In this week’s episode, host Margaret Walls talks with Resources for the Future (RFF) Fellow Yanjun (Penny) Liao about the Coastal Barrier Resources Act, a bipartisan federal law that was first passed in the 1980s. The law is designed to curb development in coastal areas that are vulnerable to extreme weather events and to protect coastal environments. Liao and Walls discuss the effects of the law, including reductions in the amount of development on coastal lands, the amount of federal funding saved by the government through a reduced need for disaster response as a result, and increases in property-tax revenues for counties in designated coastal areas.
Listen to the Podcast
Notable Quotes
- Coastal Barrier Resources Act has curbed development: “When we compare to the control area, we find that the built-up surface decreased by 41 percent and the number of buildings per acre decreased by 83 percent.” (10:30)
- Law produced a demographic shift toward higher-income populations: “This [shift] is consistent with the policy’s intention, which is to shift the cost of development and disaster assistance to people who are more able to bear those costs and to self-insure against the consequences of disasters.” (12:08)
- Similar laws could be effective in mitigating other natural disasters: “In recent years, wildfire has become a pretty important issue, and we can potentially apply this approach to the wildland-urban interface to think about how to preempt risky development in those areas.” (20:58)
Top of the Stack
- “Geeking Out on Geography: Mapping the Effects of the Coastal Barrier Resources Act” by Alexandra Thompson
- “Removing Development Incentives in Risky Areas Promotes Climate Adaptation” by Hannah Druckenmiller, Yanjun (Penny) Liao, Sophie Pesek, Margaret Walls, and Shan Zhang
- “Can Removing Development Subsidies Promote Adaptation? The Coastal Barrier Resources System as a Natural Experiment” by Hannah Druckenmiller, Yanjun (Penny) Liao, Sophie Pesek, Margaret Walls, and Shan Zhang
- “Managed Retreat and Flood Recovery: The Local Economic Impacts of a Buyout and Acquisition Program” by Wei Guo, Yanjun (Penny) Liao, and Qing Miao
- “Making a Market for Acts of God: The Practice of Risk Trading in the Global Reinsurance Industry” by Paula Jarzabkowski, Rebecca Bednarek, and Paul Spee
The Full Transcript
Margaret Walls: Hello and welcome to Resources Radio, a weekly podcast from Resources for the Future (RFF). I'm your host, Margaret Walls. My guest today is Yanjun (Penny) Liao. Penny is my colleague here at RFF. She's an economist, and her research is mainly on issues related to natural disasters—both understanding their impacts, like on housing markets and other outcomes, and analyzing policies to build adaptation and resilience.
She's on the show today to talk about a recent article she published in the journal Nature Climate Change, that I happen to be a coauthor on, along with Hannah Druckenmiller, Sophie Pesek, and Shan Zhang. The paper is entitled “Removing Development Incentives in Risky Areas Promotes Climate Adaptation.” It's an analysis of a really interesting US federal law that I'm guessing a lot of people don't know about. It was passed in 1982, and it's called the Coastal Barrier Resources Act or, as some people call it, CBRA. The law designated certain coastal lands as a Coastal Barrier Resources System where property owners are unable to buy federal flood insurance or get disaster aid and the federal government does not invest in infrastructure.
Penny is going to describe the work we did to undertake a comprehensive evaluation of the program, and we'll also chat at the end about the implications of these findings for current climate adaptation and resilience policies. Stay with us.
Hello, Penny. Welcome to Resources Radio. Thanks so much for coming on the show.
Penny Liao: It's my pleasure. Thank you so much for having me.
Margaret Walls: Penny, you know Resources Radio. Before we dive into our topic, we'd like to learn a little bit about our guests. Tell us a little bit about your journey and how you became an environmental economist, and especially how you decided to work on climate adaptation issues.
Penny Liao: Sure. When I was an undergrad, I got interested in environmental economics the first time I learned about it. It's fascinating to me that you can look at environmental issues from an economic perspective and think about efficiency and equity questions there. After I started my PhD in economics, in the middle of it, Hurricane Harvey hit in 2017. That really drew me to the topic area of extreme weather events and natural disasters.
I also happened to have access to a really good housing data set. Housing is a really important topic for a lot of people, and it really affects people's welfare. So, I started thinking about how these weather shocks interact with the housing sector, and then that expanded to my current research focus.
Margaret Walls: That's great.
All right, Penny, let's start with this law that I mentioned, the Coastal Barrier Resources Act. Can you give us a bit of background on it? What was the motivation behind it? How did it pass? What exactly does that law do?
Penny Liao: Absolutely. The purpose of this law is to address problems caused by coastal barrier development. Coastal barriers are risky for flooding, and so, part of the purpose is to minimize the loss of human life, as well as wasteful federal spending on disasters and rebuilding in risky areas. These areas are also biologically rich, and so the other part of the purpose is to protect the natural environment there and provide fish and wildlife habitats, as well as other kinds of ecosystem functions.
Margaret Walls: I think it's interesting that they're coastal barriers, which tells you right away they're intended to protect lands behind them. Isn't that the case?
Penny Liao: Exactly. Actually, storm protection is explicitly written in the original legislation, as well.
Margaret Walls: This was a real bipartisan bill that passed, wasn't it?
Penny Liao: That's exactly right. It actually passed with overwhelming bipartisan support in the 1980s. It appeals to Democrats because it protects the environment, and it appeals to Republicans because it conserves federal taxpayer dollars.
Margaret Walls: Exactly.
Tell us a little bit more about those lands. Do you have an update on how many acres there are? Who manages this program? What's the current status?
Penny Liao: The policy withdrew federal spending on a set of land it designates as the Coastal Barrier Resources System—we refer to it as the CBRS. The spending can include infrastructure and disaster spending. Initially, 186 units were designated. That covered about 453,000 acres. The system has expanded over time since then through multiple pieces of legislation and amendments, and currently it covers 3.5 million acres in total. Of those, 1.4 million acres are areas where all incentives are taken away. Then, about 2.1 million acres are what is known as the “otherwise protected areas,” where the provision of flood insurance is prohibited, but other kinds of spending might still go there.
Margaret Walls: The Fish and Wildlife Service manages this program, right? So, if people want to find some basic information, they can go to that website.
The obvious question, the direct one that we addressed in this study, is how well this policy worked to achieve its stated objectives to reduce development on lands that are very exposed to coastal storms, and then reduce the cost of disaster to the federal government. That's what we set out to look at. But it's no easy task, because you can't just look at the development over time on those lands and say something. You can't just compare their outcomes with something right next door or any other coastal lands. There has to be a pretty careful design of this empirical study, right? Can you talk a little bit about that?
Penny Liao: Exactly. Ideally, we want to find lands that are very similar to the CBRS land and see how they develop over time without the treatment. That can serve as a control group for the CBRS lands. But by design, the CBRS lands were undeveloped in the '80s. And so, if we compare them with other coastal lands, we would be looking at some of the most developed areas in the country. Think about Miami, New York, and other major coastal cities. That would not be an apples-to-apples comparison. It would be really unfair to do that comparison.
We also cannot just compare the CBRS lands to nearby lands, because the boundaries are drawn very intentionally to avoid existing development. So, when we look at the boundaries, we actually see that there's already a significant difference in development levels right across the boundary in the '80s at the time of the designation.
The other concern we have is that when a set of land gets treated, the land next to it might also be treated by spillover effects. That also prevents us from using them as a control group.
Margaret Walls: So, what do we do instead?
Penny Liao: Our strategy is to develop an algorithm to mimic the original designation process. The goal of this algorithm is to find areas that could have been designated but were not. We do so using a combination of machine-learning techniques and an econometric technique called “synthetic control.” By combining these two, we are able to look across the entire Gulf Coast and East Coast, look at the land that's right next to the coastline, and then find areas that look very similar to the CBRS lands in the '80s.
Margaret Walls: Quick follow-up on that, Penny. Sometimes people ask us why those similar lands weren't designated. Do you remember? What is the answer to that question?
Penny Liao: That is true. We actually get asked this a lot. And the reason is that in the '80s, the natural resource planners that were designating these lands did not have the best geospatial data available to them. Because of the data-quality issues, sometimes they would miss a lot of lands that actually fit the definition of these undeveloped coastal barriers. That's how we're able to find them. As a result, land continues to be added into the system, the data gets better, and they realize that more of the land could be in the system.
Margaret Walls: Right. Give us the headline finding. What did the law do to the amount of development on those lands that got designated?
Penny Liao: Absolutely. In short, we find that the policy is actually really effective in preempting development or curbing development on designated lands. When we compare to the control area, we find that the built-up surface decreased by 41 percent and the number of buildings per acre decreased by 83 percent. That is a very big effect. The control areas that are very similar continue to grow, and the treatment areas grow at a much slower pace.
Margaret Walls: It was very effective. We analyzed some other outcomes on those lands, too. Tell us a little bit about that.
Penny Liao: Absolutely. As we're looking at the development, we also want to know what the implications for assessment values of properties there are. Interestingly, we find that the decrease in development is partially offset by higher-value properties there. Overall, we do not find a significant decrease in terms of the assessment value of buildings in these areas. And then, when we look at demographic outcomes of people who come to these areas after the treatment, we find that compared to the control areas, these areas draw in a higher-income population.
Concurrently, we also see that the occupancy rate in these areas decrease, meaning that some of the homes that get built are likely to be second homes or vacation homes. We also find a decrease in rental units. And so, in general, the demographic shifts towards economically more well-off groups, and this is consistent with the policy's intention, which is to shift the cost of development and disaster assistance to people who are more able to bear those costs and to self-insure against the consequences of disasters.
Margaret Walls: That's a really interesting point to make.
You already mentioned spillover areas. It is highly likely that the law not only affected the outcomes on the designated lands, but also the surrounding areas. We looked at that—I said at the beginning we did a comprehensive analysis. Tell us a little bit about what we found in those spillover areas.
Penny Liao: One important lesson that we learned from this study is that, if you treat a set of land with some place-based policy, there are going to be spatial spillover effects to nearby land. Indeed, in the spillover areas, interestingly, we see the opposite development pattern, where we see actually an increase in development levels in the areas surrounding the treatment unit compared to the areas surrounding the control units. And there, we see that development levels increase by about 25 to 30 percent. Assessment value also increases overall. So, overall, we see an offsetting effect over there.
Margaret Walls: What do you think is the explanation for the increase in assessment values?
Penny Liao: It could be a number of things. The policy is effective in conserving natural land inside a unit. A lot of people like to live near natural lands, because they provide natural amenities. They like to watch birds. In general, it could be nicer. The other explanation is, as we've talked about previously, that there could be storm-protection services that these natural lands provide. There is emerging research showing that some of the natural land could absorb more water and reduce flood risk in nearby areas, including our coauthor Hannah Druckenmiller's recent study on this. So, flood risk reduction could be one of the benefits that also draw people to the nearby areas.
Margaret Walls: That's a really important issue. We did look at that. We looked at flood damages on the nearby properties. You haven't described those findings yet, I don't think. We use flood-claim data. Do you want to talk a little bit about what we found there?
Penny Liao: Absolutely. We take the flood claims from the National Flood Insurance Program, and then we study how that changes in the spillover areas near treatment units to the areas next to control units. We find that there is a very significant drop in flood insurance claims in the spillover areas. In total, we find that there are the savings in flood claims that amount to about $389 million per year from the original units that we study. Most of the savings actually come just from the flood-protection benefits in the spillover areas. Inside treatment areas, of course, there's also reduction in flood claims, because there is no provision of flood insurance, but the bulk of this benefit comes from the spillover areas.
Margaret Walls: I don't know if you have these numbers at your fingertips, but we also did a back-of-the-envelope calculation to say, overall, what we think the total benefits are and what percentage of these are just on these coastal lands. Can you tell us about that back-of-the-envelope calculation? You said $389 million, but that probably expands to a bigger number, right?
Penny Liao: Yeah. This is just from those units that originally got designated. If we assume that the same protection benefit from the rest of the units is later added into the system on the Gulf Coast and East Coast, we are looking at about $930 million per year in annual National Flood Insurance Protection claims. This benefit is from just removing subsidies on about 1 percent of land in those coastal counties.
Margaret Walls: That's an interesting point to make. It's not a huge area.
One final thing we looked at, Penny, was the impact of the program on local government finances and property-tax revenue. Why is this issue important? Is it something you want to start with, and then you tell us what we found?
Penny Liao: Absolutely. This is actually a more general issue than this policy itself, because as we are looking forward to the question of how we adapt to climate change, a lot of times it comes down to needing to curb development in some of the riskiest areas. That would mean reducing or preventing development in waterfront locations that can be quite desirable. A lot of local governments are reluctant to do so because they worry about the property-tax implications for them.
That's what motivates us to look at local government finances to see what the actual impact of having a policy that proactively tries to curb development is. It turns out that the program produces a net increase of $911-million-per-year increase in revenues for those counties that host the land. This is about 2.5 percent of all property-tax revenues in these counties.
Margaret Walls: That result comes from … I think you said there's lower assessment values on the CBRS lands, but there's higher values and more development on those neighboring lands.
Penny Liao: Yeah. And the neighboring lands are larger in area. So, overall, the effect is a net positive.
Margaret Walls: Interesting that the overall effects are net positive for local governments and then also positive for the flood insurance program. Those are interesting outcomes.
Congress passed some legislation in November of last year that was related to the CBRS. It had big bipartisan support. Tell us a little bit about that.
Penny Liao: This new law is called the Bolstering Ecosystems Against Coastal Harm Act, or the BEACH Act for short (to be distinguished from the older BEACH Act). This is bipartisan legislation, as you mentioned. It reauthorizes the program and makes some significant changes, as well as other provisions that strengthen the program. It adds 294,000 acres to the CBRS.
Margaret Walls: Wow, that's a lot. That's almost 10 percent, I think; 8 to 9 percent of the land. That's a significant amount of land. Thanks for that.
Let's step back from the study itself and talk about the implications going forward. I know you and I have talked about this before, but could we take this approach, this removal of development incentives in high-risk areas, and expand it? Could we expand this program? Could we expand it to other types of risky areas? What do you personally think is feasible? What are some of the hurdles to doing this?
Penny Liao: Within the context of this program itself, yes, there are active efforts to try to add more land into the system. In fact, there are current legislative activities around a proposed set of lands getting added into it. We can also imagine that a similar policy approach could be applied to other disaster contexts. For example, in recent years, wildfire has become a pretty important issue, and we can potentially apply this approach to the wildland-urban interface to think about how to preempt risky development in those areas.
However, there, more research needs to be conducted, just to understand the risk and where development should be curbed. The spillover mechanisms could be quite different, as well. There’s no storm surge. So, I think very careful research and investigation needs to be carried out for thinking about adapting it to other contexts.
One thing I would really like to note is also that this approach aims at preempting development on undeveloped land. It might not work that well on land that is already developed and where people are already living. We don't want to take away resources and disaster assistance from them. That would create a lot of political pushback.
Margaret Walls: Another thing I would ask you about is … we mentioned it removed disaster aid, flood insurance, and infrastructure, and we aren't able to disentangle which of those things … if they are all equally important or not. In the wildfire context, we don't have this special insurance trigger to pull, right?
Penny Liao: That's absolutely right. One important research question, as an extension of this research, is, How much of this effect comes from removing infrastructure spending, and how much of it comes from removing incentives related to disasters? That is an open question, and future research should look into these questions.
Margaret Walls: I've heard people anecdotally say they feel that the infrastructure spending is the biggest deal of those, but I know it would be really good to conduct some research along those lines.
Penny Liao: And if it's infrastructure spending, what kind of infrastructure spending are we talking about, right? Also, if we are looking at post-disaster recovery efforts, do we want to think about how to strategically put a hold-back, or put infrastructure spending to rebuild to a higher standard, or something like that?
Margaret Walls: Yeah, because a lot of post-disaster aid is public aid to rebuild infrastructure. That's a good point.
I know you do work on property buyouts. Is there some connection between how we do buyout programs and thinking through a CBRS-like policy to combine those in some way when we're doing a buyout program? Do you have thoughts about that?
Penny Liao: Yes. These policies can be complementary in the sense that, if the government is committed to removing development incentives in a very disaster-prone area that they would not like to see further development on, they could potentially change the incentives for homeowners when they're deciding whether they want to stay on the ground or move away. That would change what kind of buyout offers that they're willing to take. So, there's some interaction in terms of incentives there. You can also think about just combining those two approaches in various ways. Those would be really interesting mechanisms to think through.
Margaret Walls: For our listeners, Penny has a really cool paper on buyouts in New York. I'll tell people to look at our website for the working paper on that.
Penny Liao: Oh, thank you.
Margaret Walls: All right, Penny, I think that we need to close our podcast with our regular feature we call Top of the Stack. You're familiar with this—I'm going to ask you to recommend something to our listeners, anything at all—a book, article, another podcast. What's caught your attention lately?
Penny Liao: As a matter of fact, I am currently reading a book called Making a Market for Acts of God: the Practice of Risk Trading in the Global Reinsurance Industry. This book is actually an ethnographic study of the global reinsurance market. The reason I'm interested in reinsurance is because reinsurance is basically the insurer for insurers.
So, when your primary insurer, your homeowners' insurer, takes a big loss one year from a hurricane or something, they can buy reinsurance, which will cover excess loss that they have and ensure that they're solvent. This is very related to climate change and climate-related natural disasters.
The authors are researchers. In this book, they follow practitioners in the industry across the world and observe how they make deals, how they structure them, how much they're going to charge, how prices are set, and how deals are made. That's really fun. That's really interesting.
Margaret Walls: Fair enough.
Penny Liao: Both the subject matter is interesting to me, as well as just the different approach that they take to observe the market, which is completely different from how we do things in economics. I think that that really complements how we think about these issues usually.
Margaret Walls: You mentioned that book to me before, and now I have the exact title. I'm going to be looking for it.
Penny Liao: That's right. It's been a really good read so far, so I would really recommend it.
Margaret Walls: People that are interested in these issues know that reinsurance is a complicated and interesting part of basically solutions to the problems of risk transfer, and so forth. We have to have reinsurance, but it's complicated.
Penny Liao: Yeah, absolutely. There are very active policy discussions on these issues right now.
Margaret Walls: That'll be the subject of another podcast.
Penny, it's been a pleasure having you on Resources Radio, talking about climate adaptation policies and the little-known but very important CBRA. I'm really glad we were able to feature this paper, and thanks so much for taking the time to come on the show.
Penny Liao: Of course. It's such a fun collaboration. We just really enjoyed doing this research.
Margaret Walls: We did, yes.
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