Once an extreme weather event such as Hurricane Sandy is over, various estimates of damage costs start pouring in. Cost comparisons with various past catastrophes are ubiquitous in the media. But these costs are mostly of the tangible nature, such as costs incurred from physical property damages. Many intangible costs, such as loss of life and psychological impacts, are neglected in national accounting estimates.

Flooding in Haiti from Hurricane Sandy – Developing countries and low-income communities are often more at risk to the impacts of extreme weather events, yet current damage accounting does not reflect this fact. (Source: Flickr.com, User: United Nations Stabilization Mission in Haiti)

The result is widespread under-reporting of the range of damages caused to those populations that are most affected by extreme weather events. Historically, most extreme weather hotspots have been in low-income developing countries, where people often live in sub-standard dwellings located on marginal, low-lying plots of land, making them more vulnerable to the effects of hurricanes and floods. Even in industrialized countries, studies show that low-income groups have tended to be the most sensitive to the impacts of extreme weather events and face the slowest recovery of basic amenities and repopulation of affected areas.

To ensure environmental justice for these poor and vulnerable communities, a more accurate measure of the costs of extreme weather events is necessary.

The economic costs of extreme weather

In extreme weather cost accounting, even the tangible economic costs run into the billions. In a recent press release, the world’s leading re-insurer, Munich Re, stated that between 1980 and 2011, the overall loss burden from weather catastrophes in North America was $1.1 trillion (in 2011 dollars). The insured losses amounted to $510 billion, and some 30,000 lives were lost.

According to Munich Re, the number of weather-related loss events increased by approximately 500 percent in North America over the past three decades, compared with an increase of 400 percent in Asia, 250 percent in Africa, 200 percent in Europe, and 150 percent in South America. Another report, published in 2011, notes that the United States set a record with 12 separate billion-dollar weather or climate disasters that year, with approximately $52 billion in aggregate damage. Hurricane Sandy is estimated to have caused economic damages worth $10–20 billion.

Economic analysts have been quick to point out that, in terms of damage costs, Sandy still falls short of Hurricane Katrina, which dealt a massive $113.4 billion in damages. Additionally, experts point out that the initial economic loss estimates are often far below the final figures. For example, the final costs of tropical storm Irene were estimated to be twice the initial estimates.

Under-accounting of damages

Yet accounting for tangible economic costs alone does not reflect the true costs of these catastrophic events. When these true costs are under-accounted, the underlying causes that exacerbate such events—such as climate change—seem less threatening. As a result, the multi-faceted impacts of climate change on poor countries, from sea-level rise to widespread flooding, fail to receive the global attention they deserve.

According to experts, countries that rank low on the Human Development Index (i.e., the world’s least developed nations) account for only 11 percent of the people exposed to extreme weather conditions. Yet despite this lower share of exposure, these nations account for more than 53 percent of recorded deaths from extreme weather events, compared to industrialized countries where 15 percent of people are exposed but they suffer less than 2 percent of deaths.

Because these least-developed countries have a very low GDP, stating their loss in terms of the percentage loss of global GDP means very little. According to Global Risk Index 2012, the countries that were most affected by extreme weather events between 1990 and 2010 include Bangladesh, Haiti, Myanmar, and Honduras. When one looks at the GDP (adjusted to Purchasing Power Parity) in any of these countries, it is clear that their share of global GDP is very insignificant. Even if the economies of these countries are brutally devastated by hurricanes or floods, it causes less than a dent in the global economy.

Overall, the Intergovernmental Panel on Climate Change (IPCC) estimates that between 2001 and 2006, losses in low-income countries due to extreme weather, climate, and geophysical events amounted to only 0.3 percent of their GDP. But this masks the widespread damage in terms of loss of life, destruction of livelihood, and other significant effects.

Alternatives to GDP

So, what could be a better indicator of the true cost of extreme weather events? Many experts agree that indices such as the Happy Planet Index or Genuine Progress Indicator give more wholesome estimates of costs than does GDP. These indicators cover additional environmental factors, such as the costs of water, air and noise pollution; loss of biodiversity; loss of natural habitats; and other environmental degradation. Many also include social indicators such as the costs of lost leisure time, psychological trauma, hardship in commuting, increased crime following extreme weather events, forced relocation, displacement, separation from families, and forced migration to marginal land.

Sensitivity to extreme weather is dependent on numerous socio-demographic factors, such as age, gender, housing, material constraints, and health conditions. Demographic studies on the vulnerability of certain groups facing extreme weather events project that the impacts will be felt more severely by children living in vulnerable urban settlements, individuals living in isolation, an increasingly aging population, and various macro-scale drivers of adaptive capacity such as political stability, governance, civil and political rights, literacy, growth rate and demographic trend of populations, social equity, and distribution of income.

It is easier and less time-consuming to account for physical or material damages after a hurricane or heat wave, which is precisely why we are still over-dependent on such estimates to assess losses and damages.

The IPCC admits in its report that “loss estimates are lower bound estimates because many impacts, such as loss of human lives, cultural heritage, and ecosystem services, are difficult to value and monetize, and thus they are poorly reflected in estimates of losses.” The report goes on to state that, although “impacts on the informal or undocumented economy as well as indirect economic effects can be very important in some areas and sectors, [they] are generally not counted in reported estimates of losses.

With the scientific community predicting increasing frequency of extreme weather events and increasing intensity of these events in future, it is time for governments and policymakers to reconsider the accounting methods of these extreme weather events as a starting block toward environmental justice for vulnerable communities, populations, and nations.

Suparna Dutta is a Climate and Energy Intern at Worldwatch Institute.

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