Removing development incentives in risky areas promotes climate adaptation

nature climate change Article https://doi.org/10.1038/s41558-024-02082-3 Removing development incentives in risky areas promotes climate adaptation Received: 8 September 2023 Accepted: 5 July 2024 Published online: xx xx xxxx Check for updates Hannah Druckenmiller 1,2,3,6 , Yanjun (Penny) Liao Margaret Walls 2 & Shan Zhang5 , Sophie Pesek 2,6 , 4 As natural disasters grow in frequency and intensity with climate change, limiting the populations and properties in harm’s way will be key to adaptation. This study evaluates one approach to discouraging development in risky areas—eliminating public incentives for development, such as infrastructure investments, disaster assistance and federal flood insurance. Using machine learning and matching techniques, we examine the Coastal Barrier Resources System (CBRS), a set of lands where these federal incentives have been removed. We find that the policy leads to lower development densities inside designated areas, increases development in neighbouring areas, reduces flood damages and alters local demographics. Our results suggest that the CBRS generates substantial savings for the federal government by reducing flood claims in the National Flood Insurance Program, while increasing the property tax base in coastal counties. Limiting exposure to climate risks is an important aspect of adaptation to climate change, particularly in coastal areas. As sea levels rise, tidal flooding worsens, and coastal storms become more frequent and severe, limiting the number of people and properties in harm’s way will be key to managing climate damages. In the United States, state and local governments are primarily responsible for land-use and zoning decisions, but federal policies also play important roles in shaping development. Federal investments in roads, utilities and other infrastructure lay the groundwork for population growth. Other government programmes, such as the National Flood Insurance Program (NFIP), which offers flood insurance at subsidized rates in most locations, and disaster assistance programmes, which provide funding for disaster recovery, also affect location decisions. By partially shifting disaster costs from property owners to the government, these programmes reduce the financial disincentives to development in risky areas. Whether withdrawing some of these financial incentives would curb development, lower the costs of disasters and help communities prepare for climate change is unclear. Many factors affect development decisions and federal incentives are only some of the factors at play. Empirical research into this question is limited because few policy experiments exist where a clear comparison can be made of ‘treatment’ settings, where incentives for development have been removed, and ‘control’ settings, similar areas where such incentives remain. One such experiment does exist, however. The 1982 Coastal Barrier Resources Act (CBRA) designated certain areas along the Atlantic and Gulf coasts as a Coastal Barrier Resources System (CBRS). In these areas, most new federal expenditures and financial assistance are prohibited. This includes the prohibition of federal funding for new infrastructure, disaster relief and flood insurance through the NFIP, among others. The law intends to transfer the full cost of private development in these areas from taxpayers to property owners. Besides removing federal incentives, CBRS designations do not otherwise prohibit development. Because the policy is both less restrictive and less costly than most land-use regulations, it may offer an attractive option for managing development in areas at high risk of natural disasters and climate change. In this study, we leverage the CBRA to study the long-term economic impacts of removing federal incentives in high-risk areas and assess its efficacy as a land conservation and climate adaptation strategy. We not only ask how effective the CBRA has been at discouraging development within designated areas, but also assess the spillover effects of the policy on neighbouring areas. Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, CA, USA. 2Resources for the Future, Washington, DC, USA. National Bureau of Economic Research, Cambridge, MA, USA. 4Energy and Resources Group, University of California, Berkeley, CA, USA. 5Department of Economics, Old Dominion University, Norfolk, VA, USA. 6These authors contributed equally: Hannah Druckenmiller, Yanjun (Penny) Liao. e-mail: 1 3 Nature Climate Change Article A recent study employed a spatial regression discontinuity design to compare long-term changes in development densities between CBRS units and areas just outside their boundaries in five states1 (an update of the authors’ earlier study that used cross-sectional data and an ordinary least squares regression design2). The authors find lower development rates by more than 75% in CBRS areas. However, the regression discontinuity approach, which uses neighbouring areas for comparison with the CBRS, is not appropriate if the CBRS boundaries are based on development levels (Extended Data Fig. 1) and does not allow for the estimation of spillover effects, which our results show are important. Our study provides a comprehensive assessment of the policy’s impact on flood damages, property markets and development, sociodemographic outcomes, and local government finances. We develop an alternative method for estimating the causal effects of CBRS designations. We construct a control group to compare with the CBRS treatment group using a spatial machine learning technique known as regionalization in combination with a synthetic controls research design. This procedure allows us to mimic the process by which natural resource planners determined CBRS boundaries based on geomorphic and development features (Extended Data Fig. 2), thus identifying a set of coastal areas that could have been selected for CBRS designation in 1982 but were not. To illustrate our approach, we show one example of a CBRS treatment area and constructed control area, overlaid with parcel-level data on the value of properties (Fig. 1). Our analysis addresses several open questions about land-based climate adaptation. First, it has long been suggested that federal incentives play a role in encouraging development in risky areas3, yet quantitative research on this question is limited4–8. We evaluate whether the removal of these incentives on coastal lands has been a cost-effective adaptation strategy. Second, by examining the spillover effects of the policy on surrounding lands, we provide estimates of how natural infrastructure affects coastal property values and flood damages, adding to a large literature on the hazard protection and amenity value of natural lands9–19. Third, our analysis sheds new light on how removing federal incentives affects local government finances by providing the first estimates of how the CBRA affects property (...truncated)