Overadaptation to climate change? The case of the 2013 Finnish Electricity Market Act

This paper puts forward a definition of over-adaptation in disaster risk reduction (DRR) and climate change adaptation (CCA) projects. It details 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. The study undertakes a cost-benefit analysis 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 requirements 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.

The 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. The results indicate that distributional impacts and correspondence 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. The paper also notes 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 preferences do not coincide.