Economic assessment of NBS for water related risks

Description

This is the integrated method for the monetary valuation of Nature Based Solutions through cost-benefit analysis, as it was applied to water-related risks in the NAIAD case studies. It takes the categories defined by the economic assessment framework — implementation costs, opportunity costs, avoided damages and co-benefits — and sets out how each is measured in practice at the scale of a catchment or an urban area.

Avoided damage is estimated from the hazard modelling and the damage functions of the strategy being assessed, so the number is traceable back to the physical model rather than to a transferred average. Co-benefits are estimated by the method that fits the benefit in question: local valuation studies where the benefit is locally experienced, and transferred or modelled values where it is not.

The method was applied across the NAIAD demonstration sites, and its results feed both the business model work — through the NAS canvas — and the investment preparation work that turns a strategy into a fundable proposition.

Applications to decision making in the insurance sector

The method produces an explicit avoided-damage estimate for a specified intervention, at a specified scale, under a specified hazard. That is the input a (re)insurer requires in order to consider recognising the measure in its risk assessment, and it is also what allows a comparison between the cost of the measure and the claims it would remove.

Added value of this modelling approach

It ties the economic result to the physical model that produced the hazard, so the appraisal can be re-run when the hazard assumptions change — under a climate scenario, for instance — instead of being re-argued from the beginning.

What decision can be improved with this modelling approach

Comparing green, hybrid and grey options on a common basis; setting the level of risk reduction a strategy should target; and establishing the share of the cost that risk reduction alone can justify.