Overadaptation to Climate Change? The Case of the 2013 Finnish Electricity Market Act

Väinö Nurmi,Hilppa Gregow,Adriaan Perrels,Karoliina Pilli-Sihvola

doi:10.1007/s41885-018-0038-1

Abstract

In this paper, we put forward a definition of over-adaptation in disaster risk reduction (DRR) and climate change adaptation (CCA) projects. We detail an illustrative case in which the response to extreme weather risk while aligned with the goals of CCA, is implemented beyond the economically efficient scale. We undertake a cost-benefit analysis of the 2013 Finnish Electricity Market Act, enacted partially as a reaction to long, storm-induced electricity blackouts experienced after 2000. The Act imposes strict requirements on electricity distribution companies as regards the duration of blackouts. Meeting these requirements entails investments amounting to billions of euros. As a benefit, we quantify the avoided cost from the blackouts for households and producers. Our results, derived from Monte-Carlo simulations, show that for urban areas, the net expected value is positive. However, in rural areas less strict requirements could have been economically more efficient. Our results indicate that distributional impacts and correspondence between those who benefit and those who pay the costs should be taken into account in DRR and CCA policies that require large-scale investments. We also note that the population affected by a disaster may not accept DRR and CCA that are successful in terms of regulation and implementation. This applies when societal and individual preferences do not coincide.

Highlights

Economic Analysis of Disaster Risk Reduction and Climate Change Adaptation MeasuresVarious measures have been implemented or proposed to reduce the impacts of extreme weather events on, and the increasing threat of climate change to, communities, the economy and societies, (e.g. Hallegatte 2009; Konrad and Thum 2014)
In the public sector, disaster risk reduction (DRR) and climate change adaptation (CCA) goals are pursued by first integrating relevant DRR and CCA policy instruments into sectorial policies and ensuring that the sectorial policy goals are harmonised with the goals of DRR and CCA. (COM 2013; Rivera et al 2015; Pilli-Sihvola and Väätäinen-Chimpuku 2016)
Most underground cabling will be done in rural areas, but with Finland still undergoing rapid urbanisation this might affect the future benefits of the investment

Summary

Introduction

Economic Analysis of Disaster Risk Reduction and Climate Change Adaptation MeasuresVarious measures have been implemented or proposed to reduce the impacts of extreme weather events on, and the increasing threat of climate change to, communities, the economy and societies, (e.g. Hallegatte 2009; Konrad and Thum 2014). Hallegatte 2009; Konrad and Thum 2014) The goal of such measures is to reduce the exposure and vulnerability of people and assets to natural hazards and climate change and thereby to mitigate their impacts (IPCC 2012). One of the goals of the revised 2013 Electricity Market Act was to reduce the impacts of extreme weather on Finnish electricity consumers with due consideration of the altered weather patterns that climate change will bring Long blackouts such as those experienced in summer 2010 prompted a need to boost investments in the electricity distribution network, and imposing strict requirements on the permissible duration of the blackouts was considered an effective way to do so (Government Proposal HE 20/2013). The policy process to revise the legislation started quite a bit earlier, in 2001

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