Building a Climate-Resilient City: Economics and finance

Submitted by Christian Ledwell | published 13th Apr 2017 | last updated 13th May 2019
Edmonton, Alberta

Introduction

Climate change impacts involve threats and costs touching on all aspects of contemporary municipal life, and many of its effects on urban environments have yet to be effectively quantified. These growing climate risks have clear implications for local economies and the financial well-being of municipal governments. Well-planned adaptation measures can improve the quality of urban life as well as protect lives and infrastructure, strengthen community ties and improve economic performance.

The Building a Climate-Resilient City series was prepared for the City of Edmonton and the City of Calgary by the International Institute for Sustainable Development in collaboration with the University of Winnipeg’s Prairie Climate Centre. This series makes recommendations for steps that cities can take as part of their municipal adaptation planning to build their resilience to climate change. It explores three key principles of resilience building: robustness (strong design), redundancy (building extra capacity into systems to act as fail-safe networks) and resourcefulness (citizen empowerment).

This policy brief* focuses on economic and financial measures to build cities' resilience to climate change. It explores how economic and financial measures can contribute to building a resilient city—or a city in which institutions, communities, businesses and individuals have the capacity to function and “survive, adapt and grow” in response to anticipated and unanticipated shocks and stresses. 

*The text below provides the key messages and recommendations from the brief and summarises some of the economic and financial factors that can support the building of climate-resilient cities. See the full text for much more detail.

Lessons Learnt

  • Climate change impacts such as damage to infrastructure, productivity losses and adverse health effects have large financial implications for municipalities.
  • Investment in climate resilience reduces exposure to climate risks, lowers liability costs, and improves investor confidence and credit ratings.
  • Multiple-bottom-line accounting methods embed climate risk awareness and the benefit of cost-effective adaptation benefits.
  • Monetizing the value of ecosystem services valuation allows cities to identify and prioritize high-value natural and green infrastructure climate solutions.

The Economics of Adaptation

Climate change is already costing Albertans dearly: the federal Working Group on Adaptation and Climate Resilience notes that: “The province of Alberta has been hit by 7 of the 10 most expensive disasters in Canadian history." The National Round Table on the Environment and Economics demonstrated that Canada's changing climate has inevitable social and economic costs, including lost productivity, increased risks to human health, damage caused by extreme weather disasters and losses in vulnerable resource-based industries such as forestry. It also demonstrated that timely and well-chosen adaptation measures can be extremely cost-effective at reducing the severity of these impacts. 

Preparing for the implementation of adaptation measures means anticipating higher expenditures, but costs can be minimized by applying multiple-bottom-line, adaptive design thinking as broadly as possible. Many adaptation strategies can also help reduce greenhouse gas emissions, improve the livability of urban environments and promise long-term cost savings. Combining natural systems with engineered infrastructure, protecting and extending urban forests, and promoting the use of green roofs can all contribute to climate change mitigation and adaptation, but also demonstrably improve citizens’ quality of life and improve property values. Cultivating a multiple-bottom-line perspective can include funding adaptive measures that enhance resilience at a lower cost than conventional approaches.

An important and innovative aspect of financing climate adaptation is the valuation of ecosystem services. This process allows cities to assess and leverage existing natural features of the landscape and ecosystems to augment or even replace more expensive, less robust engineered solutions. The value of such ecosystem services has rarely been incorporated into budgets, and doing so would be a significant step to bringing an intrinsically resilient adaptation perspective to bear on development. This can be accomplished by way of a natural asset policy that defines the value of ecosystems and sets a price on the services they provide.

Financing adaptation relies to no small extent on eco-asset accounting: determining the value and the vulnerability of such ecosystem services in order to account for the combined financial and ecological benefits of adaptation measures. Eco-asset accounting projects are being undertaken from coast to coast (see full text) and the Federation of Canadian Municipalities is launching two funding programs—the Municipal Asset Management Program and the Municipalities for Climate Innovation Program—in the spring of 2017 that could support eco-asset accounting programs.

Financing resilience demands the longterm strategic use of traditional planning processes and financial instruments of municipal government, but also taking up innovative approaches to measurement and management as well as new sources of directed funding. Applying a resilience approach to financing will help cities successfully finance measures that support adaptation to climate change and build resilience. A variety of strategies can be implemented to enhance three of the qualities of resilient cities:

  • Building Robustness: Municipal finances must retain the capacity to meet ongoing and competing demands in the face of material and socioeconomic climate change shocks. Financial robustness is of course directly enhanced by new sources of money but is not just a matter of spending. It is also a matter of ensuring the security of existing financing through strategic enterprise risk management. 
  • Promoting Redundancy: Financial redundancy means protecting municipal finances from single points of failure and from unexpected fluctuations or interruptions in available resources. Initiatives that promote redundant outcomes will permit the mobilization of diverse sources of income for adaptation.  
  • Encouraging Resourcefulness: Municipal governments directly influence the living and working conditions of many people, and can use outreach and incentive programs to enlist them in adaptation actions that will improve the resilience of the cities in which they live. This includes mobilizing an informed citizenry to take action in their own homes and everyday lives, but also collaborating with business and industry to foster skills and resources that will allow all members of the municipal community to develop greater resilience. 

Details of how Canada is and could be building robustness, promoting redundancy and encouraging resourcefulness in urban economies and city-level finance are discussed in detail in the brief. To read more about applying these principles to economic and financial systems to build resilience to climate change, please refer to the full text.

Recommendations

Strategic

  • Embed adaptive resilience requirements into planning, permitting and zoning processes.
  • Engage in a structured valuation of ecosystem services to quantify climate change risks and measure adaptive improvements.

Regulatory/Administrative

  • Assess construction, maintenance and development projects using robustness criteria that take climate change impacts into account, for example applying Engineers Canada’s Public Infrastructure Engineering Vulnerability Committee (PIEVC) Engineering Protocol to all engineering projects.

Economic Instruments

  • Apply multiple-bottom-line accounting principles to planning, permitting and zoning in order to incorporate adaptive benefits across the board.
  • Direct climate-change-specific funding to high-impact, adaptation-specific projects that are unlikely to be funded from other sources.
  • Use property subclassing to promote adaptive land use.