Regional economic assessment of Critical Infrastructure failure in the EU : a combined systems engineering and economic model

The European Programme on Critical Infrastructure Protection (EPCIP) of the European Commission is in search for a methodology to analyse economic consequences of critical infrastructure failure in the European Union. A combined Systems Engineering and Inoperability Input-Output model (SE-IIM) is developed to analyse the economic impact of such failure. In our application of this model, the economic losses as a result of the 2003 Italian power outage are analysed both, for the full system of economic industries and for a subsystem of 11 Critical Infrastructure (CI) industries. Economic losses are estimated on the national level and on the regional level (the north, center and south of Italy and for Sicily). Firstly, the systems engineering model analyses the performance degradation and recovery of the power system, as a result of failure and repair propagation. The behavior of the system is modeled by applying the conservation principles of the resources of the system. The conservation of the resource signifies that what enters the system should leave, is transformed into another quantity, or it accumulates in the system. Secondly, economic losses are estimated with the IIM using the information obtained in the SE model. Eurostat Input-Output data for Italy (of the industry-by-industry type) is used to analyse the effect of the initial perturbation (the outage) to the power infrastructure industry on its related CI industries in the four regions. The model is able to analyse how an initial perturbation impacting on one sector, propagates into the economic system due to the existence of economic interdependencies. Applying the IIM to the full system of 56 industries results in losses for the 11 CI industries of €81.79 million and €123.17 million for all industries together. Although the power outage lasted longest in the region Sicily, absolute economic losses are lowest in this region because of its relatively low economic output. The center of Italy suffered the highest economic losses. We conclude that the SE model is a simple tool of getting a rough picture of the phenomena that take place inside the considered system. The strength of the IIM is its holistic character: it can be applied to a complete system of industries, representing the economy of a region or country but one can also zoom in into a subsystem of industries to get a (rough) picture of the economic impact of a hazard on a set of industries.