Long-term climate change is no longer just a scientific issue; it is a major trend that will have substantial impact on communities and infrastructure worldwide. Investors and asset managers who hold infrastructure assets in their portfolios are beginning to ask questions about the implications of climate change risks on their portfolio valuations? In order to begin to answer this question, this blog post reviews various online studies and literature about the link between climate change and infrastructure sustainability.

(1) Roads and Rails.

Research from U.S. Transportation Research Board has identified five climate change impacts of particular importance to U.S. transportation; 1) increases in very hot days and heat waves; 2) increases in Arctic temperatures; 3) rising sea levels; 4) increases in intense precipitation events; and 5) increases in hurricane intensity. The report does not try to quantify cost implications. See: http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=12179 And also: http://www.nap.edu/catalog.php?record_id=12179

Research by Natural Resources Canada estimates the impacts of climate change on Canadian transportation infrastructure, with unique discussions on permafrost regions and slope stability. See: http://adaptation.nrcan.gc.ca/perspective/transport_3_e.php

Research by several scholars in India examines the specific impacts of climate change on the Konkan Railway, the first major infrastructure project in India delivered with the BOT model. See section 9.7, pg 303: View on Google Books.

An Australian report reviews climate change impacts on road infrastructure; with a unique section on bitumen cracking and embrittlement of surface chip seals. See: http://www.bitre.gov.au/info.aspx?ResourceId=692&NodeId=136

(2) Water.

The EPA has recently released the proceedings of its conference on "Water Infrastructure Sustainability and Adaptation to Climate Change," held January 6 & 7, 2009. This website contains dozens of presentations and transcripts, by a cross section of scientists and practitioners. See: http://www.epa.gov/nrmrl/wswrd/wqm/wrap/workshop.html

(3) Power Generation.

The California Energy Commission has published a 23 page report on the "Potential Impacts of Climate Change on California's Energy Infrastructure and Identification of Adaptation Measures". The report does not attempt to quantify impacts, but does review in detail the many mechisms by which energy infrastructure will be effected. See: http://www.energy.ca.gov/2009publications/CEC-150-2009-001/CEC-150-2009-001.PDF

A 2007 article shows that climate policy uncertainty creates a risk premium for power generation investments. In the case of gas- and coal-fired power generation, the risk premium would lead to an increase in electricity prices of 5-10% in order to stimulate investment. In the case of CCS, the risk premium would increase the carbon price required to stimulate investment by 16-37%. See: ScienceDirect article. (4) Carbon Sequestration.

An analysis at CERA looks at CO2 price risk on valuation of coal generation plants. See: http://www.iea.org/Textbase/work/2008/ghget/day3/Roques.pdf

One approach to reduce carbon emissions is to construct a new 21st century carbon capture and sequestration infrastructure, to permanantly store carbon underground. This is a useful fact sheet. See: http://pubs.usgs.gov/fs/2008/3097/pdf/CarbonFS.pdf

This is the main website for the Department of Energy's Carbon Sequestration program. This site provides links to DOE Carbon Sequestration Centers, reports, meetings, news, research opportunities, abstracts from current projects, and descriptions of the programs focus areas. See: http://csite.esd.ornl.gov/

This website provides an overview of the Department of Energy's (DOE) Carbon Sequestration Program . A summary of the program areas, links to the various sequestration centers and online DOE Carbon Sequestration project data sheets can be found on this site. See: http://www.fe.doe.gov/programs/sequestration/

(5) Airports.

A detailed examination of the exposure of airports and, hence, infrastructure investments in airports, to climate change risk. Based on scenario modelling conducted:

Carbon tax of aviation emissions has the largest potential impact, ranging from -0.08% to -2.14% of 2020 EBITDA under different carbon price and other assumptions.

The impact on GDP growth of climate change on 2020 EBITDA ranges from -0.06% to -1.03% for a range of GDP growth impacts.

The impact on tourism from climate change on 2020 EBITDA ranges from +0.29% to -0.38% for different airports.
See: http://arts.monash.edu.au/ges/mse/igcc_airport-infrastructure.pdf

(6) Cities & States.

A study funded by EPA examines the long-term impacts of climate change on Metro Boston. It reviews the integrated direct and indirect impacts of climate change on the future evolution of infrastructure and the regional quality of life in Metro Boston over time. It does not attempt to quantify impacts, only direct and indirect mechanisms. See: http://www.publicpolicy.umd.edu/faculty/ruth/CLIMB_exec_summ.pdf

Research undertaken at the University of Washington in 2007 examines the integrated impacts of climate change across all sectors of the economy in Washington State. The research is not limited to infrastructure per se, but does offer many important implications. See: http://cses.washington.edu/cig/res/ia/waccia.shtml

The Department of Climate Change, within the Australian Government, has reviewed the impacts of climate change on on 18 localities and infrastructure within the Clarence foreshore area, Tasmania; within the Gold Coast Region; and within the City of Sydney. The project identifies a priority list of risks to local governments. See: http://www.climatechange.gov.au/impacts/integrated_assessment.html

Another Aussie study, commissioned by the ATSE, looks at overall impacts of climate change to Australia's infrastructure. It provides a wonderful literature review, and puts forward an "Assessment Matrix" (figure 4.3) to qualitatively map out how different direct and indirect impacts of climate change might effect various infrastructure sectors. See: http://www.atse.org.au/index.php?sectionid=1287

A presentation on climate change impacts of in the United Kingdom from a Professor of Civil Engineering at Leeds University: See: http://www.engineering.leeds.ac.uk/resilience/downloads/documents/iRILaunchEventClarke.pdf

A study examining asymmetric impacts of climate change on developing countries: http://www.rgemonitor.com/emergingmarkets-monitor/252683/asymmetric_climate_change

(7) Coastal Regions.

The National Ocean Service has reviewed potential impacts of climate change on coastal infrastructure and cities in the Caribbean region. The report does not quantify impacts; interesting discussion of destruction of "ecological buffer systems" such as beaches, mangroves, reefs, and wetlands. See: http://www.oas.org/macc/Docs/LUPInfrastIssues.doc

Galveston-area sea level rise over the next 100 years due to climate change could displace more than 100,000 households and create more than $12 billion in infrastructure losses, according to a report released in June 2009 commissioned by Environmental Defense Fund (EDF). See: http://www.edf.org/documents/9901_EDF_Sea_Level_Rise_Report.pdf

(8) Infrastructure in Northern Climates built on Permafrost.

Research from the University of Alaska at Anchorage predicts that melting permafrost in Alaska will cost the state more than $3.6 billion in infrastructure damage over the next two decades. See: http://www.iser.uaa.alaska.edu/Publications/Juneclimatefinal.pdf

A study by the United States Arctic Research Commission analyzes susceptibility of engineering works to thaw-induced damage. The report identifies long-term implications for Alaska's transportation network, Trans-Alaska Pipeline, and nearly 100,000 Alaskan citzens living in areas of permafrost. See: http://www.arctic.gov/publications/permafrost.pdf

(9) Implications of Climate Change for Asset Managers and Financial Institutions.

An early study by Allianz on Climate Change and Financial Institutions

A study by DB REEF on Investing in Climate Change

Some general conclusions after reviewing this literature, from the standpoint of an infrastructure investor or asset manager:

(a) The majority of the existing research:

has been conducted by scholars in atmosphere, energy, geography, climate, and earth systems programs;

focuses on the mechanisms - sea level rise, precipitation, hurricanes, etc. - by which climate change impacts infrastructure and offers public policy interventions to limit adverse effects;

(b) However, there seems to be a general failure of existing research:

to estimate quantitative and financial implications of different climate change and regulation scenarios on various infrastructure sectors;

within the energy sector, which is very complex, to forecast how various conventional and renewable energy generation technologies and policies are may evolve and be overturned as we move towards decarbonization of the energy sector;

(c) Perhaps the most useful studies from an infrastructure investment standpoint include:

The Monash study of sensitivity of airport cashflows to various carbon tax scenarios, which provides a good methodological model that could be applied to other sectors;

The Galveston Bay study that attempts to quantify socio-economic impacts of sea-level rise under two realistic scenarios, which offers a good starting point for assessment of exposure of the port sector to climate change;

The ASTE study that provides an Assessment Matrix (figure 4.3) for mapping out direct and indirect impacts of climate change, which offers a replicable method for conducting an integrative climate change risk assessment which can be the basis for quantification of financial impacts on a given infrastructure project, sector, city, or region under various climate change scenarios;

Posted by rjorr at July 16, 2009 10:43 PM