The cost of keeping back the seaNovember 20, 2012: 5:00 AM ET
As a new normal of extreme weather emerges, we must prepare for it. The question is: At what cost?
By Brian Dumaine, senior editor-at-large
FORTUNE -- It took a disaster on the scale of Hurricane Sandy to finally get some high-profile politicians talking about the impact of climate change. In the wake of a heavy death toll and an estimated $50 billion in damage from the storm surge, New York Governor Andrew Cuomo argued that the state must consider building a series of seawalls around New York City -- at a cost of at least $10 billion. In a recent editorial, Mayor Michael Bloomberg echoed what many climate scientists and experts have been saying for some time now: It's too late to reverse the negative consequences of global warming; the best we can do, as one leading hedge fund manager told me, is "get used to it."
MORE: Save the Seaport!
This means adaptation: redesign our ports, manage our coastlines, and construct our buildings and transportation systems to limit the damage caused by more frequent and more powerful storms. Cynthia Rosenzweig, a senior research scientist at NASA Goddard Institute for Space Studies who co-chairs an advisory board called the New York City Panel on Climate Change, says that something as simple as a storm drain could be engineered to minimize subway, rail, and sewage-treatment-plant flooding. After 9/11, Goldman Sachs (GS) designed its new headquarters in lower Manhattan with a set of powerful electrical generators on a floor high enough to be safe from the recent floodwaters. The Dutch, who know about living close to rising seas, are designing apartment towers that allow for massive water flow into, and out of, the structures.
Besides rethinking how we build, we have to rethink where we build. Federal flood insurance subsidizes home and business owners who rebuild after a storm, and that has cost U.S. taxpayers billions. By eliminating federal flood insurance, the private market will price policies more realistically (and thus higher), which would limit development along vulnerable coasts.
The most extreme remedy would be to construct sea gates to ward off storm surges. Many cities around the world, including London, Singapore, and Rotterdam, have such gates. New York City may well need to build its own, but they present many problems besides their high cost. For example, engineers usually design a structure to handle a one-in-100-year event. According to NASA's Rosenzweig, in New York City's Battery Park neighborhood an 8.6-foot flood height is designated as a one-in-100-year event. Superstorm Sandy reached 10.6 feet -- a one-in-500-year event. Also, erecting seawalls to protect Manhattan could simply divert the surge to other unprotected areas of the city, exacerbating flooding in those boroughs. And it's unclear what the environmental impact of such maritime structures would be on the region's fisheries and estuaries.
Adapting to the new normal will cost businesses and governments around the globe hundreds of billions, but that may be a bargain compared with the damage future Sandys and Katrinas cause. There is, however, a bright side: Business should be very good for those companies ready to rethink and rebuild our vulnerable infrastructure.
This story is from the December 3, 2012 issue of Fortune.