Overadaptation to Climate Change? The Case of the 2013 Finnish Electricity Market Act

Abstract

In this paper, we put forward a definition of over-adaptation in disaster risk reduction (DRR) and climate change adaptation (CCA) projects. We detail an illustrative case in which the response to extreme weather risk while aligned with the goals of CCA, is implemented beyond the economically efficient scale. We undertake a cost-benefit anal- ysis of the 2013 Finnish Electricity Market Act, enacted partially as a reaction to long, storm-induced electricity blackouts experienced after 2000. The Act imposes strict re- quirements on electricity distribution companies as regards the duration of blackouts. Meeting these requirements entails investments amounting to billions of euros. As a benefit, we quantify the avoided cost from the blackouts for households and producers. Our results, derived from Monte-Carlo simulations, show that for urban areas, the net expected value is positive. However, in rural areas less strict requirements could have been economically more efficient. Our results indicate that distributional impacts and corre- spondence between those who benefit and those who pay the costs should be taken into account in DRR and CCA policies that require large-scale investments. We also note that the population affected by a disaster may not accept DRR and CCA that are successful in terms of regulation and implementation. This applies when societal and individual pref- erences do not coincide.