Assessing the Benefits of Meteorological Information in an Economy-wide Framework

1. Assessing the benefits of meteorological information: Towards an economy-wide framework Don Gunasekera COPS CGE Workshop, Victoria University, Melbourne 11 August 2014 Integrated Global modelling and Analysis

2. Background • Meteorological information: • help manage weather and climate risks • Weather/climate risks operate on a wide range of time scales: • short term (e.g. floods, cyclones, storms) • seasonal (e.g. crop planting and harvesting, bush fire preparedness) • multi-decadal (e.g. coastal protection against sea level rise or provision of water storages) Presentation title | Presenter name

3. Background • Weather/climate risks have different dimensions: • public health and safety • business continuity • productivity and economic activity • protection of public and private property • disaster mitigation • emergency management • national security • environmental sustainability Presentation title | Presenter name

4. Senate estimates, 26 May 2014 • Senator RUSTON: With the information that you provide, particularly in relation to your business information—aviation, agriculture etc—has there ever been any attempt to quantify the value of the information that you provide to those industry sectors? • Senator RUSTON: In terms of the money that has been required to be spent on the supercomputer, surely with the upgrade of the services and the upgrade of the information that is provided there has to be an economic number in support of that. • Senator Birmingham: .......The investment in the supercomputer will only help to boost those economic and productivity returns in future. . Presentation title | Presenter name

5. Why economy-wide (CGE) analysis? Motivation • Can provide insights to further enhance the quality, timeliness, accessibility and use of met. information • Important in maintaining the capacity of the service providers and the ability to respond to changing demand • CGE analysis: captures direct and indirect effects; influential within govt. for assessing the program benefits Pathways to analysis – methodologies • Indirect approach • Direct approach Presentation title | Presenter name

6. Methodologies • Economic Footprint: • ‘value added’ of a particular industry that can be attributed to the use of met. information • Need to know those highly dependent on (or influenced by) met. phenomena, those with medium dependency, and those with a low level of dependency. • One-percent Proxy Rule: • Assume that a 1% output increase or cost reduction could be achieved by using met. information • Productivity impacts: • Sectoral or economy-wide productivity impacts of use of met. information Presentation title | Presenter name

7. Indirect CGE approach: three broad steps • Identify plausible productivity improvements attributable to the use of met. information (based on case studies) • Assess the levels of adoption and the impacts of the use of met. information in each sector • Estimate productivity changes (i.e. shocks) to each sector attributable to the use of met. information • Apply the estimated productivity shocks into an economy-wide general equilibrium model (e.g. MMRF) • Estimate the impact of use of met. information on sectoral output, trade and macroeconomic aggregates Presentation title | Presenter name

8. Direct approach: CGE-Meteorology model • Identify the value of inputs and outputs of met. service provider: • compatible with the Input-Output (IO) commodity/services groups • consistent with the National Accounts methodology for estimating inputs and outputs. • Measuring the value of inputs: • salaries and wages • cost of capital equipment and of depreciation • other transfers and receipts Presentation title | Presenter name

9. Input side of met. services • Substitution of capital for labour i.e., substitution of the relatively cheap factor for the relatively expensive factor. • Capital substituted has been in the form of the increased use of equipment and computers • Enhanced automation of services using improved computing and other technological advancements (using automatic weather stations (AWS), radars, (super) computers), • It is highly probable that the capital/labour ratio has increased over time Presentation title | Presenter name

10. CGE-Meteorology model • Measuring the value of outputs is more challenging • Met. services cater for almost every sector of the economy - public, defence, business and industry. • Met. outputs: generally public goods and non-marketed. • The non-marketability of these services eliminates the possibility of using market prices to measure nominal output. • Need to use output ‘proxies’ based on the ‘transactions’ approach to measuring the output of non-marketed public sector services such as ‘defence’ services. Presentation title | Presenter name

11. Measuring Met. outputs (Transactions approach) • The transactions approach values outputs/services according to the size and value of the sectors that they affect. • Met. information (output) is: • needed in improving public safety, reducing loss of life, aiding community resilience to natural hazards, improving the sustainability of environmental assets, enhancing national security etc • probably proportional to the actual size of the user sectors, i.e. the real output of those user sectors. Presentation title | Presenter name

12. Measuring met. outputs (Transactions approach) • Idea here is to estimate the output of met. services based more directly upon output proxies • That is, it attempts to account, albeit indirectly, for the expected demands on met. services • It does this by measuring changes in real output of those sectors that uses met. information Presentation title | Presenter name

13. Met. services  risk reduction • The greater the reduction in risk to a sector, through provision and use of improved met. information on timing and magnitude of events and trends, • the larger the beneficial impacts of these met. services and hence the size of their ‘output’ within the ‘transactions approach’ framework. Presentation title | Presenter name

14. Impacts of use of met. information: response parameters • Econometric and biophysical analyses will allow us to quantify: • the way that weather/climate related impacts depend on the probability of the occurrence of these events. • Some of this information is already available for certain sectors (e.g. agriculture) Presentation title | Presenter name

15. Examples of possible applications Potential economic effects of: • improvements in frost forecasts on citrus growers • improvements in heat stress forecasts on preparedness for hospital admissions of vulnerable groups • additional capital injections in for enhanced computing facilities, radar networks and other met. infrastructure • This could have implications for natural disaster mitigation and fiscal burden on recovery effort Presentation title | Presenter name

16. Next steps • Need additional effort/resources to continue this work • Need further work on the methodology • In the meantime, try to learn more from the COPS work on measuring the outputs of government services Presentation title | Presenter name

17. Acknowledgements • David Newth, Tome Keenan and John Finnigan • COPS General Papers G 126 and G 127 Presentation title | Presenter name

18. Thank you CSIRO Oceans and Atmosphere Flagship OCEANs and Atmosphere