Economic Impacts of Increased Flood Risk Associated with Climate Change in the North West

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1 Economic Impacts of Increased Flood Risk Associated with Climate Change in Report 15 September 2009

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3 North West Development Agency Economic Impacts of Increased Flood Risk Associated with Climate Change in Project Title: Report Title: Economic Impacts of Increased Flood Risk Associated with Climate Change in Economic Impacts of Increased Flood Risk Associated with Climate Change in Project No: Report Ref: Status: Client Contact Name: Client Company Name: Issued By: Paul Needham North West Development Agency URS Corporation Ltd. St Georges House 5 St Georges Road Wimbledon London SW19 4DR United Kingdom Tel: + 44 (0) Fax: + 44 (0) Document Production / Approval Record Issue No: 2 Name Date Positions Prepared and revised by Checked by Approved by Brendan Tapley Albane Gaspard Ben Stephenson Daniel Collins Eugene Ngwenya Rory Brooke Project Manager Economics Consultant GIS Consultant Flood Risk Consultant Principal Hydrologist / Project Director Principal Economics & Development Eugene Ngwenya Principal Hydrologist / Project Director Document Revision Record Issue No Date Details of Revisions Original issue Added cover page image, front table of acronyms, new table 4-1 added, section 5.7 revised Revised Draft

4 North West Development Agency Economic Impacts of Increased Flood Risk Associated with Climate Change in LIMITATION URS Corporation Limited (URS) has prepared this Report for the sole use of North West Development Agency and Climate Change Partnership in accordance with the Agreement under which our services were performed. No other warranty, expressed or implied, is made as to the professional advice included in this Report or any other services provided by us. This Report may not be relied upon by any other party without the prior and express written agreement of URS. Unless otherwise stated in this Report, the assessments made assume that the sites and facilities will continue to be used for their current purpose without significant change. The conclusions and recommendations contained in this Report are based upon information provided by others and upon the assumption that all relevant information has been provided by those parties from whom it has been requested. Information obtained from third parties has not been independently verified by URS, unless otherwise stated in the Report. The flood extent data that has been used in this report has been provided by the Environment Agency, based on its work in developing the Catchment Flood Management Plans for the region. Where data was incomplete in some areas, URS has undertaken a modelling exercise to approximate the flooding extents for the coastal regions. For the fluvial areas, the flood extents have been used as provided by the Environment Agency. Therefore the economic damages estimates presented have relied on the accuracy and completeness of this data. COPYRIGHT This Report is the copyright of URS Corporation Limited. Any unauthorised reproduction or usage by any person other than the addressee is strictly prohibited.

5 North West Development Agency Economic Impacts of Increased Flood Risk Associated with Climate Change in CONTENTS Section Page No EXECUTIVE SUMMARY INTRODUCTION Objectives of Study Approach Structure of Report THE CONCEPT OF ECONOMIC IMPACTS What is an Economic Impact? Economic Costs Versus Financial Costs Presenting Economic Damage Estimates FLOOD RISK IN THE NORTH WEST Introduction Catchment Flood Management Plans (CFMPs) Shoreline Management Plans (SMPs) Tidal Flooding Studies Surface Water Flooding Sewer Flooding DETERMINING THE IMPACTS OF FLOOD RISK Overview of Existing Methodologies Direct Economic Impacts on Non-Residential Properties Indirect Impacts Businesses Indirect Economic Impacts Road Traffic Disruption Rail Disruption Port and Canal Traffic Disruption Disruption to Public Utilities and Related Infrastructure Emergency Services and Related Costs Intangible Impacts Accounting for Climate Change Impacts Reporting Damages by Sub-Region FINDINGS ON DAMAGES TO KEY BUSINESS SECTORS Damages in North West Region Annual Average Damages With Defences Annual Average Damages Without Defences Economic Damages to Transport (Road and Rail) Economic Damages to Agriculture Economic Damages to Ports Page i

6 North West Development Agency Economic Impacts of Increased Flood Risk Associated with Climate Change in Economic Value of Flood Defences Flood Warnings Damages by Sub-Region Cheshire Cumbria Greater Manchester Lancashire Merseyside Comparison of Damages per Sub-Region Perceptions of Flood Risk REVIEW OF FLOOD RISK MANAGEMENT INFRASTRUCTURE AND WARNING SYSTEMS Adequacy Flood Defences Flood Warning Systems CONCLUSION AND RECOMMENDATIONS Page ii

7 North West Development Agency Economic Impacts of Increased Flood Risk Associated with Climate Change in APPENDICES Appendix A CFMP Data Received by URS Appendix B Estimating Increase in WAAD with Climate Change Appendix C Standard of Protection by Catchment Appendix D - Details of Direct Impacts Quantification Methodology Appendix E NWDA Business Sector Definition Appendix F Updated WAAD at 2008 Prices Appendix G1 SIC Codes and Associated Bulk Classes Appendix G2 Bulk Classes Definition Appendix H - Details of Indirect Impacts Quantification Methodology Appendix I Road Damages Methodology Appendix J Rail Damages Methodology Appendix K Number of Businesses at Risk by Sub-region Appendix L Details of Damages by Sector and by Sub-region without Defences Page iii

8 North West Development Agency Economic Impacts of Increased Flood Risk Associated with Climate Change in TABLE OF ACRONYMS/ABBREVIATIONS AAD Base Case Scenario CFMP Climate Change Scenario EA FCDPAG MCM OS NWDA SIC SMP WAAD Annual Average Damages Current day flood risk scenario not accounting for the impact of climate change Catchment Flood Management Plan Future (2110) flood risk scenario accounting for the impacts of climate change Environment Agency Flood and Coastal Defence Appraisal Guidance Multi Coloured Manual Ordnance Survey North West Development Agency Standard Industrial Classification of Economic Activities Shoreline Management Plan Weighted Annual Average Damages Page iv

9 Economic Impacts of Increased Flood Risk Associated with Climate Change in EXECUTIVE SUMMARY Background and Objectives This report gives an assessment of the economic impacts of flood risk associated with climate change in of England. It has been prepared by URS Corporation Ltd for Development Agency (NWDA) who have funded the study with support from the Environment Agency (EA). Previous studies on flood risk management are largely based on damage to residential buildings and do not taken into account the variance between different business sectors or the flood protection requirements to secure future investment. This assessment was commissioned to support the evidence base for Climate Change Action Plan, by determining the economic impacts of flood risk now and with the effects of climate change focussing on impacts to key business sectors, including assessing the damage savings from flood defences. The objectives of the study are to: o Identify the spatial distribution of key regional business sectors and associated potential economic impacts from flooding and how this may change with climate change o Identify the economic impact of current and future flood risk associated with climate change to a sub-regional level o Provide an economic assessment of both direct impacts of flooding to businesses (damage to building, physical infrastructure) and collateral impacts (disruption in transport, trade and increase of emergency services costs) o Review the adequacy of the flood risk management infrastructure and warning systems to protect economic assets in locations at risk of flooding and increased risk associated with climate change o Establish the economic value of flood risk management infrastructure investment over the projected duration of these assets in terms of the protection they provide to business and communities o Consider the implications of perception of future flood risk associated with climate change around the region s flood sensitive locations and possible disincentive for investment. Damages with Climate Change Average Annual Damages (AADs) are used to value the economic damage and disruption caused by flooding. They account for a risk assessment in terms of the probability of future flood events. These damages were calculated under two main scenarios: Base case scenario, with flood defences Climate change scenario, with flood defences Our modelling also examined the economic impact without flood defences and this is detailed in the appendix. 1

10 Economic Impacts of Increased Flood Risk Associated with Climate Change in Table 1 shows the predicted increase in damages and the value of flood defences under both base case and climate change scenarios. The estimates for the base-case annual average damages (AAD) to businesses with existing defences in place is 43m, increasing to 138m with climate change. Flood defences play an important role in avoiding economic damages. The value of flood defences to businesses in the region is 436 million under the base case scenario, increasing to 1,645 million under the climate change scenario. In this assessment, it has been assumed that the existing standard of defence will be maintained. It is understood the Environment Agency will continue to provide flood defence to the region through various means of adapting to the climate change impacts. Table 1 Value of Flood Defences Annual Average Damages ( millions) Sub-region With no Defence ( m) Base Case With Defences ( m) Value of Flood Defences ( m) Climate Change With no With Defences Defence ( m) ( m) Value of Flood Defences ( m) Cheshire Cumbria Greater Manchester Lancashire Merseyside Total , ,645 Source: URS Calculations Note that figures may not add up due to rounding. Damages in Context This study is conducted at a high or strategic level with flood risk and economic damages data assessed at catchment level, with analyses of the impacts to sub-regional level. Existing studies (mainly the CFMPs) have generally not assessed the economic damages to non-residential property, and where they have, the analysis does not detail the business types and the sizes of the business premises. This study enables the economic impacts to businesses in the area to be taken into account at high level planning in conjunction with the residential properties. It also enables the economic value of risk to businesses to be understood separate from the overall framework described above, which is aimed at evaluating flood defences to wider communities. Economic damages for the region have been estimated in the 13 separate CFMPs for the area, and other EA studies. The estimates within CFMPs have been undertaken separately, with others accounting for non-residential properties separately, and others taking existing defences into account while others do not. This therefore limits direct comparison or summation with the results of this study. However, the estimates provide a useful picture of flood damages in the region. Our estimates of the base-case annual average damages (AAD) to businesses with existing defences in place is 43m, increasing to 138m with climate change. The total estimate of damages for the region, based on the CFMPs, and acknowledging the differences in their reporting of damages, is in the region of 320m. This indicates that damages to businesses form a sizeable part of total economic damages in the region. 2

11 Economic Impacts of Increased Flood Risk Associated with Climate Change in The Stern Review predicts that the costs of extreme weather (storms, hurricanes, typhoons, floods, droughts, and heat waves) could reach 0.5-1% of world GDP per annum by the middle of the century, and will keep rising if the world continues to warm. In the UK, annual flood losses alone could increase from 0.1% of GDP today to % of GDP depending on the climate change scenario 1. Total GVA in 2 was 111.3bn in Our estimates of 43m AAD equate to 0.04% of the region s GVA. Economic Impact to Key Business Sectors The AAD for key business sectors are as follows: Cheshire: the AAD for Cheshire under the base case scenario are estimated to be 5 million, rising to 12 million with climate change. The sectors that are expected to be the most affected by flooding are Retail and Wholesale, Public Administration, Advanced Engineering and Materials, and Transport and Logistics. Cumbria: the AAD for Cumbria under the base case scenario are estimated to be 6 million, rising to 17 million with climate change. There are several sectors where climate change has a sizeable impact, in Public Administration, Retail & Wholesale, Food & Drink and Advanced Engineering & Materials. Greater Manchester: the AAD for Greater Manchester under the base case scenario are estimated to be 23 million, rising to 83 million with climate change. The Greater Manchester sub region is the economic centre of, producing 40% of the region s GVA. By comparison, all business sectors show high economic damages, when compared to other subregions. Economic damages are highest in the Advanced Engineering and Materials, Retail and Wholesale, Public Administration and Digital and Creative sectors. Lancashire: the AAD for Lancashire under the base case scenario are estimated to be 8 million, rising to 21 million with climate change. The most affected sectors are Retail & Wholesale, Advanced Engineering & Materials, Public Administration and Food & Drink. The identified impacts to the Advanced Engineering & Materials sector are relevant to several of the priority sectors defined in the Lancashire Economic Strategy, in particular the Advanced Manufacturing sector. Merseyside: the AAD under the base case scenario are estimated to be 2 million, rising to 4 million with climate change. Despite its location next to the Mersey estuary, the flood defences in place help to reduce the sub-region s exposure to flooding with climate change. The Retail & Wholesale and Public Administration sectors are the most affected. 1 Note that Stern Review damages are high level estimates quantified on an event-damage basis, rather than the more technically robust measure of annual average damages, which accounts for probability of flood actually occurring. Although the two are therefore not directly comparable, the former helps to provide some indication of existing estimates of economic damage. 2 National Statistics Gross Value Added (GVA) in Regional Accounts release 14 December

12 Economic Impacts of Increased Flood Risk Associated with Climate Change in The results show substantial increases in flood damages to coastal areas, where sea level rise will result in huge increases in flood risk. For inland areas however, in addition to increases in fluvial risk, which is considered in the estimates, there will be increased vulnerability to flooding from other sources, such as surface water and sewer flooding. This will result in additional economic damages in the region. Figure 1 shows a comparison of each sub-region s contribution to regional GVA and its forecasted share in damages with climate change. Being the economic centre of the region, Greater Manchester accounts for both a high contribution to regional GVA and a high proportion of the region s economic damages. Many businesses are resident in this subregion where areas along rivers are significantly built-up, and there is generally a low standard of flood protection. As a consequence, many properties are exposed to flood risk and this is reflected by the high values of economic damages estimated Figure 1 Sub-regional Share of Damages (Climate Change Scenario) and Contribution to Regional GVA 70% 60% Contribution to Regional GVA Proportion of Damages 50% 40% 30% 20% 10% 0% Cheshire Cumbria Greater Manchester Lancashire Merseyside Source: URS Calculations, 2009, ONS,

13 Economic Impacts of Increased Flood Risk Associated with Climate Change in The sectors share of damages with climate change are summarised in Table 2. Retail & Wholesale is the biggest contributor to damages in the region followed by Public Administration, Advanced Engineering & Materials, and Food & Drink. Table 2 Share of Damages per Sector (Climate Change Scenario) Share of Damages per Sector (%) Damages under the Climate Change Scenario Advanced Engineering & Materials 17% 23,051,000 Biomedical 0% 214,000 Business and Professional Services 7% 9,236,000 Construction Related 6% 8,182,000 Digital & Creative 8% 11,567,000 Environment & Energy 2% 2,413,000 Food & Drink 9% 12,869,000 Health & Care 4% 5,362,000 Leisure or Tourism 1% 1,102,000 Manufacture of Household or Office Goods 3% 4,753,000 Manufacture of Basic and Fabricated Materials 5% 6,926,000 Manufacture - Paper and Wood Related 0% 371,000 Mining 0% 10,000 Public Administration 11% 15,019,000 Retail & Wholesale 16% 21,532,000 Services Not Elsewhere 5% 6,760,000 Transport & Logistics 6% 8,398,000 Total 100% 137,765,000 Source: URS Calculations, Economic Value of Flood Defences The economic value of flood defences to the businesses have been estimated from a comparison of flood damages (AAD) with and without flood defences. The flood defences are shown to play a major role in avoiding flood damages. For example undefended damages are reduced by more than 90% when the benefits of flood defences are accounted for (under both base case and climate change scenarios). Across region, flood defences currently provide an estimated reduction of 436 million in AAD, increasing to 1,645 million under the climate change scenario, assuming current standards of defence are maintained. The Environment Agency will continue to develop, over time, a range of measures to adapt to climate change. The value of flood defences is in addition to the damages avoided to other sectors such as residential properties, which were not quantified in this study. Perceptions of Flood Risk Representatives of the Regional Business Cluster Group were contacted several times each (with details supplied by the NWDA) to identify perceptions of future flood risk associated with climate 5

14 Economic Impacts of Increased Flood Risk Associated with Climate Change in change around the region s flood sensitive locations and possible disincentive for investment. There was however, a response rate of 16%, but with consensus views that: o Skills, infrastructure and public transport links are the most important triggers for investment, and the average annual damages from flood risk are not perceived to be significant o As the damages do not seem to be high, there is no perceived disincentive to investment o None have taken any action to prepare for flooding o The high level SIC code definition of key business sectors does not in itself capture particular sub-industries. Respondents expressed an interest in seeing more details findings i.e. on second, third and possibly fourth tier category SIC code industries to get a sense of the impact to particular sub-sector industries that fall within the key business sector categories. Summary This work has helped to fill a gap in knowledge and analysis of flood risk economic damages to key business sectors in. The findings are valuable for regional economic planning and for considering the economic impacts of climate change to s key business sectors. The study has also highlighted some areas where data could be improved to make quantification of economic damages more readily achievable, and makes recommendations for further work that would be valuable. 6

15 Economic Impacts of Increased Flood Risk Associated with Climate Change in 1. INTRODUCTION The North West Regional Economic Strategy (RES) identifies the implementation of a Climate Change Action Plan as a transformational action with a vision of low carbon and well adapted region. It seeks to protect areas of high economic value from flooding. Many of the previous studies on regional flood risk management requirements have been carried out under the Environment Agency s catchment and shoreline management plan programmes. These include an assessment of economic impacts but largely focus on damage to residential buildings and do not taken into account the variance between different business sectors or the flood protection requirements to secure future investment. URS Corporation Ltd were appointed by Development Agency (NWDA) supported by the Environment Agency (EA) to assess the economic impacts of flood risk to businesses associated with climate change now and with the effects of climate change, including assessing the damage savings from flood defences. This study will be used to support the evidence base for the Climate Change Action Plan Objectives of Study 1.2. Approach Provide an economic assessment of both direct impacts of flooding to businesses (damage to building, physical infrastructure) and collateral impacts (disruption in transport, trade and increase of emergency services costs) Identify the spatial distribution of key regional business sectors and associated potential economic impacts from flooding and how this may change with climate change Map economic impact of current and future flood risk associated with climate change to a sub-regional level Review the adequacy of the flood risk management infrastructure and warning systems to protect economic assets in locations at risk of flooding and increased risk associated with climate change Establish the economic value of flood risk management infrastructure investment over the projected duration of these assets in terms of the protection they provide to business and communities, and Consider the implications of perception of future flood risk associated with climate change around the region s flood sensitive locations and possible disincentive for investment. The economic assessments developed in the EA s Catchment Flood Management Plans (CFMPs) are a starting point to capture the economic costs of flooding on a whole 7

16 Economic Impacts of Increased Flood Risk Associated with Climate Change in catchment basis. However, they do not include a detailed review of the impacts to nonresidential properties, which is one of the key aims of this study. The data required for evaluating direct economic damages includes inundation characteristics (flood depths, extents and durations), land-use types and depth-damage relationships. The EA provided flood extents for the study from the CFMP studies. The scope of this study has not included hydrological and hydraulic modelling to determine flood depths. The direct damages have been calculated by using the Beta Model business database to identify around 220,000 business details (including business locations and SIC code classifications) pin-pointed with GIS mapping. Each business was then matched to its ground floor area using a GIS matching process with OS Mastermap. This enabled us to identify the precise ground floor area of businesses that could be prone to flooding. This is a significantly more accurate method than the generally applied method from the Multi- Coloured Manual (MCM) which provides proxy floor area indications that can be significantly different to actual business premises depending on their size. Methodologies were developed to quantify indirect damages arising from loss of industrial production/trade and loss of income from job loss within each sub region. The degree of industry specialisation within each sub region was used to model the extent of impact from such indirect damages, as sub regional economies with more specialised industry sectors are likely to be hit harder by flooding than those that have more open, service based economies. Emergency service costs were quantified, and specific methodologies were developed to estimate the economic damages of road and train traffic disruption. The impacts on utilities infrastructure, ports and canal traffic disruption were captured, with more focussed studies being required to generate reliable damage data. A separate flood mapping exercise was undertaken to map flooding extents throughout the region using the outputs of the MDSF tool used to prepare the CFMPs. Flood risk management requirements for both current and future have been assessed through the Environment Agency s catchment and shoreline management plan programmes. We extended the coastal flood extent using a combination of GIS techniques, sea level rise estimates and the partial extents that the EA holds Structure of Report The remainder of this report is structured as follows: Section 2 introduces the concept of economic impacts of flood risk Section 3 provides an overview of available information on flood risk in the North West Section 4 sets out the methodology used to determine the impacts of flood risk Section 5 presents the findings on damages to key business sectors 8

17 Economic Impacts of Increased Flood Risk Associated with Climate Change in Section 6 reviews the Flood Risk Management Infrastructure & Warning Systems in the region Section 7 presents conclusions. 9

18 Economic Impacts of Increased Flood Risk Associated with Climate Change in 2. THE CONCEPT OF ECONOMIC IMPACTS 2.1. What is an Economic Impact? Economic impacts of flooding to non-residential properties can be thought of in terms of direct and indirect impacts. Direct impacts come in the form of damage to buildings 3 and infrastructure and damage to agricultural land. Indirect damages reflect non-physical impacts such as loss of industrial production/trade. Impacts can be distinguished on whether they are tangible or intangible. For tangible impacts we try to assign damage values to measure the extent of the impact. It is often more difficult to assign a monetary value to intangible impacts and assessment usually focuses on qualitative analysis. Generally, intangible impacts are most readily identified when assessing the effects of flooding to a particular property site. Most of this study deals with assigning a damage value to the quantitative, tangible impacts of flood risk. Primary impacts are those that affect businesses within the flood affected area, whereas secondary impacts reflect the flow-on effects to businesses located in the broader subregion. This is illustrated in Table 2-1. Table 2-1 Direct, Indirect, Tangible and Intangible Flood Impacts Form of loss Primary Direct 4 Primary Indirect Secondary* Indirect Tangible Damage to buildings and infrastructure Loss of industrial production/trade Disruption to transport Emergency service costs Loss of industrial production/trade and income from job loss Measurement Source: Multicoloured Manual, Flood Hazard Research Centre, 2005 Intangible Loss of an archaeological site Inconvenience of post flood recovery Inconvenience of post flood recovery 2.2. Economic Costs Versus Financial Costs Economic costs differ from financial costs. Financial costs capture the loss incurred to one particular business as a result of flooding (and is broadly related to insurance claims) 3 In terms of damage to non-residential properties buildings, there are three main types of damage: damage to stock, equipment and fabric. See Multicoloured Manual section In terms of damage to non-residential properties buildings there are three main types of damage: damage to stock; equipment; and fabric. 10

19 Economic Impacts of Increased Flood Risk Associated with Climate Change in whereas economic costs refer to opportunity costs. More precisely, flooding results in economic costs only if it decreases the overall welfare of society (i.e. if flood impacts cause a decrease in net consumption which cannot be offset by an increase elsewhere). For example if flooding causes one shop s goods to no longer be available yet consumers can readily go to an alternative shop to purchase the same goods then there is no net change in consumption. In reality, financial costs from flooding (such as loss of trade and income) often become economic costs due to imperfect competition and difficulty in substituting between products. This is modelled within our methodology, as explained in more detail in Section Presenting Economic Damage Estimates Flood damages can be presented as absolute values for a particular event. This for example could be economic damages arising from a major flooding event, such as the Summer 2007 floods, or a selected return period, say the 1 in 100 event. Reporting economic damages in this way is limited as it only records the damage from one particular flood event. To understand exposure of an area to the full range of floods that might cause it damage it is necessary to incorporate flood probability into the assessment of flood damages. This approach to estimating flood damages results in the annual average damage (AAD), which is weighted by the appropriate flood exposure. AAD is a more meaningful way of representing economic damages. It is the average cost of flood damage per year to be caused by flooding over a long period of time, taking into account that in some years there may be no damage, in some, minor damage caused by small, relatively frequent flood events and in a few years there will be major damage caused by large, rare flood events. In this report we generally report damages in terms of AAD unless it is not possible to do so. In these cases damages are reported on a flood-event basis to give some indication of magnitude of impact. 11

20 Economic Impacts of Increased Flood Risk Associated with Climate Change in 3. FLOOD RISK IN THE NORTH WEST 3.1. Introduction Flooding and the resultant economic damages could occur from a number of sources. These include flooding from fluvial, tidal, pluvial and groundwater sources, and from sewers. The EA mainly covers flooding from fluvial, tidal and groundwater sources, and holds various data on flood risk from these sources. At regional and catchment level, most of the assessments of flood risk are captured within Catchment Flood Management Plans (CFMPs) and Shoreline Management Plans (SMPs). This study focuses primarily on flood risk information contained within CFMPs. The study has further reviewed the availability of data on flooding from other sources Catchment Flood Management Plans (CFMPs) The EA performs the lead role in the management of flood risk in England and Wales. As part of this role the EA has produced Catchment Flood Management Plans (CFMPs) for region. These provide an understanding of the catchment processes and a broad-brush assessment of current and future flood risks and environmental constraints and objectives. CFMPs represent a high-level land use-planning tool, which aim to manage flood risk in a sustainable way over the long-term. CFMPs define the existing, and potential future, flood risk to people, property and the built and natural environments within the catchment, and develop policies for managing flood risk over the long term (50 to 100 years) that: Take into account the impacts of climate change Provide wider benefits, and Contribute to sustainable development. There are 13 CFMPs covering region. CFMPs identify and describe the hydrological characteristics of the catchment and assess the flood risks associated with all sources, including fluvial, tidal, groundwater, overland flow, surface water and drainage, in social, economic and environmental terms. The CFMPs develop objectives for each catchment and strategic policies to achieve these objectives. In order to fully understand the hydrological characteristics of the catchment and assess the level of flood risk associated with the catchment from all sources CFMPs use a range of data. This includes topography, geological, soil type, land use conditions, historical data, information relating to flood defence and alleviation schemes, and records of flooding from the sewer and drainage network. Detailed hydraulic models of watercourses within the catchment are developed to identify fluvial flood risk associated with catchment and any structures that may influence this. 12

21 Economic Impacts of Increased Flood Risk Associated with Climate Change in The extents of flood risk, and the resultant economic damages to property, are estimated using the Modelling and Decision Support Framework (MDSF). The MDSF is a tool which supports the implementation of CFMPs, providing a framework to ensure a common approach is followed when developing CFMPs. The impacts of climate change are assessed in the CFMPs, based on the latest Defra guidance and projections by UK Climate Change Impacts Programme (UKCIP), of a 20% increase in rainfall intensities in the next 50 years, and 30% increase in the next 100 years. The flood risk and potential impacts of flooding for these events are identified and policies are formulated to ensure management of flood risk against these events. CFMPs are strategically aligned to Shoreline Management Plans (SMPs) for the region, which define flood risk associated with tidal sources and develop policies to manage this risk now and in the future. CFMPs do not generally provide further assessment of the tidal flood risks associated with the catchment Shoreline Management Plans (SMPs) Defra, in consultation with the EA and and North Wales Coastal Group, is producing a revised Shoreline Management Plan (SMP) covering coast from Great Ormes Head at Llandudno to the Solway Firth. SMPs provide a broadview assessment of the flood risk associated with coastal processes and provide a long-term policy framework for sustainable management of the risk posed to people and the built and natural environment. The first generation of SMPs, completed for the entire coastline of England and Wales, provided a large-scale assessment of the flood risk associated with tidal sources and coastal erosion. The SMPs provided a policy framework for the management of coastal flood defences. The current review process will realign the SMPs with latest knowledge and information of coastal change and impacts of climate change. The new SMPs will ensure management policies will provide sustainable solutions to flood risk management. The development of SMPs is guided by Defra. The initial stage of SMP development involves the collection of existing data relating to coastal processes. The shoreline is then divided into shoreline management units based on this information and knowledge of the land use and other relevant criteria. Following Defra guidelines the SMP sub-divides the coastline into management units defined by the characteristics of coastal processes and land use along the shoreline. This should include consideration of nature conservation, topography, flood risk and erosion of the shoreline. For each management unit shoreline management policies are developed to inform the future management of each of these sub-divisions. Defra guidance requires the appraisal of four strategic coastal defence options, from which the preferred option will be selected for the individual management units. These options include: 1. Do-Nothing - No flood or coastal defence activity 2. Hold the existing defence line - Maintain the shoreline in its present position accounting for the impacts of climate change 13

22 Economic Impacts of Increased Flood Risk Associated with Climate Change in 3. Advance the existing defence line - Relocate the shoreline seaward from its present location, and 4. Retreat the existing defence line - Relocate the shoreline landward from its present location. The SMPs do not include detailed analysis of economic damages. However they provide details on flood risk and the existence or provision of flood defence infrastructure which are required for assessment such as in this study Tidal Flooding Studies The EA has carried out a number of studies to evaluate flood risk in the coastal areas. Amongst these the EA recently undertook the Tidal Areas Benefiting from Defences SFRM Study. This study was commissioned by the EA s North Area (Preston Office) as part of its Flood Risk Mapping Strategy. The study area included coastal areas from Crosby in the south to the Leighton Moss Nature Reserve near Silverdale in the north. This stretch of coastline includes the Ribble Estuary, the Wyre Estuary and the Lune Estuary and lengths of open coastline that lie adjacent to the Irish Sea. The main objectives of the study were to map areas at risk from tidal flooding in this area. This included the mapping of flooding extents with predicted climate change. The study quantified the size of the areas benefiting from defences and approximated the number of properties that are within the tidal areas identified as benefiting from defences. The study provided the mapping of coastal flooding extents which were used to estimate the extents in other parts of coast Surface Water Flooding The flooding events of June 2007 highlighted the risk associated with large scale surface water flooding. The Pitt Report noted that there is limited information on this type of flooding and recommended that local authorities carry out Surface Water Management Plans to assess this risk and produce appropriate management measures. Defra is leading the development of guidance for surface water management and in December 2008 launched six surface water management plan pilots with the intention of gaining feedback to develop this guidance further. The local authorities involved included Warrington. No data is available yet from these pilot studies. Defra has recently announced funding for 77 local authorities countrywide to develop Surface Water Management Plans. In addition a study to identify surface water flooding hotspots was carried out by JBA Consulting in Although the project was supported by the Environment Agency, the data is commercially owned, and was not available for this study. Therefore, flood risk from surface water flooding could not be considered in isolation for this study. 14

23 Economic Impacts of Increased Flood Risk Associated with Climate Change in 3.6. Sewer Flooding Sewer flooding poses risk to many areas. United Utilities (UU), the water and sewerage utility in the region, participated in a pilot study carried out under Defra s Urban Flood Risk and Integrated Drainage pilot studies, which is part of the Making Space for Water programme. The study was for the Lower Irwell Valley area. The study included the development of a sewer flood risk map to identify areas at risk of sewer. Amongst the key findings from the study was greater awareness that the DG5 register, a register of properties within the water utility s area that are at risk of sewer flooding is less useful than initially believed. Also the study highlighted the lack of data sharing amongst the various stakeholders. UU has not carried out similar work in other parts of the region. It advised that the risk maps were produced in this study as a demonstration of what could be done with the information UU currently has, but that it cannot supply the sewer flood risk information for any other part of the region. This study is therefore unable to carry out a detailed assessment of the economic impacts of flood risk from this source. 15

24 Economic Impacts of Increased Flood Risk Associated with Climate Change in 4. DETERMINING THE IMPACTS OF FLOOD RISK This section presents the methodology used in this study to assess the economic impacts of increased flood risk due to climate change in region Overview of Existing Methodologies There is a large body of research on the economic assessment of flood risk in the UK. This has mainly been conducted by a research team at Middlesex University (sponsored by Defra and the Environment Agency) who have been undertaking research into flood risk issues for two decades. Their latest relevant guidance is published in the Benefits of Flood and Coastal Risk Management: A Manual of Assessment Techniques, known as the Multicoloured Manual (MCM). The MCM methodology is based on, and used in conjunction with several sources of guidance on appraising flood risk: HM Treasury Green Book which identifies the preferred approach to public sector investment appraisal; and Defra Project Appraisal Guidance (PAG) series particularly PAG3 which identifies how a project appraisal and cost-benefit analysis should be completed for flood and coastal erosion risk management projects. The MCM provides guidance on approaches for evaluating economic damages that can be adapted to carry out an assessment at the sub-regional and regional levels such as the one needed in this study. In addition to the main guidance above, a review of other methodologies in use elsewhere has been undertaken. This includes the FLOODsite report 5, which brings together the various approaches in use in European countries, including the MCM methodologies. The MCM considers three levels of appraisal of economic damages. Different approaches are recommended for pre-feasibility studies, more detailed studies and site surveys. Similarly, the FLOODsite study includes guidance on damage evaluation approaches on the macro, meso and micro levels. Depending on the level of assessment considered appropriate, there are different data requirements for the evaluation of economic damages. This section builds on these existing methodologies and further develops an approach to capture the economic costs of flooding at the regional and sub-regional levels. 5 Evaluating flood damages: guidance and recommendations on principles and methods. FLOODsite Consortium, January

25 Economic Impacts of Increased Flood Risk Associated with Climate Change in 4.2. Direct Economic Impacts on Non-Residential Properties A significant amount of work has also been carried to produce the Catchment Flood Management Plans (CFMPs) for region, which are reviewed in this study. The economic assessments developed in the CFMPs are a starting point to capture the economic costs of flooding to a wider area but many do not include detailed analyses of the impacts to non-residential properties. The data required for evaluating direct economic damages includes inundation characteristics (flood depths, extents and durations), land-use types, and depth-damage relationships. The EA provided flood extents for the study from the CFMP studies. The scope of this study has not included hydrological and hydraulic modelling to determine flood depths. The CFMPs mostly consider residential properties. Where non-residential has been assessed, there is limited information on the types of businesses, and the sizes of the properties. The MCM however recommends that to estimate damages to non-residential properties, these details should be available. We have identified the spatial distribution of key regional business sectors using the Beta Model business database to identify around 220,000 business details (including business locations and SIC code classifications) pin-pointed with GIS mapping. Following the mapping of business locations, each business was then matched to its ground floor area using a GIS matching process with OS Mastermap. This enables us to identify the precise ground floor area of businesses that could be prone to flooding. This provides an accurate method as damages will vary significantly depending on their size. A separate flood mapping exercise was undertaken to map flooding extents throughout the region using the outputs of the MDSF tool used to prepare the CFMPs. However the coastal flood extent data was incomplete only covering the central part of the North West coast. In parallel with the floodplain mapping from CFMP data we extended the coastal flood extent using a combination of GIS techniques, sea level rise estimates and the partial extents that the EA holds. The resulting fluvial and coastal flood extents were then overlaid with the business locations to identify businesses at risk of flooding. For example, the sub regional locations of key business sectors at risk of 1:100 year flooding with climate change are summarised in Table 4-1. Table 4-1 Number of Businesses at Risk of 1:100 Year Flooding with Climate Change, by Key Business Sector and Sub Region Sector Cheshire Cumbria Greater Manchester Lancashire Merseyside Total Advanced Engineering & Materials ,281 Biomedical Business and Professional Services Construction Related ,368 Digital & Creative

26 Economic Impacts of Increased Flood Risk Associated with Climate Change in Sector Cheshire Cumbria Greater Manchester Lancashire Merseyside Total Environment & Energy Food & Drink ,552 Health & Care Leisure or Tourism Manufacture of Basic and Fabricated Materials Manufacture of Household or Office Goods Manufacture - Paper and Wood Related Mining Public Administration Retail & Wholesale ,377 Services Not Elsewhere ,089 Transport &r Logistics Total 1,705 1,738 2,106 3,950 1,366 10,865 Source: URS Calculations 2009 The MCM provides depth-damage data for different property types, including nonresidential properties. These could be used where flood depths are available through a range of return periods. However no extensive flood-depth data was available for the region. Only the flood extents from the CFMPs, associated river modelling projects and the coastal extents were available and these were supplemented by additional mapping undertaken in this study. Where flood depths are not available, the MCM provides Weighted Annual Average Damage (WAAD) values for different property types and standards of defence. A review of the FLOODsite guidance, which includes reviews of methods in use elsewhere in European countries also shows that use of WAADs is the recommended approach. WAADs were applied to business ground floor areas to value the costs and benefits of flooding. The CFMPs provide details on flood defences within each catchment. These details, supplemented by data from the National Flood and Coastal Defences Database (NFCDD) were used to allocate a general standard of defence for the area. Direct economic damages were calculated using the WAAD figures provided in the MCM, and the ground floor areas. Appendix D contains further details of the methodology used for estimating direct economic damages. 18

27 Economic Impacts of Increased Flood Risk Associated with Climate Change in 4.3. Indirect Impacts Businesses The approach to cost benefit analysis used in the MCM is that only the economic losses caused by floods and their indirect consequences are assessed rather than the financial losses to individuals and organisations. This is based on the assumption that the UK economy is generally an open, competitive, service based economy with many product substitution choices available to consumers and producers. Any financial loss to a business would not therefore affect net consumption or economic activity because it would be offset by an increase in trade with alternative businesses. In reality however, perfect competition and substitution doesn t always hold 6, particularly for some of the specialised manufacturing related sectors that exist in, including Advanced Engineering, Food & Drink, Bio-medical and Manufacturing. Compared to service based sectors, substitution between suppliers in these sectors isn t likely to be as simple, which could lead to greater indirect damages from flood events. For this reason this study accounts for the secondary indirect (multiplier) 7 impacts of flood risk, accounting for the loss of trade and income likely to occur considering the economic makeup (and degree of speciality) of each sub-region. The more specialised a subregion, the higher the indirect damages are likely to be. The concept is summarised in Table 4-2, and is detailed in Appendix H. Table 4-2 URS Approach to Indirect Damages Compared to Prevailing Methodology Non-residential sector or individual properties MCM Approach Ignore indirect impacts in most cases assumed to be either too difficult to quantify or size of impacts likely to be negligible URS Approach Quantify indirect impacts extent of impact will vary depending on degree of industry specialisation in each subregion 6 Van der Veen, A. (2005), Economic Hotspots: Visualizing Vulnerability to Flooding, Natural Hazards, 36 (1-2). pp ISSN X 7 The multiplier effect is a useful concept to capture economic impacts on supply chains. HM Treasury Green Book defines multiplier as the measure of the further economic activity, (whether output or jobs), resulting from the creation of additional local economic activity. Such a concept is usually used to assess the additional benefits of a project. However, it can also be applied to quantify the reverse, i.e. the additional costs occurring through the supply chain. 19

28 Economic Impacts of Increased Flood Risk Associated with Climate Change in 4.4. Indirect Economic Impacts Road Traffic Disruption The MCM details a methodology to assess the economic costs of road and rail traffic disruption. It states that these costs are only likely to be significant if the disruption affects major communication routes or if it lasts for a significant amount of time. Therefore, the MCM recommends screening out all transport infrastructure for which disruption would not create an overall cost to the economy. In this study, we follow these guidelines. For roads, the MCM recommends quantifying damages when major roads are flooded from floods with annual probabilities of less that 20%. The economic costs to road traffic disruption are the additional costs incurred when vehicles need to increase their journey time in order to avoid the flooded area. The methodology developed in the MCM is highly site specific as the guidance aims at quantifying benefits from single schemes. Due to data limitation, it is not possible to transfer this approach at the sub-regional level. Therefore, we have developed a methodology that enables a quantification of damages at a high (sub-regional and regional) level. In this study, we have presented potential economic impacts of disruption from a major flooding event (1 in 100) that affects the road network in the region. Our methodology estimates the length of road affected by flooding (1 in 100 year flood risk) by sub-region and then assigns a damage value to this using several inputs based on data from the Department for Transport 8. These include the number of trips, average trip times, and the value of time. The damages are then split between the sub-regions depending on the extent of sub-regional flooding. Further details of the methodology are presented in Appendix I Rail Disruption The MCM advises quantifying the impacts of rail disruption by estimating the performance delay costs that are paid to train companies when delays occur on the network. However, up to date data on rail trips is not made readily available by rail companies, and in order to ensure consistency between the calculations of the economic costs of road disruption and those of train disruption, it was judged more relevant here to adopt a similar approach as above for road traffic disruption that quantifies the value of time lost through disruption. Again we have estimated the potential economic impacts of disruption from a major flooding event (1 in 100), using information from the Department for Transport 9. The damages are then split between the sub-regions depending on the extent of sub-regional flooding. Further details of the methodology are presented in Appendix J. 8 DfT Transport Analysis Guidance