risk-based decision making for climate-smart water investments
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Risk-based Decision Making for Climate-Smart Water Investments. Bridging the Financial Gap for Adaptation 5 th World Water Forum 18 March 2009 Istanbul, Turkey. Vahid Alavian Water Advisor The World Bank. Outline. Context and motivation Concerns and issues - PowerPoint PPT PresentationTRANSCRIPT
Risk-based Decision Making Risk-based Decision Making for Climate-Smart Water Investmentsfor Climate-Smart Water Investments
Vahid AlavianVahid AlavianWater AdvisorWater AdvisorThe World BankThe World Bank
Bridging the Financial Gap for AdaptationBridging the Financial Gap for Adaptation
55thth World Water Forum World Water Forum
18 March 200918 March 2009Istanbul, TurkeyIstanbul, Turkey
OutlineOutline
Context and motivation Concerns and issues Risk-based prioritization and decision making Risk-based assessment framework Adaptation options and investment prioritization
should be based on formal risk assessment
Projected % change in Runoff 2030 Projected % change in Runoff 2050
Climate change impact is uncertain
Water investments are exposed
Exposure of Water Investments to Change in Runoff
Water Investments*
FY 06 – 08: $8.7 b
FY 09 – 10: $10.6 b* Includes projects with > 20% water component
The concern …
Current water management practices may not be robust enough to cope with the impacts of climate change on the water sector investments.
Water managers routinely deal with the uncertainty of historical climate variability, but climate change introduces additional uncertainty, difficult to address.
It is difficult to convince decision makers to act now, because of the uncertainty.
Policy makers and politicians are not comfortable with risk and probability. They want hard and fast numbers.
What is needed … A ‘paradigm shift’ in the methods used for justifying water
resources investments and projects.
Hydrologic tools for dealing with a non-stationary climate, and mechanisms for incorporating uncertain and qualitative climate change information in the decision process.
Decision frameworks that can absorb this information as the basis for deciding among generally costly options – from a social, economic, environmental and equity standpoint.
Operation and evaluation rules for infrastructure designed to cope with climate uncertainty, e.g., risk - cost effectiveness, high risk – high reward.
A process that promotes flexible decision-making that can be adjusted as outcomes from management actions and climate events become better understood.
Terminology
Risk: probability or likelihood of occurrence of a consequence.
Consequence: level of exposure to a defined hazard.
Uncertainty: quality of knowledge concerning risk.
• Uncertainty may affect both the probability and consequence components of the risk
The primary purpose of adopting a risk-based approach to decision-making is to ensure that uncertainty is understood and managed in the decision-making process.
Overarching concepts for decision making under increased uncertainty
Managing risk and uncertainty in the water sector is not new.
The decision process and many of the options to improve the resiliency of water systems are essentially the same with and without climate change.
“No regrets”, “good practice”, “sustainable”, etc. actions can be justified with or without climate change. • Demand management increases efficiency and productivity under all
conditions• Intelligent and flexible design and operation of water infrastructure
“Climate-change justified” actions are different. They require:• More care in measuring impacts, including on drivers• More precise assessment of system vulnerability and risk• A deliberate decision on the degree of risk to be taken• Justification of additional adaptation costs
Decision making under uncertainty
GoodPoor
Good
Poor
Ambiguity about risk:
• Uncertain or unknown impacts
• No impact models
• Uncertain how to value consequences
• Lack of concern
Ignorant about risk:
• Rapidly changing climate
• Unknown processes
• Complex dependencies
• Insufficient data
Impacts well-defines, likelihood uncertain:
• Poor knowledge of likelihood of damage
• Good impact/process models
• Well defined impact
• Longer term assessment
Good knowledge of risk:
• Stationary climate
• Good historical data
• Good impact models
• Short-term predictions
Kn
ow
led
ge o
f likelih
ood
Knowledge of consequences
Source: Willows and Connell, 2003
Operational indicators
Water system performance indicators - the probability that a system will provide the intended level of services under a defined set of conditions for: • Reliability -- likelihood that services are delivered
within a given period• Resiliency -- manner in which a system recovers from
shock or failure• Robustness -- degree to which a system can be
impacted by external factors. Severity of the expected consequences of shock or failure
Decision framework - 1
Identify the problem and key issues
Identify exposure components
• Identify system components
• Distinguish between water service delivery and water management systems
Establish performance criteria and threshold
• Type: reliability, robustness, resilience
• Traditional: water level, flow, flood damage, power generation, etc.
Decision framework - 2
Identify rules for decision making and prioritization
• Cost-benefit, cost effectiveness, multi-criteria analysis, risk aversion level, risk-reward analysis, etc.
Assess risks
• Identify climate and non-climate parameters
• Evaluate coping ranges, critical threshold
• Prioritize risks and assess extent of uncertainty
Identify and evaluate options and alternatives to reduce risks
Prioritize and assess cost of adaptation
Risk assessment – UKCIP model
Source: Willows and Connell, 2003
Risk assessment – Australia model
Source: Broadleaf and MJA, 2006
CAS
Ident.
Prepare
AppraiseNegotiate
Implement
Complete
Evaluate
World BankProject Cycle
Review extent to which Climate Change is seen as a significant factor in the assistance strategy and the lending program
Discuss significance of climate change and agree on scope of incorporating it in the project
Carry out necessary analysis to assess the impact and to evaluate options
Appraise project with and without Climate Change factor
Monitor, Evaluate, Review
Implement
…..
Application ... work is starting
Adaptation Options
Risk Assessment
Analysis
System Characterization
Project Cycle (investment process)
CAS
Project Preparation
IdentifyPrepare
Appraise Negotiate Implement Complete evaluate
Bottom Up(Threshold)
Top Down(Scenario)
Decide on approach based on objectives
Adaptation Options
Risk Assessment
System Characterization
Analysis
Project Cycle (investment process)
CAS
Project Preparation
IdentifyPrepare
Appraise Negotiate Implement Complete evaluate
Bottom Up(Threshold)
Define performance criteria
Define thresholdsSelect climate change scenario
Define driving climate and non-climate variables
Perform downscaling
Top Down(Scenario)
Define driving climate and non-climate variables
Assess sensitivities toclimate variables
Carry out hydrologic analysis
Adaptation Options
Analysis
System Characterization
Project Cycle (investment process)
CAS
Project Preparation
IdentifyPrepare
Appraise Negotiate Implement Complete evaluate
Risk Assessment
Bottom Up(Threshold)
Determine system response
Determine consequences of the response
Top Down(Scenario)
Determine system response
Assess impacts and vulnerabilities
Screening Risk Assessment
Quantitative Risk Assessment
Qualitative Risk Assessment
Assess system vulnerabilities
Risk Assessment
Analysis
System Characterization
Risk Assessment
Adaptation Options
Project Cycle (investment process)
CAS
Project Preparation
IdentifyPrepare
Appraise Negotiate Implement Complete evaluate
Screening Risk Assessment
Quantitative Risk Assessment
Qualitative Risk Assessment
No or low regret path Climate Justified path
1. Share the loss
2. Bear the loss
3. Modify the events
4. Prevent the effects
5. Change use
6. Change location
7. Research
8. Education & behavioural change
Structural or technological
Legislative, regulatory, financial
Institutional or administrative
Market-based
On-site operations
Adaptation options
Adaptation options analysis
1. Share the loss
2. Bear the loss
3. Modify the events
4. Prevent the effects
5. Change use
6. Change location
7. Research
8. Education & behavioural change
Structural or technological
Legislative, regulatory, financial
Institutional or administrative
Market-based
On-site operations
Adaptation options
