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Blizzards will hit Heathrow again: How to prepare?

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Alastair Grant / AP

(Read caption) Planes taxi around the southern runway of London's Heathrow Airport, Dec. 22. Disruption continues after heavy snowstorms led to the cancellation of several flights. As climate change increases the odds of massive snowstorms and heat waves, smart planners will invest in planning for the worst.

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A rare major snowstorm in Europe has crippled airports as major airports such as Heathrow were caught unprepared for a major storm. Stranded customers are angry and wondering why the airport didn’t have a contingency plan (or snow trucks) to handle serious snow.

In the Summer of 2010, a major heat wave hit Moscow. The city was caught unprepared for a major heat wave. Moscow residents were angry and wondered why the city and themselves didn’t have a contingency plan for how to handle the heat in the same way that people in Phoenix do. Do you see the similarities between these two paragraphs?

The core logic of my book Climatopolis is: “fool me once shame on you, fool me twice shame on me”. In the 1960s and 1970s, academic nerd economists debated whether people have myopic expectations (tomorrow will be like today), or rational expectations (our best guess of tomorrow’s weather equals the true average but we do make forecast errors). Climate change adaptation pushes this issue to forefront again.

Climate change will increase the volatility of weather events. There will be more snowy days and more hot days. How does this increased risk affect investment today? Consider the basic microeconomics logic of the Heathrow airport. In 2010, assume that the firm who operates the airport believes that there is a 1 in 10000 chance of a major snowstorm. Suppose that plowing equipment costs $1 million dollars to buy and operate. Assume that the damage to the reputation of the airport due to customer anger from delays equals $1 billion dollars when a snow event occurs and the airport isn’t ready to handle it. Will the rational cost minimizing airport prepare?

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