Benefits and Costs of Seismic Mitigation

CREW Benefit-Cost Analysis ForumPortland State University

January 19th, 2011

Bryce Ward, Ph.D. Ed MacMullan

Overview

Part I : Intro To Benefit-Cost Analysis

(BCA)

How many feel about BCA

The problem

Mitigation activities are good!

Resources are limited.

How do we decide what to do?

Benefit-Cost Analysis

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Simple Illustration

Today Tomorrow A

B

Costs minus $X

Benefits minus $Y

BCA Rule #1: Define Fair Alternatives

BCA Rule #2: Establish Point of View

» If we compare world with mitigation to world without …

• Who might be affected?

• Which of these people do we care about?

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BCA Rule #3: Establish a Decision Rule

» At the end of the analysis, how will we decide?

• $ value of benefits > $ value of costs?

• Does distribution of benefits and costs matter?

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BCA Rule #4: Describe Costs

Costs minus $X

»Costs = opportunity costs = what else would we have done with the resources spent on mitigation.

»Don’t leave anyone out.

BCA Rule #5: Describe Benefits

Benefits minus $Y

»Benefits = Willingness-To-Pay

»Don’t leave anyone out

BCA Rule #6: Establish Timing and Select Discount Rate

When will we incur benefits and costs?

How should we value dollars gained/lost at different points in the future?

BCA Rule #7: Describe Uncertainty

» We don’t know when earthquake will occur.

» We don’t know how large it will be.

» We don’t know exactly who will be affected.

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BCA Rule #8: Conduct Sensitivity Analysis

» BCA typically built on lots of assumptions

» BCA of earthquake mitigation rely on more.

• What are people WTP for mitigation?

• What will actually occur and when?

» How might results change if we employ different assumptions.

BCA Rule #9: Don’t Commit Common Mistakes

» Don’t count transfers as benefits or costs!

» Jobs created by mitigation project are costs not benefits!

» Don’t double count!

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Part II : Economic Benefits of Seismic

Mitigation

Set Up

» Earthquake Happens

» But We’ve Mitigated

» Examples of Economic Benefits of Mitigation

» How Do We Measure These Benefits?

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Who Benefits

» Benefits from Whose Perspective?

» Step Back

» Portland-Area Economy

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Benefit Examples

»The Port of Portland

»School Building

»A Large Manufacturing Facility

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Port Example

»Port Buildings and Infrastructure »What’s The Stream Of Affected Economic Benefits?

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School Example

»School Buildings»What’s The Stream Of Affected Economic Benefits?

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Manufacturing Example

»Manufacturing Facility

»What’s The Stream Of Affected Economic Benefits?

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Regional Economy

» Earthquakes and Short-Term Economic Growth

» Economic Forces and Trends

» Economic Resiliency

» Taint Effect

» “Lifeline” Infrastructure

Discussion Points

» Economic Benefits In FEMA’s B-C Analysis for Mitigation Grants

» Building-Specific Focus vs. Local or Regional Economy Focus

» Transportation, Electricity, and Other “Lifeline” Utilities

» Account for Benefits of Mitigating Harm To Ecosystem Services