1. NATIONAL RESEARCH COUNCIL Improved Seismic Monitoring- Improved Decision-making: Assessing the Value of Reduced Uncertainty Committee on the Economic Benefits of Improved Seismic Monitoring Committee on Seismology and Geodynamics Board on Earth Sciences and Resources Sponsor: U.S. Geological Survey

2. Committee on the Economic Benefits of Improved Seismic Monitoring Statement of Task An NRC ad hoc committee will provide advice regarding the economic benefits of improved seismic monitoring, with particular attention to the benefits that could derive from implementation of the Advanced National Seismic System (ANSS). In particular, the committee will: * Review the nature of losses caused by earthquakes. * Examine how improved information from seismic monitoring systems could reduce future losses in a cost-effective manner, taking into consideration the major impact-reduction approaches (for example, hazard assessment, building codes and practices, warning systems, rapid response, and insurance).

3. * Assess the capabilities for loss reduction provided by existing seismic monitoring networks, and identify how the ANSS and any other new monitoring systems would improve these capabilities. * Describe concepts and methods for assessing avoided costs (both direct and indirect) that would result from improved seismic monitoring. * To the extent possible, provide an estimate of the potential benefits that might be realized from full deployment of the ANSS.

4. Committee Membership Chris Poland, Chair, Degenkolb Engineers, San Francisco, CA James Ament, State Farm Fire and Casualty Co., Bloomington, IL David Brookshire, The University of New Mexico, Albuquerque James Goltz, California Governor's Office of Emergency Services, Pasadena Peter Gordon, University of Southern California, Los Angeles Stephanie King, Weidlinger Associates, Inc., Los Altos, CA Howard Kunreuther, The Wharton School, University of Pennsylvania, PA Stuart Nishenko, Pacific Gas and Electric Company, San Francisco, CA Adam Rose, The Pennsylvania State University, University Park Hope Seligson, ABS Consulting, Irvine, CA Paul Somerville, URS Group, Inc., Pasadena, CA Liaison from Committee on Seismology and Geodynamics: Terry Wallace, Los Alamos National Laboratory, NM

5. Meetings Washington, DC, - October 14-15, 2003 (presentations by USGS; NSF; OMB; OSTP; FEMA; NIST; House Science Cmte; IRIS; Rand; JOI) San Francisco, CA - December 15-16, 2003 (presentations by USGS; OMB; GSA; CA Dept. Conservation, Dept. Transportation, OES; PG&E; Consultant; SF City/County) St Louis, MO – January 19-20, 2004 (presentations by Univ. Memphis; Saint Louis Univ; Consultant) Washington, DC –March 8-9, 2004 (presentations by USGS; American Red Cross)

6. Bottom Line - Full deployment of the ANSS offers the potential to substantially reduce earthquake losses and their consequences by providing critical information for land-use planning, building design, insurance, warnings, and emergency preparedness and response. In the committee’s judgment, the potential benefits far exceed the costs—annualized buildings and building-related earthquake losses are estimated to be about $5.6 billion, whereas the annualized cost of the improved seismic monitoring is about $96 million, less than 2 percent of the estimated losses. It is reasonable to conclude that mitigation actions— based on improved information and the consequent reduction of uncertainty—would yield benefits amounting to several times the cost of improved seismic monitoring.

7. Reviewed Existing and Proposed Seismic Monitoring - Amalgamation of regional networks, dense urban networks, and USNSN ‘backbone’ stations into the ANSS. Noted the limited capabilities of many of the ageing stations. Considered the contribution of seismic monitoring capabilities proposed for EarthScope—noted the potential for serendipitous information as USArray is deployed across the nation; included the EarthScope USArray 40 ‘permanent array’ stations and the 175 PBO 3-component seismometers within “improved seismic monitoring” scope; noted that “…ANSS is quite distinct from—yet complementary to—the USArray effort. ”

8. Potential Losses from Earthquakes - Approximately 30% of the population and 50% of the national building stock are located in areas prone to damaging earthquakes; 33% of the building stock is in high or very high seismic risk states. Losses include direct physical damage, induced physical damage (e.g., fire, dam collapse, etc.), human impacts, costs of response and recovery, and business interruption and other economic losses Annualized building and building-related losses are estimated to be $5.6 billion. A single damaging earthquake could cause losses in excess of $100 billion (direct losses from 1994 Northridge earthquake $50-60 billion)

9. The Challenge - How to quantify those benefits that are quantifiable? How to appropriately give credit to those benefits that could not realistically be quantified but which nevertheless are valid economic benefits to the nation. Ultimately, the committee took the approach that the most useful contribution that it could make would be to compile and describe the broad range of potential benefits that could result from improved seismic monitoring.

10. Approach - Describe the contribution that information from seismic monitoring provides for decision-making. Describe the economic context for benefit calculation. Describe the benefits for improved earthquake hazard assessment and forecasting. Describe the benefits for improved loss estimation models. Describe the benefits for performance-based engineering. Describe the benefits for emergency response and recovery.

11. Economic Principles - Losses must be evaluated in terms of real resource costs and in terms of prices that reflect their competitive value. This excludes transfer payments, such as taxes, and may require adjustment in existing prices for various other distortions (e.g., monopoly pricing). Benefits are not limited to those activities with markets, but should also include non-market effects such as externalities (e.g., pollution) or the reduction in public goods (e.g., transportation services). Future benefits must be discounted to adjust for the “time value of money” (except perhaps in the case of the value of a human life).

12. Economic Principles (continued) - Flow measures of benefits, such as business interruption losses, should be evaluated over the time period during which individual businesses and the economy as a whole have not returned to the projected normal level of economic activity. Benefits should not be estimated in a context in which decision- makers are assumed to react passively or in a “business-as-usual” mode to an earthquake, but rather benefits should reflect inherent and adaptive resilience at the individual, market, and community levels (e.g., a significant proportion of lost production resulting from electricity outages can be “recaptured” by subsequent overtime work in most sectors).

14. Conclusion: …on an annual basis, the dollar costs for improved seismic monitoring are in the tens of millions and the potential dollar benefits are in the hundreds of millions.

15. Recommendation: The United States should rank arresting the future growth of seismic risk and reducing the nation’s current seismic risk as highly as other critical national programs that need persistent long-term attention, and it should make the necessary investment to achieve these goals.

16. Recommendation: The integration of HAZUS loss estimation capabilities and USGS earthquake hazard information should be continued to track the growth of seismic risk in the United States, thereby further reducing the uncertainty associated with seismic risk.

17. Recommendation: After every damaging earthquake within the United States, data gathering and applied research should be sponsored—as a collaborative activity among the National Earthquake Hazards Reduction Program (NEHRP) agencies—to document how seismic monitoring information reduced uncertainty and provided economic benefits in both the long and short term. Comprehensive reports should be published within one year after the event for short-term benefits, and within 10 years after the event for intermediate- and long-term benefits.

18. Bottom Line: Full deployment of the ANSS offers the potential to substantially reduce earthquake losses and their consequences by providing critical information for land-use planning, building design, insurance, warnings, and emergency preparedness and response. In the committee’s judgment, the potential benefits far exceed the costs—annualized buildings and building-related earthquake losses are estimated to be about $5.6 billion, whereas the annualized cost of the improved seismic monitoring is about $96 million, less than 2 percent of the estimated losses. It is reasonable to conclude that mitigation actions—based on improved information and the consequent reduction of uncertainty—would yield benefits amounting to several times the cost of improved seismic monitoring.

19. Additional Information Download the report at the National Academies Press website http://www.nap.edu/catalog/11327.html Contact David Feary dfeary@nas.edu