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Building with nature in mind: New economic decision tools for climate change and natural disasters

2016 february newsletter article 1

If an acre of forest burns up in flames, what’s the cost? Zero, was FEMA’s reply in 2013. The Federal Emergency Management Agency rejected California’s request for a federal “major disaster” declaration and funding after the devastating Rim Fire, because it only knew how to put a price tag on man-made structures. The 400 square miles of forests that had been reduced to ashes and charred stumps—including part of Yosemite National Park—couldn’t translate into dollar amounts.

How times have changed. Two weeks ago, the state of California was named one of the 13 winners of the National Disaster Resilience Competition by the U.S. Department of Housing and Urban Development (HUD) and the Rockefeller Foundation. California won more than $70 million to help fund several disaster preparedness projects in communities affected by the Rim Fire. 

What happened? As extreme weather events have become more frequent due to climate change, decision-makers are realizing that conventional project assessments won’t do, and that building strong, resilient communities requires drastically innovative approaches. In a first for a federal agency, the HUD Office of Economic Resilience, in collaboration with the Rockefeller Foundation, mandated that nature be a key element in the design of development projects submitted to the $1 billion competition. 

HUD required all applicants to use a more complete benefit-cost analysis developed by Earth Economics, a close partner of Global Footprint Network. It is exactly the kind of approach that Global Footprint Network and Earth Economics called for in July in our State of the States Report, which found the United States demands twice the resources that its ecosystems can regenerate. It is also similar to the approach that Global Footprint Network piloted with the state of Maryland when developing our Net Present Value Plus tool

Profound shift

To assert the HUD/Rockefeller competition marks a significant departure from business as usual is an understatement. In fact, HUD has opened the door to a brand new approach where sustainability and resiliency are the guiding principles in deciding which disaster preparedness projects are worth funding. 

“We are delighted a federal agency is demonstrating such a strong commitment to incorporating the value of nature into infrastructure and resilience projects,” said Dr. Mathis Wackernagel, co-founder and CEO of Global Footprint Network. “This is a profound shift that is bound to transform industry standards.” 

Eligible applicants to the competition were required to incorporate nature into the economic impact analysis of their disaster resilience projects. All of them received training by Earth Economics on how to assess their costs and benefits more comprehensively, including the value of natural assets. The applicants then were allowed to seek Earth Economics’ assistance with their applications. Indeed, all of the applicants who sought Earth Economics’ assistance—including the state of California—won HUD money, totaling $680 million altogether. 

In each case, Earth Economics coached the jurisdiction to understand how natural systems work within its specific region, and to make nature part of the solution recovering from natural disasters.

For the New York City Housing Authority’s (NYCHA) Storm Resiliency Program, for instance, Earth Economics found New York City’s urban parks and green space affected by Hurricane Sandy provide $3.9 million in ecosystem services ranging from aesthetic and recreational value to water purification and storage value. NYCHA was awarded $176 million. 

Decision-makers both inside and outside the United States ought to pay close attention to how this competition was conducted and to the innovative economic analysis that was applied. By using comprehensive methods for measuring the multiple benefits of post-disaster projects, government decision makers can have a far more beneficial, resilient and sustainable impact. This is the only way to avoid repetitive damage and billions in future costs, while building healthy lands and vibrant economies. 

 
2016 february newsletter article 2

Climate change poses economic risks to countries, while also offering opportunities. So shouldn’t sovereign bond investors take this into account when making portfolio decisions? In the wake of COP21, just as countries are trying to figure out how to curb carbon emissions, investors are starting to think more about portfolio decarbonization in all asset classes, including sovereign bonds, Global Footprint Network Co-Founder Susan Burns writes in a recent opinion piece in Institutional Investor. Burns and co-author Maximilian Horster, director, financial industry, at South Pole Group, note that the issues go beyond national carbon emission totals to include carbon intensity of a country’s economy and trade-related risk. Learn more in the Institutional Investor op-ed published last week. Learn more about Global Footprint Network’s collaboration with South Pole Group on climate impact assessments for sovereign bond investors.

 
2016 february newsletter article 4

Global Footprint Network’s research team authored a chapter on the Ecological Footprint in Sustainability Assessment of Renewables-Based Products: Methods and Case Studies, the latest installment from the Wiley Series in Renewable Resources. The chapter, “Tracking Supply and Demand of Biocapacity through Ecological Footprint Accounting,” describes our methodology to calculate humanity’s demand on nature, outlines current applications and details future developments of the methodology. It is a must read for those looking to delve into the details of the Ecological Footprint.

 
2016 february newsletter article 3

At the end of February, this nation will enter national ecological deficit—its citizens’ demand for food, timber and carbon dioxide absorption will begin to exceed what the nation’s ecosystems can renew over the full year. Trade is a fact of life in our globalized economy, but just as a trade deficit can be a liability, so can an ecological deficit. 

In this European nation, citizens over age 18 must vote in national elections and often result in large voter turnout. Popular food items include mussels served with fried potatoes, waffles and chocolate. 

Now, can you identify this nation? 

Find the answer by clicking here.