BOOSTING RESILIENCE THROUGH

INNOVATIVE RISK GOVERNANCE

Catherine Gamper Public Governance and Territorial Development Directorate

Storm Surge, Norfolk, United Kingdom, December 2013

• Past decade: USD 1.5 trillion in economic damages from man-made disasters (industrial accidents, terrorist attacks) and natural disasters (primarily storms and floods)

Why boosting resilience matters

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Source: EM-DAT: The OFDA/CRED International Disaster Database, Université catholique de Louvain, Brussels, Belgium, www.emdat.be (accessed 14 November 2013).

Economic losses due to disasters in OECD and BRIC countries, 1980-2012 (USD Billion)

• Driven by significant increase in intensity and complexity: o Increased concentration of populations , especially elderly, more vulnerable

groups, and economic assets in risk prone areas o Accelerated urbanisation o Increased global economic integration, facilitated by transport mobility and

communication o Deteriorating environmental conditions coupled with climatic changes

Why boosting resilience matters

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Source: OECD (2009), OECD Factbook 2009: Economic, Environmental and Social Statistics.

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Source: Mirdoudot, S. and K. De Backer (2012), “Mapping Global Value Chains”.

OECD countries have made substantial progress in achieving resilience…

Source: Source: EM-DAT: The OFDA/CRED International Disaster Database, www.emdat.be - Université catholique de Louvain - Brussels - Belgium". Data for OECD and BRIC countries (1980-2012). Figures are shown true to the year of the event. OECD Stat National Accounts GDP per capita in US$, constant prices, reference year 2005

Australia

Bangladesh

Bolivia Chile

Costa Rica

Egypt

Estonia

Ethiopia

Fiji Finland

France Germany

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Honduras India

Indonesia Iran

Italy

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Japan

Kenya Madagascar Malawi

Mexico

Mozambique

Nepal Netherlands

New Zealand

Norway

Pakistan

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Poland

Portugal

Slovenia

Thailand Turkey

United Kingdom United States

Venezuela

Yemen

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Significant decrease in fatality rates from disasters with increasing income 1980-2013

OECD Non-OECD

… but considerable economic damages challenge even highest income countries

Source: EM-DAT: The OFDA/CRED International Disaster Database, www.emdat.be - Université catholique de Louvain - Brussels - Belgium; OECD (2013), “Gross domestic product (GDP) MetaData : GDP per capita, US$, constant prices, reference year 2005”, National Accounts OECD Statistics Database, accessed on 14 November 2013, http://stats.oecd.org/

• Some disasters caused economic losses in excess of 20% of GDP (Chile, NZ), with local economies especially affected

• Shocks propagate across economic sectors and geographic boundaries through interconnected economies

• Considerable uncertainty challenges good policy making for resilience

Why boosting resilience matters

• Disasters can be even more disruptive if they occur in times of economic difficulties (e.g. Fukushima, Japan 2011)

• Governments need guidance on prioritising resilience under fiscal constraints

• Optimal risk reduction level under constrained resources:

Prioritising resilience under fiscal constraints?

Source: Ammann, W. et al. (2006), “Risk concept, integral risk management and risk governance”, in RISK21 – Coping with Risk due to Natural Hazards in the 21st Century, Taylor & Francis Group, London.

Collective risk (EUR) risk baseline

cost-benefit value of the optimal measures

marginal costs criteria (1 : 1)

Costs of risk reduction measures

1 EUR risk reduction = 1 EUR investment costs

• Past disasters questioned whether governments pursued a high enough level of resilience

• Citizens prosecuted their governments for failing to protect them (e.g. Austria after 2003 floods)

• „ZERO RISK“ neither technically possible, nor financially feasible • So: what residual risk is society choosing to accept? • Decision support systems (e.g. CBA, MCA, etc.) can help making

trade-offs:

Can governments define “optimal” resilience levels?

Source: Hochrainer-Stigler, S. et al. (2010), “The Costs and Benefits of Reducing Risk from Natural Hazards to Residential Structures in Developing Countries”, Wharton Risk Management and Decision Processes Center.

• The UK Health and Safety Executive (HSE) determines acceptable levels of risk with regard to work related hazards based on the criteria elaborated by the HSE

• Iceland includes definitions of acceptable risk levels for snow avalanches and landslides in national law (The Ministry of the Environment, 2000)

• Liu and Xie (2008) propose different acceptable earthquake risk levels in China based on city size and probable earthquake intensity

How have countries used concepts of acceptable risk levels?

• Improved disaster risk management framework conditions: o General level of social and economic welfare o Facilitating institutional environment

• Concrete and successful disaster risk management measures: o Increased understanding of risks o Central government leadership o Mainstreaming of disaster risk management across public

policy areas o High level of risk awareness and information sharing

OECD countries have made substantial progress in achieving resilience…

… In protective infrastructure and its maintenance (e.g. dam breaks during floods in 2002/13 in Europe; great infrastructure destruction during Great East Japan Earthquake in 2011) … Lagging regulatory reforms (e.g. building codes that are not adapted to new housing design - in Italy L’Aquila 2009; rigidity in air safety regulations during volcanic eruption in Iceland 2010) … Lagging enforcement of regulations (e.g. significant increase in population around the Vesuvius despite known hazard exposure; informal construction of houses in Mexico in risk-prone areas)

But gaps are persistent…

… Private sector–gaps in business continuity planning (e.g. large bankruptcy rate during Great East Japan Earthquake 2011; UK floods 2007 – average of 9 days of interruption); … Individual households do not invest in self-protection (e.g. 84% of population affected by UK floods 2007 believe nothing they can do to protect better; only a fifth of population of Istanbul took protective action after the Marmara EQ in 1999; in Germany only 25% of HH insured against flood risk) … Low levels of international collaboration (e.g. lack of incentives to share information; lack of appreciation of benefits of joint investments; diverging capacity levels across borders)

… but also among non-governmental stakeholders

… undermining trust in government

Source: BP (2014), "BP ADS Share Price History", British Petroleum, http://ir2.flife.de/data/bp/hpl_us.php (accessed 8 April 2014); McDermott, M. (15 November 2012), “BP will pay biggest criminal fine in US history for Gulf oil spill”, Treehugger, www.treehugger.com/energy-disasters/bp-will-pay-biggest-criminal-fine-u-s-history-gulf-oil-spill.html.

Trust in government put to particular test during disasters: o previous neglects in resilience measures

has disproportionately negative effects on trust in government

o Governments and also companies have to react with drastic measures to restore trust (e.g. resignation of government officials in charge)

o and implement expensive spending measures, e.g. bank liquidity injection after 9/11; clean-up costs and compensation funds after Deepwater Horizon

• Shortcomings in risk governance may be an important and often overlooked cause

→ Risk governance mechanisms determine whether an actor participates in putting resilience measures in place; for example:

o Households may decide not to self-protect in expectation of governments doing so for them

o Local governments may not build protective measures as result of other jurisdictions benefiting but not contributing to the costs

o Central government actors reluctant to invest in resilience – ex-ante investments not visible and levels of rewards low

o Countries may not collaborate because of disincentives for data-sharing

Why do resilience gaps persist?

For further information please contact: catherine.gamper@oecd.org Or consult: http://www.oecd.org/gov/risk/boosting-resilience-through-innovative-risk-management.htm