Economic consequences of the HayWired scenario—digital and utility network linkages and resilience

Economic consequences of the HayWired scenario—digital and utility network linkages and resilience Sue Wing, Ian; Rose, Adam; Wei, Dan; Wein, Anne The HayWired scenario examines a hypothetical earthquake (mainshock) with a moment magnitude (Mw) of 7.0 occurring on April 18, 2018, at 4:18 p.m. on the Hayward Fault in the east bay part of California’s San Francisco Bay region. This study evaluates the economic impacts of the HayWired earthquake scenario on the greater San Francisco Bay region’s economy using a detailed multiregional static computable general equilibrium model for 6 months following the event and a simpler, multiregional intertemporal partial equilibrium simulation model for the dynamic recovery in the 17 years thereafter. Economic impacts are measured by the estimated reduction in the bay region’s gross regional product (GRP), the standard economic measure of the total value of final goods and services produced. The major hazards that cause property (buildings and contents) damages (or capital stock losses) are ground shaking, liquefaction, landslides, and fire following earthquake. Economic impacts in terms of GRP (or business interruption losses) caused by both capital stock losses and water and electricity utility and telecommunications-service disruptions from the HayWired earthquake sequence are estimated and are primarily caused by capital stock damages. The most vulnerable industry sectors are heavy manufacturing and service industries, such as education and healthcare. The hardest hit county (in absolute and relative terms) is Alameda County, followed by Santa Clara County. In the 6 months following the earthquake, total GRP losses are estimated to be $44.2 billion (4.2 percent of California’s projected baseline gross state product [GSP] over the period), but this result could be reduced by about 43 percent to $25.3 billion after factoring in microeconomic resilience tactics, which promote the efficient use of remaining resources. The most effective resilience tactic for businesses that experience property damages and power-service disruptions is production recapture (using overtime or extra shifts to catch up on lost production after necessary facilities and equipment have been repaired or replaced and power services have been restored). The most effective resilience tactic for water-service or data- and voice-service outages is production isolation (making greater use of processes that do not need these services). Production isolation combined with the use of portable equipment by telecommunication carriers to fast track data- and voice-service restoration can effectively reduce GRP losses below those imposed by power outages that are the greatest cause of data- and voice-service disruptions. Information and communications technology (ICT) sectors, which are the core of the digital economy, include internet publishing and broadcasting; telecommunications; data- processing, hosting, and related services; and other information services. GRP losses (in percent) in the ICT sectors show a strong correspondence with property damages, although internet publishing and broadcasting show a consistent pattern of GRP losses exceeding capital losses in counties less directly affected by the earthquake (San Mateo and San Francisco Counties) and counties that export 80 percent of these services (Marin, Solano, and Santa Cruz Counties). Internet publishing not only suffers direct economic damage but also suffers from smaller supplies of data-processing and telecommunications inputs, whose prices increase significantly. A simple, dynamic recovery model illustrates that initially, relative to “business as usual,” capital stocks in the largely unaffected remainder of the bay region and the rest of California decrease owing to reallocation of investment toward the most severely damaged counties. Eventually, counties with less damage gain from picking up the slack of lost capacity in the core of the damaged region and also provide valuable inputs to all affected counties by producing their goods and services during the recovery process.