Modelling the economic implications of coastal managed retreat

Abstract

Climate change is an issue for all of humanity and with it comes many challenges. At the coast, climate change drives sea-level rise and increases the magnitude and frequency of storms, which erode shorelines and flood properties. Managing these coastal hazards requires assessing the risk and economic impact of medium-term planning options. One such planning option available to governments in New Zealand is large-scale managed retreat. However, it requires research to examine how to implement it and what are the impacts. This thesis presents a new method to support robust approaches to implementing managed retreat of coastal communities exposed to climate change through rising sea levels and increasing storminess. It uses Evolutionary Economic analysis, System Dynamics, Scenario Planning and Robust Decision Making to identify Dynamic Adaptative Policy Pathways for implementation. The approach models nine scenarios of climate risk, coastal mitigation and adaptation to assess the economic implications of a large-scale managed retreat for a study area in Hawke’s Bay, New Zealand, well known for exposure to a range of coastal hazards. The thesis first develops a baseline scenario, or status-quo, where managed retreat is unavailable to society, and exposed communities either endure coastal flooding, inundation or erosion or adapt through ad-hoc (forced or voluntary) relocation. The baseline scenario covers three climate futures: no sea-level rise, a mid-range scenario based on the Representative Concentration Pathway (RCP) of 4.5, and a worst-case scenario based on RCP8.5. The thesis then develops and examines two scenarios (mid-range and worst-case) where planned mitigation measures are implemented through coastal defence, two scenarios where central government fund managed retreat through climate bonds, and two scenarios where local government fund managed retreat through a property rating taxes. The thesis develops a new integrated assessment model called C-ADAPT in System Dynamics to assess possible pathways for vulnerable communities to adapt to coastal hazards until 2050. The economic impact modelling within the thesis utilises the quasi-computational general equilibrium model ‘MERIT’ developed by Market Economics and the Institute of Geological and Nuclear Sciences (Smith, McDonald, et al., 2016). This thesis creates an integrated assessment model, C-ADAPT, by adapting and extending MERIT with exogenous inputs that fall outside its regular operation. C-ADAPT includes exogenous input modules on how coastal managed retreat can be planned and financed to examine direct and indirect impacts of floods, risk, local-scale insurability and coastal property market behaviour, business inoperability, infrastructure outages and interdependencies, land use planning, coastal defence costs, local government rating taxes and central government climate bonds. The approach enables the evaluation of management futures by not only assessing the medium-term local economic impacts of coastal hazards but also assessing the flow-on regional-scale economic impacts through Evolutionary Economics. Scenarios are then assessed using key performance indicators to examine adaptation pathways that minimise regret through Robust Decision Making. Model results indicate that managed retreat is beneficial for society when viewed from an aggregated regional economy perspective to manage coastal hazards as households and industries benefit more than continuing with the status quo baseline. However, the economic impacts of managed retreat are not evenly distributed across sectors, industries or time. Results indicate that managed retreat is likely to leave exposed households and industries as ‘winners’ at the expense of households and industries in the greater region that bear a proportion of the costs. Furthermore, construction and manufacturing industries benefit at the expense of primary production industries. Local government will require prudent financial management to implement a large-scale managed retreat, given the significant expenditure required as a proportion of revenue, to not only relocate its own assets but to also purchase land and built capital for managed retreat. In contrast to expert input engaged through scenario planning, the use of property rates as a financial mechanism to support managed retreat performed better than the other scenarios when exploring the key performance indicators selected, as property prices adjust to the risk and a longer-term implementation of managed retreat. In contrast, while the bonds scenarios had the greatest benefit to households, they tended to remove capital investment away from the regional economy, restricting growth. Model results indicate that coastal defence is a suitable short-term option to minimise damage and disruption and provide time for capital accumulation to finance managed retreat. However, over the economic medium-term (to 2050) or under extreme climate conditions, managed retreat outperformed coastal defence.