Floods and Infrastructure Investment

Heavy rain has been the order of the day in the Mid-Atlantic for several days now. One rainfall record broken this week dated back to 1908. It’s not quite the biblical 40-day flood, but in some places it feels like it. My house simply has water in the basement; in Frederick, Maryland, where over 4 inches an hour of rain fell, residents have been asked to stop using showers and flushing toilets due to how overloaded the city’s water treatment plant has become. Road closures are widespread, and the Potomac River is expected to reach flood stage today, inundating lower-lying parts of Washington DC.

Flooding is forecast to become a much bigger part of the future for many places in the coming decades. Intense rain events are expected to become far more common (even in areas that may also experience more frequent drought conditions as well) as climate change impacts grow. The Mississippi River basin has experienced once-in-a-century flood conditions several times in the past decade. A study in the journal Science Advances published in February forecast an up to fivefold increase in extreme weather events over the rest of the century, and many followers of hurricane statistics believe we are already seeing the early phases of the trend – more storms, and especially more intense storms. Alongside this, we continue to see repeated forecasts of sea-level rise from climate change. One projection for coastal US cities projects significant flooding with three decades to occur… three times a week in the average city. And unrelated changes interact to increase flood risks in some places: subsiding of land of the coastal plain of the Eastern US is expected to contribute to increased observed sea level rise effects, while new estimates of the impact of land subsidence in San Francisco point to between 50 and 160 square miles of the Bay Area losable to flooding by 2100.

Flooding has significant effects on infrastructure, and increased flooding will create significant new demand for certain kinds of infrastructure spending. This is a first of two Infrastructure Ideas columns which will look at that demand, and sketch possible approaches to funding this infrastructure.

Some of the implications for infrastructure of increased flooding events, in terms of costs, include

• Higher maintenance costs for various types of infrastructure – water, transport, and energy related.
• Increased costs associated with transportation delays. Anyone driving around Sao Paulo during the rainy season already experiences the costs of closed roadways, increased traffic congestion, and rerouted commuter and industrial traffic.
• Increased costs associated with electricity outages, which can be expected to become more frequent and of longer duration.

And some of the implications for infrastructure of increased flooding events, in terms of investment needs, include

• More investment needed for flood control measures around water and sanitation systems. During Superstorm Sandy, about 11 billion gallons of sewage was released into New York and Northeast US waterways after treatment plants either lost power or were flooded.
• More investment needed for flood control measures around urban transport systems. The flooding damage to the New York City subway from Hurricane Sandy was the worst in 108 years. Many airports across the world are at risk of frequent flooding due to proximity to tidal water bodies – Hong Kong, Istanbul and New York’s JFK airports are among the most heavily used airports one could cite.
• More investment for flood protection generally, including major investments of the nature of the London Array to manage flooding risks to London on the Thames.
• More investment needed for road networks. One study about the US Gulf Coast predicted sea-level rise and storm surge could leave whole sections of the road network permanently underwater. A 2017 EPA study concluded that up to $280 billion could be needed to adapt US roads and railways to climate change impacts. Low-income countries will feel this even more. A study of Mozambique, Malawi and Zambia estimated that the three countries are facing a potential $600 million cost to maintain and repair roads as a result of damages directly related to temperature and precipitation changes through 2050. With 75% of Sub-Saharan Africa’s primary roads unpaved, more rain will more even vulnerability to extreme rain and flooding events than for those countries where paved roads are the norm.
• More investment in Power Transmission and Distribution networks, to reduce outage risks and improve ability to restart electricity grids.
• In some situations, investment will be needed for relocating people and infrastructure.
• In geographies where an increase in flood events is also accompanied by an increase in droughts, investment will be needed in building infrastructure to retain water from flood periods for the drought periods.
• And in many cases, investment will be needed simply to repair and/or replace previous investments damaged by flooding.

In their own category are data costs. Climate change effects such as flooding will vary considerably across geographies, and over time. The ability to understand, and gain greater confidence in both longer-term local trends, and short-term forecast events, will be a critical component of flood damage prevention and management. We can expect this to be very data-intensive, and therefore that large investments in data will be required at national and local levels.

Note there we are just referring to costs and investments related to climate change adaptation, not mitigation. Mitigation and adaptation costs are closely inter-related. While this column is not aimed at discussing mitigation-related investments at a global level, climate adaptation costs are also closely related to local mitigation measures. Resiliency planning in leading cities aims to reduce later costs and investment needs. Many utilities are already making related investments: power utilities in various locations are moving overhead transmission lines underground, and water utilities are investing in vegetation and other measures to reduce run-off.

So how much money are we talking about? How much capital will be needed? And what is the size of the related economic opportunity for infrastructure providers? It’s a good question without a clear answer. Looking at different studies and estimates we can find a range of estimated infrastructure adaptation costs, from now to 2050, of $0.5 trillion at the low end (lower estimates of the World Bank’s 2010 study on the topic) to about $3 trillion (UNEP 2014). Estimates for the USA, which are more plentiful, tend towards the $300-400B range just for the USA, from which one would extrapolate equivalent global estimates of between $1 and $2 trillion. The Center for American Progress’ estimate breaks down segments of investment needs at 40-60% for water and wastewater treatment, about 15-20% each for road maintenance and bridges, and 15-30% for coastal protection (as a concrete example of such costs, the rebuilding of New York’s Rockaway Boardwalk and sand dunes after Hurricane Sandy cost… $70 million per mile). In all of these estimates, we’re talking about a lot of money. Not all of this is flooding related, of course, but flooding – along with extreme heat events – will drive a big part of these investments.

These trillion-dollar totals average out to somewhere between $20-100B a year globally. Developing countries are likely to account for between ½ and 2/3 of that demand, so between $10 billion and 60 billion a year. For comparison purposes, total annual Official Development Assistance to developing countries is between $20-25 billion.

These estimated investment needs are just that, estimates. The actual needs will surely turn out to have different costs attached. But what we do know is that these estimates are changing every year, and in one direction only. As the World Resource Institute and others have observed, each successive addition to our understanding of climate change – along with consistent delays in implementing even agreed-upon climate change mitigation actions – has been raising the estimates of adaptation costs. For developing countries, those estimates are essentially doubling every 3-5 years.

One thing is clear. For governments, and for owners of private infrastructure today, the infrastructure costs of climate adaptation will be very large. Finding the capital to make these investments will be another headache, on top of the existing headaches of funding infrastructure needs generally. The problem will be felt in developed and emerging markets alike. `In one of our forthcoming columns, Infrastructure Ideas will explore these funding alternatives more closely.

For infrastructure providers, and for investors and asset managers looking for more opportunities to build and operate infrastructure assets, this promises to be a big, new growing segment of business. Ignore it, and someone else will beat you to it!