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

2. 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”

3. Outline: -Natural disaster analysis -Flooding in Australia in 1998 -Simulation and results -Conclusion System-Wide Impacts of a Specific Extreme Event

4. Natural disaster analysis Economic and insured losses with trends (Munich RE, 2003)

5. 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” (95 th, 98 th or 99 th percentiles) or “extreme low” (5 th, 2 nd or 1 st percentiles) for a location System-Wide Impacts of a Specific Extreme Event Natural disaster analysis

6. 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 Natural disaster analysis

7. Direct Effects: Losses of capital stock Indirect Effects: Business interruption Macroeconomic Effects: Loss of GDP, etc. Humanitarian Effects Ecological Effects Economic Costs Disaster Impacts System-Wide Impacts of a Specific Extreme Event Natural disaster analysis Impacts of natural disaster (ECLAC)

8. Economic Cost Social Sectors: Affected population Housing and human settlements Education and culture Health Sector System-Wide Impacts of a Specific Extreme Event Natural disaster analysis Infrastructure Energy Drinking water and sanitation Transport and Communication Economic Sectors Agriculture Trade and industry Tourism Impacts of natural disaster (ECLAC)

9. 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 Economic Costs (ECLAC Methodology) System-Wide Impacts of a Specific Extreme Event Natural disaster analysis

10. 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.

11. 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 Natural disaster analysis

12. 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 Flooding in Australia

13. System-Wide Impacts of a Specific Extreme Event Flooding in Australia Katherine Townsville East Gippsland region Namoi Valley region Wollongong 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

14. 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

15. System-Wide Impacts of a Specific Extreme Event Flooding in Australia Tangible damages from the 1998 floods

16. 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 Simulation and results

17. System-Wide Impacts of a Specific Extreme Event Simulation and results Indirect Effects (1188 MM USD) Macroeconomic Direct Effects (527 MM USD) Macroeconomic

18. System-Wide Impacts of a Specific Extreme Event Simulation and results

19. 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 Conclusions

20. 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 System-Wide Impacts of a Specific Extreme Event Conclusions