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Natural Hazards, UnNatural Disasters: The Economics of Effective Prevention
of economic importance in 1840.5 There are, of course, political, cultural, and social factors that have to be considered in the decision whether to reconstruct, but this example nonetheless shows the difficult tradeoffs that shrinking cities face. Reducing urban hazard risk through large-scale infrastructure must consider the dynamics of city demand. In some developing countries, infrastructure investment—long-lived capital stock—is likely to peak in the coming few decades. These tasks are perhaps more daunting than in the past, given cities’ emergence in countries where power is increasingly federal. The challenge is at all levels of government—from federal to urban development ministries to small-town mayors. But the payoffs in saved lives and avoided damages will be high.
Climate change: Changing hazards, changing damages Climate-related hazards (“extreme events”) have resulted in an average of $59 billion a year in global damages (EMDAT 2009) from 1990 through 2008, or 0.1 percent of world product in 2008. Tropical cyclones account for 44 percent, and floods 33 percent. Even without climate change, economic development and population growth are expected to increase the baseline damages from extreme events over the next century (figure 6.1). If there is no conscious change in adaptation policies to extreme events, baseline damages without climate change are expected to triple to $185 billion a year from economic and population growth alone. Floods and tropical cyclones are expected to continue to be the prominent sources. But heat waves are expected to become more prominent. There is widespread concern that climate change could increase future damages from extreme events (IPCC 2007a, IPCC 2007b, World Bank 2009). Earlier studies projected increased tropical cyclone activity alone might result in additional annual damages in the United States of $100 to $800 million6 and global annual damages by $630 million (Pearce and others 1996). More recent studies suggest that a doubling of greenhouse gas concentrations could increase tropical cyclone damage by 54 percent to 100 percent in the United States and double tropical cyclone damage globally.7 Some studies of historic trends of extreme event insurance claims find that extreme events are rising at a rapid and even exponential rate (Swiss Re 2006; Stern 2007). However, these trend line analyses do not separate changes in the exposed population and changes in the extreme events themselves (Pielke and Downton 2000; Pielke and others 2008). Analysis commissioned for this report uses an integrated assessment model combining science and economics to estimate the additional damage from hazards as a result of climate change.8 While the analysis attempted to estimate the additional damage from all hazards, the analysis of potential changes in the location, frequency, and intensity of future tropical cyclones