System-Wide Impacts
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System-Wide Impacts of a Specific Extreme Event. Alvaro Calzadilla eee Programme - Seminar (November 15, 2005). System-Wide Impacts of a Specific Extreme Event. The general objective:

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System wide impacts of a specific extreme event

System-Wide Impacts

of a Specific Extreme Event

Alvaro Calzadilla

eee Programme - Seminar

(November 15, 2005)


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

The general objective:

“To show the overall economic cost of a natural disaster paying special attention to the market effects”

“ To show that the economic burden of a natural disaster is not confined to the region where the disaster physically occurs”


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Outline:

-Natural disaster analysis

-Flooding in Australia in 1998

-Simulation and results

-Conclusion


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Natural disaster analysis

Economic and insured losses with trends (Munich RE, 2003)


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Natural disaster analysis

EXTREME WEATHER EVENT:

Extreme weather is defined as weather that exceeds a locale’s normal weather intensity. By definition, it is infrequent or rare, and it will vary from location 1 to location 2

Extreme weather can be represent as a score of “extreme high” (95th, 98th or 99th percentiles) or “extreme low” (5th, 2nd or 1st percentiles) for a location


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Natural disaster analysis

NATURAL DISASTER:

A natural disaster is often the coalescence of two or more extreme events

An extreme weather event can become a disaster when the damage resulting from the event is beyond the capacity of a community to cope


System wide impacts of a specific extreme event

Direct Effects:

Losses of capital stock

Indirect Effects:

Business interruption

Economic Costs

Disaster

Impacts

Macroeconomic Effects:

Loss of GDP, etc.

Humanitarian Effects

Ecological Effects

System-Wide Impacts of a Specific Extreme Event

Natural disaster analysis

Impacts of natural disaster (ECLAC)


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Natural disaster analysis

Impacts of natural disaster (ECLAC)

  • Social Sectors:

    • Affected population

    • Housing and human settlements

    • Education and culture

    • Health Sector

  • Infrastructure

    • Energy

    • Drinking water and sanitation

    • Transport and Communication

Economic Cost

  • Economic Sectors

    • Agriculture

    • Trade and industry

    • Tourism


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Natural disaster analysis

Economic Costs (ECLAC Methodology)

Direct Damage: Physical impact on infrastructure

- Total o partial destruction of housing, buildings, installations, machinery, equipment, means of transportation, storage and furniture.

- Damage to cropland, irrigation works and dams.

- Destruction of Crops ready for harvesting.

Indirect Damage: Business interruption

- Loss of production of goods and services resulting from the destruction of the means of production.

- Loss of industrial output as a result of damage to factories or lack of inputs and increased transport cost.

Macroeconomic: Secondary effects

Loss in GDP, balance of trade, balance of payments, taxes, expenditure, etc


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Natural disaster analysis

The ECLAC methodology does not take into account the market effect in which the productive sectors may incur.


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Natural disaster analysis

MARKET EFFECT:

The changes in the relative competitiveness caused by a natural disaster

These changes are driven by changes in prices


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Flooding in Australia

This section is based in Yen (2002) “Flooding in Australia: A Review of Events in 1998”

Yen’s paper reviews the diverse causes and styles, the frequency and the losses of Australia’s five most costly floods in 1998 (Townsville, Katherine, East Gippsland, Namoi Valley and Wollongong)


System wide impacts of a specific extreme event

Katherine

Townsville

Namoi Valley region

Wollongong

East Gippsland region

System-Wide Impacts of a Specific Extreme Event

Flooding in Australia

TONWSVILLE (Jan):

- Rainfall > 100 Yr ARI

- Flood highest on record

KATHERINE (Jan):

- Rainfall > 100 Yr ARI

- Flood ~ 150 Yr ARI

EAST GIPPSLAND (Jun):

- Flood highest on record

NAOMI VALLEY (Jul):

- Flood 20 Yr ARI

WOLLONGONG (Aug):

- Rainfall > 100 Yr ARI

- Flood ~ 50 Yr ARI


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Flooding in Australia

Tangible and intangible damages from the 1998 floods

Economic Cost

(Direct effect)

Humanitarian

Effects


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Flooding in Australia

Tangible damages from the 1998 floods


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Simulation and results

To model the effects of Australian floods, the GTAP-EF model is run by shocking the exogenous variables “capital endowment” and “land endowment” in region RoA1 (to which Australia belongs).

The result is a counterfactual scenario, in which the world economy adjusts its structure, as a consequence of the reduction of productive resources in one region.


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Simulation and results

Indirect Effects

(1188 MM USD)

Macroeconomic

Direct Effects

(527 MM USD)

Macroeconomic


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Simulation and results


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Conclusions

Local impacts of an specific extreme event propagate inside the world economic structure, because of trade relationships among regions

In this specific exercise if we do not consider the overall impact we would underestimate the global economic impact by 18.8%


System wide impacts of a specific extreme event

System-Wide Impacts of a Specific Extreme Event

Conclusions

It is important to consider the market effect inside the indirect effect, because it can determine permanent losses in the international market shares

The reconstruction cost following a Natural Disaster must prior the sectors with a high level of market effect


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