Last reviewed 5 March 2014
Rick Gould explores the findings of recent studies into the economic costs of flooding, starting with the UK’s latest floods in context.
If fate has a sense of irony, it is that at a time of unprecedented rainfall and floods in the UK, some significant studies have recently surfaced on the economic costs of flooding. Recent events suggest that the UK might seem isolated in the extent of its flood damage and these studies do indeed show that the UK is among the countries most vulnerable to flooding. On the other hand, the research also shows that all countries in the EU are prone to flooding and, moreover, all projections show that this vulnerability will increase.
So what else do these investigations reveal? In simple terms, about 10 years of flooding in the EU has caused well over €50 billion in damage and this is set to increase dramatically. For example, unless nations within the EU significantly increase their levels of flood protection and alter their strategies to deal with floods, the annual cost of damage could more than double that by the end of the century; in other words, flooding could exceed €100 billion in damages each year — and that is not even the worst-case scenario. In addition to causing damage to homes, businesses, agriculture and transport networks, flooding can significantly decrease a country’s gross domestic product (GDP) in direct proportion to the area of land flooded.
Flooding — the simple numbers in context
Many areas of the EU have experienced severe flooding this century and in the UK, the severest floods might appear to occur in five- to seven-year cycles. For example, following on from the floods of 2000, in 2007 a very wet May and June resulted in saturated ground and nowhere for extra rainfall to go, and the result again was severe flooding. This meant that floods affected over 55,000 homes and businesses. At the same time, new flood defences protected over 100,000 homes and businesses.
Five years later, the rainfall for most of the second half of 2012 was more than 150% of the long-term average and about 8000 suffered from flooding. However, new flood defences protected over 200,000 properties, which would have previously flooded. Meanwhile, this year started with the wettest January on record, with many areas receiving more than double the average rainfall. This followed a December in southern England with the greatest rainfall for half a century, coupled with the lowest depression recorded in UK since 1886. The combined effects triggered floods, especially on the east coast. Since then, further rains have resulted in some 5000 properties being flooded at the time of writing; however, the Environment Agency and its flood defences protected around 1.3 million properties that would have flooded in the absence of new protection. If the UK seems to be in for an unfair share of rain and floods, the situation has been mirrored in many parts of the EU this century. France, Spain, Portugal and Italy have been battered by storms and severe flooding, with landmark cities such as Pisa, Florence and Rome enduring devastating flood waters.
Indeed, during the first 10 years of the 21st century, there have been catastrophic floods along the Elbe and Danube. Collectively, over 200 severe floods affected more than three million people, causing well over 1000 deaths and more than €50 billion in direct damages.
Considering that climate change predictions forecast such extreme weather events, and that the frequency and magnitude of storms can be expected to increase, this has triggered questions about the wider economic impacts of flooding, and the cost-benefits of increasing the levels of flood protection. Two recently published studies have addressed this.
Predicting the socio-economic impacts of flooding
In the first study 1, a team of researchers led by the College of Engineering at the University of Massachusetts examined the broad economic impacts of droughts and flooding. While it is intuitive that flooding itself is economically damaging, the researchers were able to quantify the relationship between flooding and economic losses. The research was comprehensive, examining the impacts of droughts and floods on the GDP of approximately 180 countries, using records of temperature and rainfall for the time period spanning 1901 to 2003. So what did the researchers find?
Put simply, looking at flooding alone, the results of the study found that for every 1% increase in the area of a country experiencing severe rainfall, the GDP falls by around 1.8%. At the same time, the researchers determined that the costs of ensuring water security and flood protection are lower than the potential losses, and conclude that taking such measures is a sound investment.
This important finding was echoed by an investigation2 that focused on flood damage in the EU. In this detailed work, a team consisting of the EC’s Joint Research Centre, the School of Geography at the University of Oxford, and Paul Watkiss Associates used a combination of hydrological modelling, climate forecasts and land-use data to quantify the costs of flood damage throughout the EU, and then examined the cost-benefit analyses of increasing the levels of flood protection. The investigation used the work of the EU projects ClimateCost, which is quantifying the impacts of climate change, ENSEMBLES, which developed a model for predicting climate changes, and the project to develop the hydrological model LISFLOOD, which then takes climate change data and determines how this would affect flood-prone areas.
These three tools enabled the team to predict the probable locations and the extent of flooding for several climate scenarios. Having done so, they then combined the results of predicted flooding with the data from a comprehensive land-use database for the EU, in order to determine the economic impacts of flooding on key assets, namely residences, commerce, industry and transport.
There were three scenarios for the investigation, which were:
doing nothing beyond current flood defences
adapting to climate change scenarios
adapting to both the scenarios of climate change and socio-economic changes, such as growth.
The adaptation scenarios predicted the economic impacts of building flood defences that could withstand a typical one in one hundred year (1-in-100) event, which is a standard, risk-based approach for planning and building flood defences. This balances the costs, benefits and risks of flooding in vulnerable areas; it should be noted that a 1-in-100 year flood defence does not provide certainty for protecting people and properties, but it does significantly decrease the probability of flooding.
The team validated the modelling exercise by examining data for the costs of past flooding events, and then comparing these to the predictions of investigations. The results showed that the predictions, albeit with wide variations depending on the particular scenario for climate changes, were accurate. For example, investigations on the costs of flooding in the UK have shown that the annual costs are between €617 and €894 million, while the modelling investigation determined an annual cost of around €900 million. Furthermore, the researchers’ predictions of costs for past flood events matched the actual costs, as determined by the European Environment Agency and the Association of British Insurers. So what predictions are there for the EU and, in particular, for the UK?
The current and future costs of flooding
Presently, the annual average costs of flooding for the EU, based on 2006 data, are about €6.9 billion on average, with around 200,000 people affected each year. Based on the “do nothing” scenario, this is predicted to rise to an average of €16 to €34.1 billion per year for the 2020s, €24.5 to €95.3 billion by the 2050s, and between €58.6 and €200 billion by the next century. These are still at 2006 prices, while the wide variation is due to the different climate change scenarios that might occur. Either way, the modelling predicts that flooding will increase, with a corresponding rise in the costs of damage and the numbers of people affected. This in turn is predicted to rise to 360,000, or almost double the numbers of people who are presently affected.
The team then examined what could happen if all vulnerable areas were protected against the 1-in-100 year event, taking into account both climate change alone, and then adding the impacts of socio-economic growth. The latter would mean an added risk and hence extra potential damages and subsequent costs of protection. In simple terms, the team predicted that investing an extra €1.7 billion annually by the 2020s could avoid damages of €9.2 billion each year; investing double this amount by the 2050s would reduce losses by €21.8 billion, while an extra €7.9 billion by the 2080s could lower the damages by €53.1 billion per year.
It should be noted that, while these potential investments make economic sense, there would still be significant residual losses. Therefore, considering that the costs of protection determined in this study are clearly justified by the potential savings (or avoided costs), the team question whether future strategies should consider protecting vulnerable areas against even more extreme events.
The costs are not evenly distributed among different countries; the UK is among those more prone to flooding, while the researchers note that the UK would also have to spend proportionately more on flood-defence schemes. On the other hand, in terms of GDP, the team calculated that the cost to all nations would be well under 1%, with the costs of extra protection for the UK against 1-in-100 year events amounting to 0.12% of GDP.
Other studies suggest that flood defences should not be restricted to barriers alone; another investigation3, for example, found that trees and grass dramatically decrease the potential for flooding, as these plants can serve as giant sponges for rainwater, especially in urban areas. Woodlands and forests have also been shown to significantly decrease the rate and quantities of rainwater overwhelming rivers in catchment areas.
Lastly, the uncertainties of predicting climate and weather mean that all the investigations on the future economic impacts of flooding will have large margins of variation. That said, two striking patterns emerge; first, flooding is likely to increase in the absence of a strategy to deal with it, and this flooding will be increasingly expensive. Second, investing in flood-risk strategies and defences is a sound investment, however high the initial costs might seem.
“Is Water Security Necessary? An Empirical Analysis of the Effects of Climate Hazards on National-Level Economic Growth”, in Philosophical Transactions of the Royal Society, Brown C, Meeks R, Ghile Y, et al, 2013.
“Climate Change and River Floods in the European Union: Socio-Economic Consequences and the Costs and Benefits of Adaptation”, in Global Environmental Change, Rojas R, Feyen L, Watkiss P, 2013.
“The Effect of Street Trees and Amenity Grass on Urban Surface Water Runoff in Manchester, UK”, in Urban Forestry & Urban Greening, Armson D, Stringer P, Ennos, A R, et al, 2013.