Long-term economic impacts of coastal floods in Europe: a probabilistic analysis

Abstract

In this article we quantify the long-term economic impacts of coastal flooding in Europe. In particular, how the direct coastal damages generate long-term economic losses that propagate and compound throughout the century. A set of probabilistic projections of inundation-related direct damages (to residential buildings, firms' physical assets and agriculture production) is used as an exogenous shock to a dynamic stochastic economic model. The article considers explicitly the uncertainty related to the economic agents' behaviour and other relevant macroeconomic assumptions, i.e., how would consumers finance the repairing of their homes, how long does it take for a firm to reconstruct, whether firms decide to build-back-better after the inundation and possibly compensate the losses with a productivity gain. Our findings indicate that the long-term impacts of coastal floods could be larger than the direct damages. Under a high emission scenario (RCP8.5) the EU27 plus UK could lose every year between 0.25% and 0.91% of output by 2100, twice as much as the direct damages. The welfare losses present a strong regional variation, with the South (Bulgaria, Greece, Italy, Malta, Portugal and Spain), and United Kingdom (UK) plus Ireland regions showing the highest damages and a significant part of the population that could suffer significant welfare losses by the end of the century.