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Paying a Price of Climate Change: Who Pays for Managed Retreats?

  • Progress in the Solution Space of Climate Adaptation (E Gilmore, Section Editor)
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Abstract

Purpose of Review

Managed retreats are an important climate change adaptation tool. They seek the relocation of communities due to perceptions that they are already exposed to undue levels of risk or will become exposed to high risk in the near future because of climate change. Here, we focus on the economics of managed retreats and specifically focus on the question of who pays or may pay for these relocations.

Recent Findings

There is a significant body of research in the other social sciences (political science, sociology, anthropology, history) on managed retreats, but almost none in economics. No paper that we are aware has focused primarily on the question of who pays for managed retreats, and the survey here therefore focusses on lessons we can learn from examples, specifically an example from New Zealand and from the little references to these questions in the existing literature.

Summary

Sources of funding for managed retreats can come from the affected communities, from the public sector (the government or public insurers), and from the private sector (mostly private insurers). It is politically easier to implement managed retreats if it is the latter groups (public and private insurers) that pay, rather than placing the burden on the general taxpayer or on the affected communities themselves.

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Notes

  1. Mandatory and often heavy-handed relocations are not that unusual in more authoritarian countries; the biggest one may have been the relocations of more than a million people upstream on the Yangtse River ahead of the construction of the Three Gorges Dam. In the USA, FEMA has long been authorized to buy out high-risk properties and has bought approximately 40,000 properties distributed in numerous communities in 44 states in the past three decades. In its most well-publicized (and well-researched) program, in NY and NJ after Hurricane Sandy in 2012, FEMA acquired about 300 houses, out of about 10,000 that were damaged [17]. Japan has relocated tens of thousands of people from the coast following the March 2011 tsunami (the Great East Japan Earthquake); these were mostly people whose houses were destroyed (see Pinter et al. [18]).

  2. Braamskamp and Penning-Rowsell [19] observe that rare sudden-onset events, as those characterizing the risks in Quadrants A and C, might also be necessary to generate the political support for a managed retreat programme, especially if that programme requires public funding. Generating public support for retreats due to more predictable and frequent risks is more difficult. The objections to funding retreat for frequent (i.e. widely expected) risks is that the owners ‘should have known better’ than to purchase assets/homes in harm’s way. In any case, these political considerations are not our focus here.

  3. Austria provides an interesting example of these circumstances (see Holub and Fuchs [22] and Rauter et al. [23]). Kusuma et al. [24] analyses why insurance markets might be underdeveloped.

  4. The choice of 2007, several years before the earthquake, was deliberate. Assessments of property values, required for the collection of property taxes, are done in New Zealand every 3 years. In principle, the 2010 values could have been used. However, the property market in New Zealand, as elsewhere, experienced a decline after the global financial crisis which started in September 2008. The government wanted to use a value that will not reflect that (possibly temporary/cyclical) dip in prices and therefore made its offers based on pre-crisis values.

  5. Surprisingly, owners appeared to have chosen suboptimally, probably because of significant peer pressure [27], and the 77% that chose the insurance option were more likely to be dissatisfied with their choice [28].

  6. The local authorities (Christchurch city council) intended to disconnect basic services (water, sewage, and electricity) to these remaining properties to incentivize their cooperation in the voluntary RRZ programme, but the council received legal advice that disconnecting might be illegal [29].

  7. This is an estimated figure, rather than an accurate one. The public insurer initially assessed and recorded the damage cost for each individual property affected by the earthquakes. We aggregate these initial estimates for the RRZ’s properties, but in many cases, initial estimates undervalued the damage.

  8. For some perverse examples of these dynamics, see Klein [32]. Kousky [33] also identifies sudden-onset events as an opportune time to implement managed retreats.

  9. I am grateful to Cuong Nguyen for pointing to some cases that exhibit these problems.

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Funding

The author thanks the Resilience National Science Challenge for financial support.

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  1. Victoria University of Wellington, Wellington, 6012, New Zealand

    Ilan Noy

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Correspondence to Ilan Noy.

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Noy, I. Paying a Price of Climate Change: Who Pays for Managed Retreats?. Curr Clim Change Rep 6, 17–23 (2020). https://doi.org/10.1007/s40641-020-00155-x

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