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Uncertainty, Sustainability, and Resilience:

Their economic consequences and use in transportation planning

January 10, 2021 | Glen Weisbrod

Risk shutterstock 139825753

Why is it important? Uncertainty is an inherent factor in infrastructure planning and investment decision-making, but in recent years the view of uncertainty and its importance has changed substantially. This issue has now risen to the forefront as we consider the more extreme consequences of technology shifts, climate change, and resource sustainability concerns. It has increased the need and benefit of considering future risk scenarios  and their economic consequences, as well as the usefulness of economic evaluation tools such as TREDIS. But first, let’s review how and why uncertainty has become so important today.

In the past, uncertainty was often seen as a rather mundane issue of optimizing financial costs and benefits over time. It is important as infrastructure facilities can have an effective lifetime of 25 to 50 years or more, making it extremely difficult to anticipate the future needs based on extrapolating business and population trends, as well as technology and economic change. For that reason, academics have argued for the last forty years that transportation planners should account for predictive uncertainty by using statistical confidence intervals that reflect uncertainty in both (a) population and economic growth shifts, and (b) behavior response factors such as the value of time and reliability. In practice, this led to ranges of estimates for facility demand and benefit that had an equal +/- distribution. In other words, there were symmetrical financial consequences, with an equal likelihood of overspending or underspending. The result is that planners and decision makers end up planning for the most likely, central demand estimate anyway.

In recent years, there has been a paradigm shift in how uncertainty is viewed. The inclusion of economic and environmental sustainability and resilience are shifting the attention to more carefully crafted uncertainty scenarios. The reason is that these considerations clearly have “asymmetrical consequences”; i.e., unacceptable risks associated with failure to invest or act appropriately. For example:

  • Economic development risk: Investment in anticipation of future economic growth that never materializes is a waste of money. But failure to invest to accommodate the access needs of existing and new industries (e.g., key supply chain routes and intermodal facilities) is a sure way to lose entire industries that would otherwise grow in the area. While we cannot be sure of future economic growth and business attraction, we do need to be cognizant that the economic and societal consequences of failure to adequately invest in infrastructure can sometimes be greater than the cost risk associated with over investing in it.
  • Infrastructure resilience risk: This was once viewed in terms of an engineering calculation that compared the cost of maintaining, replacing, and/or fortifying infrastructure against the probability of premature failure caused by equipment aging and stress factors. Today, though, resilience captures other factors including severe loss of jobs, income, and quality of life for “at risk” communities that could have access cut off by the failure or closing of key facility due to storms, wildfires, tornados, floods, rockslides, etc. Resilience investments may then be viewed as investment in additional capacity, redundant access routes, and alternative modal facilities that represent insurance against the possibility of intolerable outcomes from facility closures.
  • Environmental sustainability risk: There are established unit prices for valuing the incremental emissions reductions impacts of transportation projects and policies. However, they do not reflect the cumulative consequences associated with possible future climate change scenarios, which can include significant adverse impacts on human health, mortality and property damage as well as adverse consequences for jobs and income. As scientists have defined GHG reduction requirements to avoid the worst future scenarios, policy makers have identified GHG reduction goals and the needs for transportation system improvements to help achieve those goals. (Examples include longer passing lanes for transport of wind turbine towers and blades, electric vehicle charging stations with supporting power lines, enhanced transit options, and rural broadband to support telecommuting). These investments are contributions to achieve shared goals to mitigate risks of adverse future scenarios.

UncertaintyFuture Scenarios. All of the above examples involve the development and consideration of adverse risk scenarios, which are the basis for evaluating the severity of possible outcomes to be avoided. Yet it is important to note that this kind of risk scenario is a very different from that commonly used in “scenario planning” processes, which often involve stakeholder meetings) to discuss desired future development visions (such as transit-oriented vs highway-oriented development).

Examples of these new risk scenarios include studies using TREDIS and TREDPLAN tools to show the broader economic impacts of “failure to invest” scenarios, including road closures due to rock slides (California DOT), truck shipment shifts due to trade embargoes (Iowa DOT), and port closure due to sea level rise (North Carolina).

The most salient aspect of the preceding examples is that they do not necessarily require a formal calculation of risk probabilities to support investment decisions. Rather, they just require a determination that severe adverse scenarios are possible and sufficiently unacceptable or intolerable to justify investment to reduce their likelihood and severity.

On the flip side, the broader economic benefits of new investments to mitigate adverse scenarios can also be calculated using TREDIS. Examples include the development of alternative road or rail routes and technology investments such as electric vehicle adoption to reduce greenhouse gas emissions.

Technically, we can view decisions to reduce catastrophic situations in terms of both insurance and option value. The former refers to investment for protection from financial loss. The latter refers to the benefit value that people see in spending money in the face of uncertainty when the failure to do so could have irreversible consequences. We can see the public valuation of these actions through current public commitments to energy and environmental policies and resilience plans.

Evaluation. For transportation planners and decision makers, there is a clear need to address these uncertainties by (a) evaluating impacts of shifting fuel types, energy consumption, modes, and GHG emissions associated with transportation investments, and (b) evaluating the severity of job, income, and economic development impacts associated with possible scenarios related to future technology, climate, or regulatory risks.

TREDIS 6 has a particularly well-developed set of functions to portray the broad economic consequences of alternative scenarios affecting access or use closures affecting airports, seaports, roads, rail lines, and bridges. It also has well-developed capabilities to evaluate the economic and emissions impacts of technology adoption scenarios such as electric vehicles. And finally, it brings important new capabilities to tie transportation investment scenarios to impacts on households and businesses at the locations of trip origins and destinations. Together, these features enable planners to both track progress toward carbon reduction goals, and ensure priorities go to minimizing the most severe adverse outcomes.

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