benefits city by city in a more streamlined, cost-effective manner. Likewise, encouraging policymakers to give greater value to more qualitative considerations – not just the bottom line – is key.
Incorporate a timeline that accounts for longer-term social and environmental benefits.
Even if all co-benefits were internalized, a challenge remains: common discounting practices. They’re designed to take account of the variable timescales over which costs and benefits are distributed. But they give very low (and possibly practically zero) weight to far-off events, namely the social and environmental benefits of resilience projects. Consequently, by discounting, CBA appears to make these benefits disappear. A potential solution: time-declining discount rates. These declining discount rates account for discounting but make future benefits more relevant to the present investors and policymakers.
The effects of climate change are disproportionately felt by lower income and communities of Black, Indigenous and people of color (BIPOC). Accordingly, disaster recovery and adaptation costs and the price of necessary resilience projects are greater. This results in less-favorable cost-benefit ratios. Therefore, resilience investments tend to favor wealthier neighborhoods and overlook the committees with the fewest resources but are the most in harm's way.
By establishing the strategies discussed above as priorities as well as centering on the unique social context in which a project will be applied and focusing more on what is to be gained rather than how much it might cost, our investment decisions can be more informed and equipped to center equity, real climate risk, and the well-being of all.
Camilla Gardner supports the resilience program at the Urban Sustainability Directors Network as a Climate Resilience Consulting associate.
Image credit: Pxhere
Joyce Coffee, LEED AP, is founder and President of Climate Resilience Consulting. She is an accomplished organizational strategist and visionary leader with over 25 years of domestic and international experience in the corporate, government and non-profit sectors implementing resilience and sustainability strategies, management systems, performance measurement, partnerships, benchmarking and reporting.