Environmental Valuation & Cost-Benefit News

Executive Summary:

Current scientific research shows that the global sea level is expected to rise significantly over the next century. The relatively dense development and abundant economic activity along much of the U.S. coastline is vulnerable to risk of coastal flooding, shoreline erosion and storm damages.

In this study we examine the impacts of climate change on North Carolina coastal resources. We consider three important areas of the coastal economy: the impacts of sea-level rise on the coastal real estate market, the impacts of sea-level rise on coastal recreation and tourism and the impacts of tropical storms and hurricanes on business activity. Our baseline year is 2004. All the impacts in this study are measured in 2004 U.S. dollars.

Methods for Coastal Impacts Analysis

Inundation and storm impacts are assessed for four coastal counties ranging from high development to rural-economies and with shoreline dominated by estuarine to marine environments. We use high-resolution topographic LIDAR (Light Detection and Ranging) data to provide accurate inundation maps in order to identify all property that will be lost under different sea level rise scenarios assuming no adaptation. The sea level rise scenarios are adjusted upward for regional subsidence and range from an 11 centimeters (cm) increase in sea levels by 2030 to an 81 cm increase by 2080. Additional geospatial attributes that described the distance of a property to shoreline and elevation are also generated and entered into a database of corresponding tax values.

To estimate the recreational impacts of sea level rise we calculated current erosion rates for beaches and fishing locations and modeled projected beach widths. Projected increases in erosion are estimated qualitatively for the years 2030 and 2080 by a local expert. These erosion rates are then mapped spatially to describe changes in minimum and maximum beach width assuming no nourishment or barrier island migration.

Storm impacts are assessed by investigating projected climate-related increases in storm intensity along a hurricane track that made landfall in 1996. The percent increase in wind speed due to increased sea surface temperature is estimated using the MAGICC/SCENGEN Global Climate Model. The wind speeds are mapped spatially using a hurricane wind speed model (HURRECON). Maximum wind speeds and wind gusts are averaged by county and used in an economic model to estimate potential business impacts.

Impacts on Real Estate Markets

In the first economic component of this study we estimate the impacts of sea level rise on coastal real estate markets in New Hanover, Dare, Carteret and Bertie County of North Carolina.

The study area represents a cross-section of the North Carolina coastline in geographical distribution and economic development. A simulation approach based on the hedonic property model is developed to estimate the impacts of sea level rise on property values.

Data on property values come from the county tax offices which maintain property parcel records that contain assessed values of property as well as lot size, total square footage, the year the structure was built, and other structural characteristics of the property. Other spatial amenities such as property elevation, ocean and sound/estuarine frontage and distance to shoreline are obtained using Geographic Information System data.

We estimate the loss of property values due to sea level rise using a simulation approach based on hedonic property value models for the four counties. The results indicate that the impacts of sea level rise on coastal property values vary across the North Carolina coastline.

Without discounting, the residential property value loss in Dare County ranges from 2% of the total residential property value to 12%. The loss in Carteret County ranges from less than 1% to almost 3%. New Hanover and Bertie counties show relatively small impacts with less than one percent loss in residential property value.

Considering four coastal counties, including the three most populous on the North Carolina coast, the present value of lost residential property value in 2080 is $3.2 billion discounted at a 2% rate. The present value of lost nonresidential property value in 2080 is $3.7 billion at a 2% rate.

Impacts on Recreation and Tourism

In the second economic component of this study we estimate the impacts of sea level rise on coastal recreation and tourism. We estimate the effects of sea-level rise on beach recreation at the southern North Carolina Beaches and recreational fishing that takes place on the entire coast (whereas the property impacts are assessed for only 4 counties).

We use two sets of recreation data and the travel cost method for recreation demand
estimation. The first data set includes information on beach trips to southern North Carolina beaches. The second includes information on shore-based fishing trips for the entire North Carolina coast.

We estimate that the lost recreation value of climate change-induced sea level rise to beach goers is $93 million in 2030 and $223 million in 2080 for the southern North Carolina beaches. For those households who only take day trips, 4.3% of recreation value is lost in 2030 and 11% is lost in 2080 relative to 2004 baseline values. For those households who take both day and overnight beach trips, 16% and 34% of recreation value is lost in 2030 and 2080, respectively.

Beach trip spending by non-local North Carolina residents would also change significantly with climate change-induced sea level rise. Spending by those who only take day trips would fall by 2% in 2030 and 23% in 2080 compared to 2004. Those who take both day and overnight trips would spend 16% less in 2030 and 48% less in 2080.

Turning to recreational fishing, the aggregate annual lost recreational value of sea level rise to shore anglers in all of North Carolina would be $14 million in 2030 and $17 million in 2080. This is 3% in 2030 and 3.5% in 2080 of the 2004 baseline values. Angler spending would not change significantly as shore anglers move to other beaches or piers and bridges in response to sea level rise.

The coastal recreation and tourism analysis indicates that there are substantial losses from reduced opportunities of beach trips and fishing trips. The present value of the lost recreation benefits due to sea level rise would be $3.5 billion when discounted at a 2% rate for the southern North Carolina beaches. The present value of the lost recreational fishing benefits due to sea level rise would be $430 million using a 2% discount rate.

Impacts on Business and Industry

In the third component of this study we estimate the impacts of increased storm severity on business and industry, including agriculture, forestry, commercial fisheries and general “business interruption.” These are the primary categories of impacts on business and industry for low-intensity hurricane strikes, and changes among low-intensity hurricane categories are identified in this study as the most likely results of climate change. Estimates of business interruption impacts on economic output are presented by county for three climate change scenarios. Although scarce data limit the ability to estimate economic impacts for the vulnerable natural resource sectors, preliminary, order of magnitude assessments are presented.

The impacts of increased storm severity on economic output due to business interruption from 2030-2080 vary across county and climate change scenario, ranging from negligible impacts for Bertie County to $946 million for New Hanover County. These results show the incremental losses due to climate change that could result from a storm strike similar to hurricane Fran, a well-known category 3 storm that struck North Carolina in 1996. County-level estimates vary due to differences in population, industry structure, distance to the coast, and prior hurricane damage history.

The economic impacts of severe storms on the North Carolina agricultural sector are significant. Based on agricultural damage statistics for hurricanes affecting North Carolina between 1996 and 2006, we find that a tropical storm or category 1 hurricane strike causes $30-$50 million in total statewide agricultural damage, a category 2 storm in the ballpark of $200 million, and a category 3 storm on the order of $800 million. Increases in hurricane intensity due to climate change could have substantial impacts on agriculture in North Carolina.

Based on the limited data from hurricane Fran (category 3) and hurricane Isabel (category 2), the incremental forest damage associated with an increase in hurricane severity from category 2 to category 3 is substantial, on the order of 150% per storm event, or about $900 million.

Consistent time series data on the damages to commercial fishing operations caused by tropical storms and hurricanes do not currently exist for North Carolina. However, two recent case studies indicate that commercial fisheries suffer economic losses primarily in the form of damaged fishing gear and reductions in the number of safe fishing days. In addition, there is some evidence that the populations of some target species may fall following hurricanes, further reducing the profitability of fishing.

by Okmyung Bin 1, Chris Dumas 2, Ben Poulter 3 and John Whitehead
1. Department of Economics; East Carolina University; Greenville, NC 27858
2. Department of Economics and Finance; University of North Carolina at Wilmington
Wilmington, NC 28403
3. Duke University; Nicholas School of the Environment and Department of Global Change and Natural Systems Potsdam Institute for Climate Impact Research, Germany
4. Department of Economics; Appalachian State University; Boone, NC 28608

Prepared for: National Commission on Energy Policy; 1250 I Street, NW, Suite 350; Washington, DC 20005-3998
March 15, 2007

Appalachian State University http://econ.appstate.edu
http://econ.appstate.edu/climate/NC-NCEP%20final%20report.031507.pdf