The document discusses the economics of climate change adaptation. It introduces a methodology called Economics of Climate Adaptation (ECA) that provides decision-makers with facts and methods to design climate adaptation strategies. The key features of ECA include assessing total climate risk through probabilistic risk analysis and proposing cost-effective adaptation options. Case studies applying ECA found that 40-60% of risk can typically be cost-effectively reduced through adaptation. The document also describes applications of the open-source simulation platform climada for probabilistic risk analysis and adaptation appraisal.

1. The Economics of Climate Change Adaptation
Prof. Dr. David N. Bresch, Institute for Environmental decisions, ETH Zurich and MeteoSwiss, Switzerland
www.wcr.ethz.ch
26 June 2017
Decision makers ask:
1. Impact: What is the potential climate-related impact on our economies and
societies today and over the coming decades?
2. Options: How can we best manage, what options de we have?
3. Cost/benefit: What investment will be required to fund those measures -
and will the benefits of these investment outweigh the costs?

2. The need for climate-resilient development
2

3. Climate-resilient development
Economics of climate adaptation (ECA)1
Objectives
§ Provide decision makers with the facts and methods necessary to design and execute a climate
adaptation strategy
Key features of the methodology:
§ Follow a rigorous risk management approach to assess local total climate risk, the sum of
§ today’s weather and climate risk,
§ the economic development paths that might put greater population and value at risk
§ the additional risks presented by climate change (à scenarios)
§ Propose and prioritize a basket of adaptation measures (i.e. options) to address total climate risk
on an economic basis
1 https://www.ethz.ch/content/dam/ethz/special-interest/usys/ied/wcr-dam/documents/Economics_of_Climate_Adaptation_ECA.pdf
3

4. USD 25 mio
USD 22 mio
USD 30 mio
future risk
Risk due to today‘s weather (extremes)
Additional risk due to economic development
Additional risk due to climate change
EconomicsofClimateAdaptation(ECA)WorkingGroup,apartnershipbetweentheGlobalEnvironmentFacility,
McKinsey&Company,SwissRe,theRockefellerFoundation,ClimateWorksFoundation,theEuropean
Commission,andStandardCharteredBank.Laterstudiespoweredbyopen-sourcemodelclimada
climada
77
Samoa case study1: Risk of sea level rise and storm
surge to a small island
2030
?
How to manage?
What options?
1 http://media.swissre.com/documents/rethinking_shaping_climate_resilent_development_en.pdf#page=110
4

5. Samoa case study1: Benefit/cost appraisal of options
EconomicsofClimateAdaptation(ECA)WorkingGroup,apartnershipbetweentheGlobalEnvironmentFacility,
McKinsey&Company,SwissRe,theRockefellerFoundation,ClimateWorksFoundation,theEuropean
Commission,andStandardCharteredBank.Laterstudiespoweredbyopen-sourcemodelclimada
climada
1 http://media.swissre.com/documents/rethinking_shaping_climate_resilent_development_en.pdf#page=110
5

6. USD 25 mio
USD 22 mio
USD 30 mio
Residual
risk
-44%
Climate adaptation
Risk reduction through
cost-effective risk
management options
Risk due to today‘s weather (extremes)
Additional risk due to economic development
Additional risk due to climate change
Residual Risk
Avoidance only at
(excessively) high costs or
not at all
EconomicsofClimateAdaptation(ECA)WorkingGroup,apartnershipbetweentheGlobalEnvironmentFacility,
McKinsey&Company,SwissRe,theRockefellerFoundation,ClimateWorksFoundation,theEuropean
Commission,andStandardCharteredBank.Laterstudiespoweredbyopen-sourcemodelclimada
climada
77
Samoa case study: Substantial risk reduction due to
cost-effective adaptation options
2030
1 http://media.swissre.com/documents/rethinking_shaping_climate_resilent_development_en.pdf#page=110
6

7. Samoa case study1: Risk transfer for
low frequency/high severity events
EconomicsofClimateAdaptation(ECA)WorkingGroup,apartnershipbetweentheGlobalEnvironmentFacility,
McKinsey&Company,SwissRe,theRockefellerFoundation,ClimateWorksFoundation,theEuropean
Commission,andStandardCharteredBank.Laterstudiespoweredbyopen-sourcemodelclimada
climada
1 http://media.swissre.com/documents/rethinking_shaping_climate_resilent_development_en.pdf#page=110
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8. Applied in more than twenty case studies1 worldwide:
All hazards, economic sectors and risk cultures
EconomicsofClimateAdaptation(ECA)WorkingGroup,apartnershipbetweentheGlobalEnvironmentFacility,
McKinsey&Company,SwissRe,theRockefellerFoundation,ClimateWorksFoundation,theEuropean
Commission,andStandardCharteredBank.Laterstudiespoweredbyopen-sourcemodelclimada
Guyana: Flash flood
risk to a developing
urban area
Tanzan
ia
Tanzania: Drought
risk to health and
power generation
Samoa: Risk of sea
level rise to a small
island state
Florida: Hurricane risk
to public and private
assets
Mali: Risk of climate
zone shift to
agriculture
India: Drought risk to
agriculture
US Gulf Coast:
Hurricane risk to
the energy system
New York:
Cyclones and surge
risk to a metropolis
Hull, UK: Flood
and storm risk to
urban property
China: Drought
risk to agriculture
El Salvador: Flood
and landslide risk to
vulnerable people
Bangladesh: Flood
risk to a fast-developing
city
Caribbean: Hurricane
risk to small islands
8x
climada
THE WORLD BANK
1 http://www.wcr.ethz.ch/research/casestudies.html
8

9. General finding: 40-60% of risk can be cost-effectively avoided
Risk
today
Development
Residual
risk
Climate adaptation
Risk reduction through
cost-effective risk
management options
Risk due to today‘s weather (extremes)
Additional risk due to economic development
Additional risk due to climate change
Residual Risk
Avoidance only at
(excessively) high costs or
not at all
à Insurance as an option
Climate change
EconomicsofClimateAdaptation(ECA)WorkingGroup,apartnershipbetweentheGlobalEnvironmentFacility,
McKinsey&Company,SwissRe,theRockefellerFoundation,ClimateWorksFoundation,theEuropean
Commission,andStandardCharteredBank.Laterstudiespoweredbyopen-sourcemodelclimada
climada
9

10. O
Simulation platform climada: Probabilistic risk analysis
and adaptation responses/options appraisal
weather à hazard
exposure
climada
(open source1):
fully probabilistic
event-based
simulation
vulnerability
Hazard intensity
impact
Welker,Martius,Stucki,Bresch,Dierer&Brönnimann,2015
Schwierz,Köllner-Heck,Zenklusen,Bresch,Vidale,Wild,Schär,2010
Della-Marta,Liniger,Appenzeller,Bresch,Köllner-Heck,Muccione,2010
climada
risk analysis
+ risk mapping,
early warning...
adaptation responses/options
adaptation responses/
options appraisal
(incl. effectiveness,
cost/benefit)
regional scenarios
Development
scenarios
1 https://github.com/davidnbresch/climada
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11. 11

12. Dialog: Risk, uncertainty and decision-making1
Risk appetite and
further criteria
(Re)Prioritization
feasibility & finance
Measuring, reporting
and verification
1. Problem definition, Goal
7. Implementation
6. Decision (?)
NO
NO
Criteria
met?
Problem
defined
correctly?
2. Decision criteria
3. Risk analysis
4. Identify options
Simulation
platform
8. Monitoring
5. Options appraisal
1 Souvignet, Wieneke, Müller & Bresch, 2016: Economics of Climate Adaptation (ECA) - Guidebook for Practitioners. Materials on Development Financing, UNU, KfW. Figure based on IPCC and UKCIP
https://www.kfw-entwicklungsbank.de/PDF/Download-Center/Materialien/2016_No6_Guidebook_Economics-of-Climate-Adaptation_EN.pdf
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13. Roadmap and business case for adaptation funding
Risk assessment
Cost-benefit analysis
Risk
today
Develop-
ment
Climate
change
Risk
2030
What if we …
... specify our risk appetite in line with development priorities
... incorporate further criteria relevant to us in addition to cost-
benefit ratio
... (re-)prioritize risk mitigation and transfer measures based on
our priorities
... Calculate an adaptation business plan and corresponding
investment plan
... develop a roadmap including priority initiatives
... use roadmap and business case for funding discussions
... speed-up implementation with the additional funding and hence
further strengthen resilience
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14. Acknowledgements
Schweizerische Eidgenossenschaft
Confédération suisse
Confederazione Svizzera
Confederaziun svizra
Federal Department of Home Affairs FDHA
Federal Office of Meteorology and Climatology
MeteoSwiss
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15. Appendix
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16. Curriculum vitae http://www.wcr.ethz.ch
David N. Bresch has been appointed Professor for Weather and Climate
Risks at the Swiss Federal Institute of Technology, ETH Zürich and
MeteoSwiss in 2016. His research focuses on the impacts of weather and
climate on socio-economic systems. Combining numerical (open-source)
modelling of weather and climate risks with the engagement of decision
makers and end-users, his research aims to explore ways to strengthen their
resilience.
Previously, he worked at Swiss Re 2000-2016; his roles included Head
Business Development Global Partnerships, Global Head Sustainability, Head
of University and Risk Research Relations, Head Atmospheric Perils Group
and Chief modeler for natural catastrophe risk assessment. He has been
member of the deal teams for many innovative risk transfer transactions, like
cat bonds and weather index solutions. David Bresch has been a member of
the official Swiss delegation to the UNFCCC climate negotiations 2009-2012
and will again COP21 in Paris (2015).
He served as member of the Private Sector Advisory Group (PSAG) of the UN Green Climate Fund (GCF, 2014-2016),
is active as steering committee member of ProClim, and member of OcCC, the Federal administration's Advisory Body
on Climate, Switzerland. At the Swiss Federal Institute of Technology, ETH, he lectures since 2010 on economics of
climate adaptation. Further, he acts as board member of WWF Switzerland, Academia Engelberg and sanu future
learning AG.
David Bresch holds a PhD in physics from the Swiss Federal Institute of Technology, ETH Zurich, Switzerland.
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17. Sovereign rating impact of Nat Cat events
Based on a sample of 48 countries, simulations indicate
that natural disasters, which can be expected once in every
250 years, can weaken sovereign ratings.
Tropical cyclones: country credit rating
downgrades of up to >2 notches
Analysis based on climada,
Swiss Re expertise and
S&P rating methodology
S&P, 2015: The Heat Is On: How Climate Change Can
Impact Sovereign Ratings, https://goo.gl/sccYb5 and
Storm Alert: Natural Disasters Can Damage Sovereign
Creditworthiness, https://goo.gl/FISbIj
Hypothetical country rating downgrade in notches (AAA, AA+, AA-…)
climada
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18. O
[Weather] Risk
The “effect of uncertainty on objectives”1
risk = probability x severity
risk = hazard x exposure x vulnerability
= (probability x intensity) x exposure x vulnerability
severity
exposure
vulnerability
hazard Risiko
1 Risk is the “effect of uncertainty on objectives” and an effect is a positive or negative deviation from what is expected [ISO 31000]. Illustration: IPCC, AR5
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19. Select literature
• Bresch, D. N., 2015: Shaping Climate Resilient Development – Economics of Climate Adaptation. In Huggel, C. (Ed), Climate
adaptation. Springer books. http://www.springer.com/gp/book/9783319407715
• Bresch, D. N., 2014: climada – the open-source Economics of Climate Adaptation (ECA) tool, implemented in MATLAB/Octave.
https://github.com/davidnbresch/climada
• Bresch, D. N. & Mueller, L., 2014: Economics of Climate Adaptation – Shaping climate-resilient development. A global overview of
case studies with a focus on infrastructure,
http://media.swissre.com/documents/Economics_of_Climate_Adaptation_focus_infrastructure.pdf
• Bresch, D. N., Egloff, R., Berghuijs, J., & Kupers, R., 2014: A Resilience Lens for Enterprise Risk Management. In Kupers, R. (Ed),
Turbulence - A Corporate Perspective on Collaborating for Resilience. Amsterdam University Press, Amsterdam, pp. 49-65.
www.oapen.org/download?type=document&docid=477310
• Bresch, D. N. & Mueller, L., 2014: Natural catastrophes and man-made disasters in 2013. Fostering climate resilience. Swiss Re
sigma No 1/2014, http://media.swissre.com/documents/sigma1_2014_en.pdf
• Bresch, D. N., as a member of the ECA working group, 2009: climate-resilient development: A framework for decision-making, A
Report of the Economics of Climate Adaptation Working Group.
http://media.swissre.com/documents/rethinking_shaping_climate_resilent_development_en.pdf
Comprehensive (and up to date) list here: https://www.usys.ethz.ch/en/people/profile.html?persid=49820
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