The consideration of costs and benefits enables decision makers to make informed and robust decisions between options, allowing trade-offs and/or providing a means to justify decisions. In many public and private institutions, economic cost-benefit analyses (CBAs) help provide the justification for project approval. In addition, facilitate dialogue with other national, regional or local stakeholder if priorities are conflicting. CBA is however particularly challenging for climate change adaptation (CCA). The challenging arises due to high uncertainty and the stochastic nature of climate change projections, and because future benefits/avoided losses are often difficult to estimate. CBA of CCA for infrastructure, and in particular for urban multi component/sector projects, is therefore very technically challenging to complete, as well as time and resource intensive and is outsourced to external experts and consultants. As a consequence of these factors, it has proved difficult for financial institutions to develop quick and cost effective in-house CBAs which permit robust decision making for adaptation interventions.
NOTE: Bottlenecks addressed: 31, 32 (See the Annex F on the Draft Action Plan)
The EU has comprehensive guidelines on CBA, and has supported projects like ClimateCost, Econadapt, which however do not resolve the challenge outlined above, particularly for urban multi sector adaptation interventions. However, this previous work forms an important point of departure. International experience has shown that much of this guidance has proven far too complicated (CGE models, Real options from UK green book, etc.) some of which is not used at all, and the other is too costly and time consuming, and often does not aid in decision-making. EIB has started work on this, initially for large infrastructure projects globally, and will provide its concept note to UA Partnership and the implementing entity for this action to inform this work.
This action proposes to analyse existing methodologies and good practices regarding the CBA of CCA and adapt and develop these to infrastructure investments in the urban context. The guidance and tools that are developed shall be appropriate for in-house use by cities (including small and medium-size) and financial institution, as well as be cost effective and promote low regret and robust decision making on adaptation interventions. Cities need to justify their priorities and use of public funds to the constituencies and funders (loans or grants) and currently are poorly equipped to do so. The availability of appropriate tools and guidance for urban investment decisions makers will permit, promote and enhance investments and operational changes in cites, this will enable people, assets and ecosystems to cope with impacts and seize the opportunities that climate change presents.
Implementation: It is envisaged that this work shall be carried out with the assistance of external consultants, to be lead collectively by representatives (steering committee) of both the financial sector (commercial and IFI) and urban/cities. The approach requires the consultants to facilitate the sharing of best practise between cities, financial institutions and service providers and initially develop simple, best practice guidelines along the lines of the “Integrating Climate Change Information and Adaptation in Project Development: Emerging Experience from Practitioners” (EUFIWACC, 2016). Next steps are more detailed guidance on robust decision making under uncertainty and low cost, low regret solutions for urban adaptation with the tool kit to carry out such assessments.
Funding Sources and Needs: EU funds, EUR 2-3 million
Implementation Risks: There is a risk that the task of simplifying a highly complex challenge of economic analysis of adaptation, and nascent field, in the context of complex multi component/sector urban investments cannot move beyond guidance and best practises. A second risk, which is known from the urban partnerships, is the availed and willingness of all the stakeholders to commit the necessary time to support this action. May be challenging for smaller cities due to complexity and resource constraints.
Responsible Institution: European Investment Bank (tbc)
Contributing Institutions: Financial sector (KfW, National Promotional Banks, EBRD, Commercial Banks) EUROCITES, CoM, CEMR, representative sample of EU cities for testing
- 06.2019 Terms of Reference / Workplan
- 12.2019 Progress Monitoring
- 06.2020 Guidelines
- 12.2021 Toolkit
Indicator of Completion:
- Delivery of Guidelines and toolkit;
- Dissemination and training on use for at least the 20% of cities belonging to the contributors
- Draft Action R1: Revision of urban development and planning regulation tools, focusing on national, regional and local climate adaptation actions
- Draft Action R2: Further involvement of national municipality associations and Covenant of Mayors as key facilitators and supporters of local authorities
- Draft Action F1: Guidelines and toolkits for adaptation economic analysis
- Draft Action F2: Recommendations for the Ops of the ERDF in order to improve access for municipalities
- Draft Action F3: A new LIFE for urban adaptation projects
- Draft Action F4: Further support for the drafting of local adaptation plans
- Draft Action K1: Improving data accessibility for EU Municipalities in the framework of COPERNICUS
- Draft Action K2: Enhancing the urban content of Climate-ADAPT
- Draft Action K3: Political training academy on climate adaptation
- Draft Action K4: Enhancing citizen and stakeholder involvement at regional and local levels for climate adaptation agendas
- Draft Action K5: Promote open access on insurance data for climate risk management