Italy is notoriously prone to natural hazards and disaster risk due to its peninsular and mountainous conformation. The limited risk prevention and legacy of uncontrolled urban expansion contribute to amplifying the risks and their impacts. Recent FEEM & CMCC research has empirically estimated, for the first time in Italy, the potential impacts of climate change on the regional economy. Research of this type makes it possible to inform operative disaster risk reduction schemes and climate adaptation plans at regional level, responding to regional economic footprints. The performance assessment of different schemes of cost recovery is the successive step of the analysis yet to be completed.
Keywords: Natural Hazards, Disaster Risks, Risk Prevention, Cost Recovery
JEL classification: Q54
Suggested citation: Mysiak, Jaroslav, Economic Impacts of Disaster Risk and Risk Reduction Measures (May 28, 2015). Review of Environment, Energy and Economics (Re3), http://dx.doi.org/10.7711/feemre3.2015.05.003
Italy is a country with many scenic qualities, but notoriously prone to natural hazards and disaster risk. Due to its peninsular and mountainous conformation, Italy is susceptible to almost every type of hazard among which seismic and hydrological hazards are the most common. The limited risk prevention and the legacy of uncontrolled urban expansion contribute to amplifying the risks and their impacts. Among the 28 EU Member States (MS), Italy is the one that experienced the largest economic damage inflicted by natural hazards. According to the recent analysis of the European Environmental Agency (EEA), the structural damage experienced since 1980 amounts to 112 billion Euro [Note 1] or about a quarter of the damage registered over the entire EU-28. As a term of comparison, France - which is twice as large as Italy - has chronicled around a half of the damage. The "Bel Paese" also holds another primacy: in no other EU country has the share of medium-sized to large disasters (over a billion Euro of damage) been as big as in Italy. In fact it represents around 90% of the total damage registered since 1980.
The average annual damage (~ 3,3 billion Euro) is equivalent to three quarters of the gross domestic product produced in the Valle D’Aosta region, or for that matter, 2% of the GDP generated in one of the wealthiest Italian regions: Emilia Romagna (RER [Note 2]). If the latter appears low, it should be noted that the annual damage is characterized by high inter-annual variability. The largest damage by single natural hazard strike was triggered by the Irpinia earthquake that affected the Campania and Basilicata regions in 1980, causing an estimated damage of 28 billion Euro. The second largest damage was also caused by geophysical hazard, the 2012 earthquake in RER. The third and fourth costliest strikes were caused by floods in Northern Italy, in 2000 and 1994. Each of them has caused a damage of ca. 12 billion Euro.
Since 2002 when the European Solidarity Fund was set up, Italy has received financial assistance amounting to 1.32 billion (in 2014 prices). This is equivalent to one third of the solidarity payments granted over the thirteen years of the Fund’s existence (until March 2015). Moreover, the solidarity aid that Italy received in the aftermath of the 2012 earthquake in RER, equal to 660 million Euro, is the largest single payout so far. It was equal to two thirds of the annual ceiling of the Fund at that time.
The above estimates characterise the medium-term period. As a consequence, the low-probability/high impact type of events is not fully captured. The expected annual loss (EAL) is a measure that better expresses the entity of risk. It is believed that EAL relative to floods in Italy amounts to ca. 800 million Euro [Note 3]. As a result of climate change, the magnitude of damage is expected to increase in the medium-long term. Recent studies of the Euro-Mediterranean Centre on Climate Change (CMCC) have shown that the damage is not evenly distributed across the Italian regions. In particular, the integrated modelling framework coupling climate, hydrological and hydraulic models has made it possible to estimate the economic losses at regional level, taking into account the inter-regional trade patterns [Note 4]. In addition, these studies have estimated, for the first time in Italy, the potential impacts of climate change on the regional economy. Research of this type makes it possible to inform operative disaster risk reduction schemes and climate adaptation plans at regional level, responding to regional economic footprints.
In general, the economic damage is approximated as a function of the depth and persistence of flood, the flow velocity and the transported material. The method assigns to every land use category a maximum average damage value that is successively scaled down to take into account the specific characteristics of the modelled flood. This method has not experienced substantial methodological advance if not for being based on increasingly disaggregated and detailed spatial data. Few of these models, developed in other EU countries, have been corroborated with empirical data representing the economic and social circumstances of Italy. Recent research of the Fondazione Eni Enrico Mattei (FEEM) has empirically tested the stage-damage-curves in Italy, making use of the damage data registered by local councils in municipalities affected by the flood that was caused by levee break of the Secchia River in January 2014 [Note 5]. The corroborated model was successively used to assess the potential damage brought about by the disruption of the water drainage infrastructure within the territory of the Land Reclamation and Irrigation Board Emilia Centrale (LRIB-EC), in the aftermath of the 2012 earthquake in Emilia Romagna. The quakes in 2012 have damaged the water pumps making it possible to drain water from low-altitude zones without a natural outlet. The analysis conducted by a team of researchers from FEEM and the Regional Natural Protection Agency (ARPA Emilia Romagna) has estimated the potential damage caused by the intense precipitation, with partial disruption of the water drainage network, as topping 300 million Euro [Note 6].
The analysis has shown the economic benefits, in the case of emergency, of controlled floods in the agricultural land, set off to avoid larger damage in the urbanized areas. Clearly, the damage caused by the controlled flooding has to be compensated. The performance assessment of the various schemes of cost recovery is the successive step of the analysis yet to be completed.
[Note 1] If not otherwise indicated, the values refer to 2013 prices.
[Note 2] Both estimates refer to 2011, the last year for which the gross domestic product values are available per each region (NUTS2)
[Note 3] Based on Feyen, L., Dankers, R., Bodis, K., Salamon, P., & Barredo, J. I. (2012). Fluvial flood risk in Europe in present and future climates. Climatic Change, 112(1), 47–62.
[Note 4] Carrera L., Standardi G., Koks E., Feyen L., Mysiak J., Aerts, J., Bosello, F. (2015). Economic impacts of flood risk under current and future climate. Submitted to Climatic Change.
[Note 5 ] Amadio, Mattia, Mysiak, Jaroslav, Carrera, Lorenzo, Koks, Elco, Improvements in Flood Risk Assessment: Evidence from Northern Italy (June 11, 2015). Review of Environment, Energy and Economics (Re3), http://dx.doi.org/10.7711/feemre3.2015.05.005
[Note 6] Mysiak J., Amadio A., Carrera L., Santato S., Agnetti A., Pecora S., Zenoni E., Alessandrini C. (2015) Risk scenarios and analysis, Po River Basin District case study: Part A: Flood Risk Assessment and disruption of flood protection works. Enhance report.