Economic Assessment of NBS

Description

Assessing the value of the costs and benefits of Nature Based Solutions, and being able to compare them with the grey alternative, is what allows a well-designed intervention to become an implementable Natural Assurance Scheme. This tool provides the guidelines for doing it.

Four categories are assessed. The costs of implementation cover what is needed to build and maintain the measures. Opportunity costs capture the value of what the land or the water would otherwise have produced — the indirect cost of the strategy. Avoided damages are the losses the measures prevent, and are the primary benefit of a strategy aimed at water risk. Co-benefits are the additional environmental, economic and social gains that a Nature Based Solution generates alongside its risk-reduction purpose.

The categories are then compared across the lifetime of the alternatives — grey, hybrid and green — in a cost-benefit analysis, so that the comparison is made on the same basis and over the same period.

Applied in the Lez, La Brague and Rotterdam case studies, the framework found that NBS cost less than grey solutions for the same level of risk reduction, but that avoided damage alone rarely covers investment and maintenance. The co-benefit stream, in most cases, is what makes the strategy economically beneficial.

Applications to decision making in the insurance sector

The framework produces the number that a risk carrier is actually interested in — avoided damage — separately from the numbers it is not, which means the insurance-relevant part of the appraisal can be read on its own. It also demonstrates why sectoral financing focused solely on risk reduction will generally be insufficient to fund an NBS strategy, and therefore why blended arrangements are needed.

Added value of this modelling approach

It is a common accounting frame, which is what allows results from different catchments to be compared. It also handles the two asymmetries that distort NBS appraisals: benefits that accrue over a longer period than the political cycle, and benefits that accrue to people other than those paying.

What decision can be improved with this modelling approach

Whether to implement a Nature Based Solution, a hybrid or a grey scheme; how large the co-benefit stream has to be for a strategy to break even; how a project should be structured so that the beneficiaries who are not payers can be brought into the funding arrangement.