Removing development incentives in risky areas reduces climate damages and yields co-benefits

Eliminating government infrastructure spending, public disaster insurance and post-disaster aid in high-risk coastal areas reduces development there and leads to lower flood damages and higher property values on nearby lands. The strategic withdrawal of development incentives could be used more broadly to reduce climate risks.

Recommendations for policy

• Expanding the CBRS would help curb excessive development and promote resilience in coastal communities at high risk of climate change in the USA.

• CBRS is more effective at curbing development when the tracts are large and relatively less developed at the time of designation.

• In the US setting, coordination across different levels of government is critical for the success of any federal policy that removes development incentives. State and local spending also affects land use and development decisions.

• The USA should explore removal of development incentives in other high-risk areas, such as inland flood plains and high-wildfire-risk zones. The policy could also be replicated in other countries.

• Natural land conservation resulting from the removal of development incentives generated amenity value and natural hazard protection in surrounding communities.

BASED ON H. Druckenmiller et al. Nature Climate Change https://doi.org/10.1038/s41558-024-02082-3 (2024).

The policy problem

The costs of weather disasters in the USA now exceed US$120 billion annually. Costs are rising due to both increasing exposure (that is, more assets at risk) and more frequent and severe weather extremes under climate change. One important aspect of adaptation is limiting the number of people and properties in harm’s way. However, governments around the world are implicitly subsidizing development in high-risk areas by continuing to invest in infrastructure such as roads and utilities that lay the groundwork for population growth. Public disaster insurance and financial aid provided after disasters strike also reduce the disincentives to develop in risky areas. Withdrawing these implicit subsidies for development has long been suggested as one option for reducing exposure to climate and disaster risks, but empirical evidence on whether the approach will work is lacking and policymakers often worry that it could harm the local economy or tax base.

The findings

We evaluate the impact of a policy that eliminated federal infrastructure investments, flood insurance and disaster assistance in high-risk coastal zones in the USA. We find that the policy lowered development densities (buildings per acre) by 83% in designated areas but raised them by 37% in neighbouring communities, suggesting that the approach can reallocate growth away from the most at-risk areas. The policy also generated co-benefits in neighbouring areas, increasing property values and providing flood protection services by conserving natural lands. Our results suggest that withdrawing development incentives in risky areas can reduce disaster exposure and damages, lower government expenditures and increase the property tax base. A similar approach could be effective in other high-risk areas such as inland floodplains or wildfire zones and could be replicated in other countries, with the caveat that our findings are based on a US federal policy focused on reducing coastal flood risk.

The study

We compare outcomes in ‘treatment’ areas designated in a 1982 law as part of the Coastal Barrier Resources System (CBRS), where federal development incentives have been removed to ‘control’ areas that have similar characteristics but are not part of the CBRS (Fig. 1). The control group is constructed using machine learning and matching techniques. Intuitively, the procedure mimics the process by which natural resource planners designated CBRS lands based on geomorphic and development features. This creates a set of control areas that are statistically indistinguishable from treatment areas in terms of land use, flood risk, development patterns and other factors in the years leading up to policy implementation. We analysed the long-term impacts of the policy on the amount of development and property values in the CBRS and on neighbouring lands up to 2 km from a CBRS boundary. We also estimated the policy’s effect on flood damages and property tax revenues.

Fig. 1: Comparing the CBRS to similar lands reveals that withdrawing federal spending in high-risk coastal areas reduces development densities.

a, An example CBRS tract (left) beside a control tract (right) — a coastal area that was similar in terms of development patterns, flood risk and land use in the years leading up to the policy. We assess outcomes both within the CBRS (‘units’) and in neighbouring lands (‘spillover areas’). b, CBRS tracts develop less quickly than control areas after the policy is implemented. Right panel shows built-up surface area trajectories for treatment and control units, while left shows the difference (treatment less control). The vertical dashed lines separate the decades before and after policy implementation. After 4 decades, the share of built-up surface area is 41% lower in CBRS lands than in control areas. Figure adapted with permission from H. Druckenmiller et al. Nat. Clim. Change https://doi.org/10.1038/s41558-024-02082-3 (2024), Springer Nature Ltd.