The European Union Solidarity Fund: an assessment of its recent reforms

After extensive flooding in 2002, the European Union Solidarity Fund (EUSF) was created as an ex post loss-financing vehicle for EU member states and candidate countries in the case of disasters that exceed the government’s resources to cope. The EUSF is viewed as a valuable instrument for pooling risk among countries in Europe and potentially as a model for financing loss and damage from climate change in vulnerable countries worldwide. This paper assesses its future prospects taking account of reforms adopted in 2014. Our analysis is based on three recognized aims of the Solidarity Fund: its promotion of solidarity with those countries having the least capacity to cope with major disasters; its contribution to proactive disaster risk reduction and management (climate adaptation); and its robustness with regard to its risk of depletion (stress testing). Using a simulation approach for future disasters, we conclude that the reformed EUSF’s risk of depletion, although it is reasonably robust to more frequent disasters, could be reduced by increasing member state contributions and/or engaging in risk transfer. The European Commission has taken important steps in linking the fund to proactive risk reduction; yet, by changing its budgeting practices, the commission could be more proactive in encouraging risk management in member states. In its current form, the EUSF does not embed needs-based solidarity. Lower-income “new” member states have received disproportionately less compensation in terms of eligible losses, although on average, they have received more disaster aid than what they contribute to the fund. Solidarity could be enhanced by changing the rules for disbursing aid. After briefly describing alternative risk-pooling models in the Caribbean, Africa, and Europe, we suggest how design features of the EUSF as compared to other regional risk pools can inform discussions on the Warsaw International Loss and Damage Mechanism.     

Mainstreaming of climate extreme risk into fiscal and budgetary planning: application of stochastic debt and disaster fund analysis in Austria

While ageing-related costs are perceived as the major drivers of fiscal pressure in the EU, concerns over climate-related public expenditures have received comparatively little attention in securing the EU’s long-term fiscal sustainability. Using the Shared Socioeconomic Pathways (SSPs) scenarios as bridging concept for linking the assessment of public cost of demography- and climate-related expenditures, this study proposes a climate risk mainstreaming methodology. We apply a stochastic debt model and assess the potential flood risk in Austria to the public debt and the national disaster fund. Our results indicate that public debt under no fiscal consolidation is estimated to increase from the current level of 84.5% relative to GDP in 2015 to 92.1% in 2030, with macroeconomic variability adding further risk to the country’s baseline public debt trajectory. The study finds that the estimated public contingent liability due to expected flood risk is small relative to the size of economy. The existing earmarked disaster risk reduction (DRR) funding will likely reduce the risk of frequent-and-low impact floods, yet the current budgetary arrangement may be insufficient to deal with rising risk of extreme floods in the future. This prompts the need for further discussions regarding potential reforms of the disaster fund. As many EU member states are in the early stages of designing climate change policy strategies, the proposed method can support the mainstreaming of climate-related concerns into longer-term fiscal and budgetary planning.

     

Government liabilities for disaster risk in industrialized countries: a case study of Australia

This paper explores sovereign risk preferences against direct and indirect natural disasters losses in industrialized countries. Using Australia as a case study, the analysis compares expected disaster losses and government capacity to finance losses. Utilizing a national disaster loss dataset, extreme value theory is applied to estimate an all-hazard annual loss distribution. Unusually but critically, the dataset includes direct as well as indirect losses, allowing for the analysis to consider the oft-ignored issue of indirect losses. Expected annual losses (direct, and direct plus indirect) are overlaid with a risk-layer approach, to distinguish low, medium and extreme loss events. Each risk layer is compared to available fiscal resources for financing losses, grounded in the political reality of Australian disaster financing. When considering direct losses only, we find support for a risk-neutral preference on the part of the Australian government for low and medium loss levels, and a risk-averse preference in regard to extreme losses. When indirect losses are also estimated, we find that even medium loss levels are expected to overwhelm available fiscal resources, thereby violating the available resources assumption underlying arguments for sovereign risk neutrality. Our analysis provides empirical support for the assertion that indirect losses are a major, under-recognised concern for industrialized countries. A risk-averse preference in regard to medium and extreme loss events recommends enhanced investment in both corrective and prospective risk reduction in relation to these risks level, in particular to reduce indirect losses.     

A methodological framework to operationalize climate risk management: managing sovereign climate-related extreme event risk in Austria

Despite considerable uncertainties regarding the exact contribution of anthropogenic climate change to disaster risk, rising losses from extreme events have highlighted the need to comprehensively address climate-related risk. This requires linking climate adaptation to disaster risk management (DRM), leading to what has been broadly referred to as climate risk management (CRM). While this concept has received attention in debate, important gaps remain in terms of operationalizing it with applicable methods and tools for specific risks and decision-contexts. By developing and applying a methodological approach to CRM in the decision context of sovereign risk (flooding) in Austria we test the usefulness of CRM, and based on these insights, inform applications in other decision contexts. Our methodological approach builds on multiple lines of evidence and methods. These comprise of a broad stakeholder engagement process, empirical analysis of public budgets, and risk-focused economic modelling. We find that a CRM framework is able to inform instrumental as well as reflexive and participatory debate in practice. Due to the complex interaction of social–ecological systems with climate risks, and taking into account the likelihood of future contingent climate-related fiscal liabilities increasing substantially as a result of socioeconomic developments and climate change, we identify the need for advanced learning processes and iterative updates of CRM management plans. We suggest that strategies comprising a portfolio of policy measures to reduce and manage climate-related risks are particularly effective if they tailor individual instruments to the specific requirements of different risk layers.     

Water management from tradition to second modernity: an analysis of the water crisis in Iran

This article reflects on the fundamentals of first and second modernity and its usefulness and practicability for problem formulation and solving in the context of water management practices in Iran. It is argued that the current water crisis in Iran resulted from modernization based on first modernity paradigms, and second modernity concepts are used to present a framework for new water management approaches. Based on the concept of sub-political arrangements, we suggest that water management issues can be treated best in process-based ways under a reflexive modernity point of view.