The economic value of the Weather and Climate Enterprise

“The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” – Thomas Sowell

Speaking of “firsts,” the first panel discussion of tomorrow’s American Meteorological Society Washington Forum will address both economics and politics. Here are the details:

Location: Auditorium (AAAS Building)

Moderator: John A. Dutton, Prescient Weather Ltd

Panelists: Scott Rayder, UCAR; Jeff Lazo, NCAR; Lars Peter Riishojgaard, Joint Center for Satellite Data Assimilation; Molly Macauley, Resources for the Future

The United States and other nations make substantial investments to collect and analyze weather and climate information with the aim of protecting life and property, promoting economic vitality, and contributing in other ways to the common good for their citizens. These investments are critical and justified because severe weather events and significant climate anomalies are creating serious adverse economic and societal impacts. However, little is actually known about how to quantify the value of the efforts of the Weather and Climate Enterprise to reduce these impacts. Without such metrics, it is difficult for policy and decision makers to assess whether additional investment by the public or private sectors would return benefits by reducing adverse impacts of severe weather events. Moreover, there is little guidance for the optimum distribution of such investments between improved observations, enhanced computer hardware and software capabilities, new research directions, university education of future professionals, or advanced training for present professionals in the management of weather and climate risk.

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“Where’s the politics?” you ask?

The politics are embedded and threaded through any discussion of economic value in our field. The economic costs of Earth observations, science, and services (Earth OSS) are difficult enough to measure. They’re widely distributed, multi-year, and multi-purpose. This makes both determination and allocation of costs problematic. But determining value or benefits brings in further problems and uncertainty, and introduces politics and policies in a fundamental way. There are many reasons for this, but let’s consider three.

First, monetary benefits can’t readily and unambiguously be assigned to Earth OSS. Real life doesn’t offer much opportunity for controlled experiments. Say that short-term weather forecasts anticipate the passage of a front of thunderstorms through Chicago’s O’Hare Airport during the busy late-afternoon/early evening hours. Some flights are diverted; others are held on the ground before leaving their airport of origin for O’Hare. Still others are able to make their scheduled arrivals and departure because the hazard to airport operations has been pinpointed with respect to first arrival and duration. How much money was saved? How much of that savings could be attributed unambiguously to the forecast? How much would have been lost if degraded observations or numerical weather prediction had increased the forecast uncertainty? How much is simply attributable or not to proficient airline and airport operations and to good airframe design and maintenance? How are the benefits distributed among the airlines, and between the airline operators and the passengers? Are there losers as well as winners? Now multiply this single incident by all similar incidents in all sectors of the economy (that same squall line affected electricity demand on an otherwise hot summer day across the Chicago area, and at the same time may have downed power lines; it lowered water usage over the next few days for people’s lawns, and so on). Then attempt to aggregate the gains and losses across all the weather-sensitive activities across the country for all days of the year. The uncertainties quickly mount in such analyses. And that’s before the introduction of other considerations. For example, many benefits aren’t realized at a given moment, but rather extend well into the future, sometimes for several years. What discount rate should be applied to those future benefits?  To answer these questions requires knowing something about the governing policy framework, and how this may change over time.

Second, not all Earth OSS benefits are easily monetized. The most common example offered up in such discussions is the value of a human life. [Economists acknowledge some of the imponderables but actually have several handles on this.]  Public-health benefits, aesthetic values, the value of knowledge for its future use and/or its own sake also come into play. Perhaps the largest uncertainties are the values to be applied to (1) any gains in the country’s national security, and (2) any improved maintenance or sustainability of ecosystem services: clean drinking water, waste management, flood control, and more.

Third, economic benefits are not fundamental physical constants. The benefits of Earth OSS, and who receives those benefits, are policy-dependent. A post on valuation from the early days of this blog compares U.S. policies for electrical power generation and distribution with regulations for dam management on watershed to illustrate the point. Deregulation of the electrical utilities and the development of national power grids have served to reduce excess generating capacity and in the process increase the value of Earth OSS to the industry and its customers. By contrast, regulations on water resource managers require that they base decisions on dam-reservoir water levels alone, vs. any knowledge or estimates of future trends in those levels resulting from rainfall or drought and associated changes in runoff. This has the perverse effect of reducing the value of extended weather forecasts to water resource management to near-zero.

These economic and political/policy realities hold implications for how our community should go about building the case for the work we do, and articulating that case to the policymakers and the various publics we serve. They suggest that we:

-          Take a long-range view toward building economic analyses; quick fixes are not likely to be useful or compelling.

-          Work sector-by-sector across agriculture, energy, public-health, transportation, and water-resource management, etc., because the governing policy frameworks are different in each instance.

-          Plan a process of continually revisiting each sector as circumstances, social change, and scientific and technical advance dictate.

-          Adopt a two-stream approach that does the best job possible with given economic tools, and at the same time works to improve those tools.

Tomorrow’s  panel discussion at the AMS Washington Forum provides a great opportunity to learn more. The speakers are first-rate and the conversation promises to be lively.

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