building_a_resilient_gulf_coast.pdf

7/27/2019 Building_a_Resilient_Gulf_Coast.pdf

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Summaryhttp://americaswetland.com

http://entergy.com/gulcoastadaptation

Over the past year, Entergy Corporation has worked to develop a ramework and act base to quantiyclimate risks in the U.S. Gul Coast and help inorm economically sensible approaches or addressingthis risk and building a resilient Gul Coast.

This project has been greatly strengthened and enriched by contributions rom many participants. Weespecially acknowledge support o Americas Energy Coast and Americas Wetlands Foundation. and

Swiss Re, which was a lead contributor to the research, and brought its natural catastrophe and climaterisk assessment knowledge to bear on the challenge o quantiying climate risks. The methodology used inthis study was previously devised and tested by a consortium o public and private partners, including SwissRe in a project on the Economics o Climate Adaptation (ECA). The methodology developed a rameworkor the acts or decision-makers to build a portolio o economically suitable adaptation measures.

The Gul Coast is vulnerable to growing environmental risks today with >$350 billion ocumulative expected losses by 2030

Economic losses will increase by 50-65 percent in the 2030 timerame driven byeconomic growth and subsidence, as well as the impacts o climate change: Wind andstorm surge damage rom hurricanes drives signicant losses in the Gul Coast today. While the

actual losses rom extreme storms are uncertain in any given year, on average, the Gul Coastaces annual losses o ~$14 billion today

Over the next 20 years, the Gul Coast could ace cumulative economic damages osome $350 billion: 7 percent o total capital investment or the Gul Coast area and 3 percent oannual GDP will go towards reconstruction activities. In the 2030 timerame, hurricane Katrina/Rita-type years o economic impact may become a once in every generation event as opposedto once every ~100 years today. The impact o severe hurricane in the near-term could also havea signicant impact on any growth and reinvestment trajectory in the region

Building a ResilientEnergy Gul Coast:Executive Report
http://entergy.com/gulfcoastadaptationhttp://entergy.com/gulfcoastadaptation


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Building a Resilient Energy Gul Coast: Executive Report

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There are key uncertainties involved in addressing this vulnerability including: (1) the impacto climate change; (2) cost and eectiveness o measures to adapt; and (3) the ability to gainalignment and overcome obstacles

There is a long-standing debate around the extent to which climate change will occur,how large the impacts will be and how soon they will be realized. However, this analysisindicates that irrespective o any impacts rom climate change, the Gul Coast will ace increasingloss rom subsidence and asset growth. Uncertainties in climate science are addressed byconsidering a range o scenarios, inormed by the best available science. Depending on thescenario annual losses in 2030 will increase by 30-60 per cent over current gures.

There are several adaptation measures that can reduce risk (e.g., improved constructioncodes, restoration o wetlands); however, there is uncertainty related to their economicbenets. While the costs related to actions are more certain, the benets (averted losses) aredicult to quantiy and are related to the occurrence and intensity o hurricanes and otherextreme weather events.

Actions involve a broad set o stakeholders that have conficting interests, dieringtimerames, and varying levels o eectiveness. Benets rom measures are thereoredicult to capture. For example, measures related to improved construction codes may requirenew policies to be put in place by local regulators, actions by individual home owners (who mayace barriers related to capital needs), and appropriate enorcement.

Driving a practical solution that takes Gul Coast resilience to the next level represents anoptimal solution to balance cost requirements with risks that impact o the Gul Coast

There are several key no regrets options or adaptation that have low investmentneeds, high reduction potential o expected losses (regardless o impact o climate change) andadditional strong benets (e.g., wetlands restoration). These investments will avoid mortgagingour uture with a heavy burden o ineective actions, which is o utmost importance or the GulCoast. In particular, investing approximately $50 bn over the next 20 years in measures withcost-to-benet ratio less 1 will lead to approximately $135 bn in averted loss over the lietime omeasures. Pursuing all potentially attractive actions may involve an investment o approximately$120 bn over the next 20 years, and may lead to $200 bn in averted loss over the lietime omeasures

There needs to be a ocus on adaptation to address near-term risks, and mitigation toaddress longer-term risks. In the near-term, signicant impacts rom climate change may belocked in, and will require strong action today (actions should begin with low-cost, no-regretsmeasures).

Policy makers can and must take a leadership role in driving a coordinated responseacross individuals and sectors. Policy makers can support and enorce a range o actionsto reduce the risks that individuals bear (e.g., through building codes, development decisions).

They can also unlock barriers to increasing the resilience o industry (e.g., electric utility and oiland gas sectors).


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Study supported and sponsored by Americas Energy Coast, Americas Wetlands Foundation, Entergy

Corporation

The analysis scope includes the overall Gul Energy Coast:

The objective o this work is to develop a consistent act base that quanties climate risks in the U.S. GulCoast and helps inorm economically sensible approaches or addressing this risk. It represents the rstcomprehensive analysis o climate risks and adaptation economics along the U.S. Gul Coast.

The scope o this analysis includes Coastal counties and parishes considering a strip o land up to 70miles inland across the shoreline, ranging rom southern Texas, to Coastal Mississippi and Alabama.Since this work is primarily ocused on areas o the Gul Coast where the energy is key to the economy(the Energy Gul Coast), Florida is excluded rom the analysis. The area o study includes 800 zip codesacross 77 counties and parishes, and covers a population o ~12 million people, and an annual GDP o~$630 MM (Exhibit 1).

The Gul Coast aces signicant risk rom climate hazards:

The Gul Coast aces signicant risks rom hurricanes that extensively damage assets and impact theeconomy. Hurricanes drive damage through extreme winds and storm surge or fooding. Over the lastcentury, hurricanes have caused signicant asset damage (~$2,700 billion, 2010 dollars) across Texas,Louisiana, Mississippi and Alabama1. In addition to the risk to the Gul Coast rom hurricanes (wind andstorm surge damage), impacts due to relative sea level rise are also assessed. Relative sea level risecan be driven by land subsidence and by climate change (rising sea levels) and can magniy storm surgeimpacts.

The magnitude o loss in the areas most at risk is calculated in three steps (Exhibit 2). The magnitude othe hazard, the value o assets at risk rom the hazard, and the vulnerability o those assets to the hazardare assessed in order to calculate the expected loss over time. To size risk, the methodology ollows theinsurance industrys natural catastrophe model approach, which is directly applicable to uture climate-sensitive risks.

1. Hazard assessment: Three key hazards are considered hurricanes, subsidence and sea levelrise. Future scenarios or hazards are developed in consultation with expert scientists in the eld. Forhurricanes, while there is uncertainty regarding their uture, there is broader agreement that warmer seasurace temperatures in the uture may lead to more severe hurricanes. Recent science helped inorm

Building a ResilientEnergy Gul Coast:Executive Report


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relationships o increase in wind speed per degree increase in Sea Surace Temperature (SST)2. Andthe Intergovernmental Panel on Climate Change (IPCC) General circulation models (GCMs) providedinormation on increase in SST3.

For sea level rise (SLR), recent science indicates that the IPCC ourth assessment estimates are tooconservative. SLR estimates used here are based on Rahmstor4. For subsidence, estimates arebased on subsidence maps or the Louisiana Gul Coast developed by NASA/JPL*.

To address uncertainty in climate change, three scenarios are developed in the 2030 and 2050timerames representing low, average and extreme climate change. In 2030 and 2050, low change

reers to climate as it is today (i.e., requency and severity o hurricanes are unchanged). While thereare signicant uncertainties in 2100, analyses o risk in this timerame are also perormed. In 2100,scenarios used were aligned with IPCC emission pathways - with the low scenario aligning with B1(green world); average scenario with A1 B; and high scenario with A2.

Modeling natural hazards requires a consideration o the probabilistic nature o events (i.e., consideringevent requencies and severities). Natural hazard modeling is done in collaboration with Swiss Re andleverages their probabilistic event set. This event set simulates hurricane activity over a period o

* National Aeronautics and Space Administration, Jet Propulsion Laboratory

US Gulf Coast region and counties in scope1

Counties 77

Area 61,685 sq. mi

GDP $634 B

Asset values by classKey areas examined within 70 miles of the coast

1,000

1,000-2,500

2,500-5,000

5,000-10,000

>10,000

2010 GDP ($M)

TXLA

MS AL GA

FL

TXLA

MS AL GA

FL

Basic metrics

Total 3,268

Oil & gasassets

591

Electric utilityassets

337

Non-energyindustrials

141

Agriculture/fisheries

6

Criticalinfrastructure 168

Commercial 890

Residential 1,135882

455

141

6

85

300

499

2,367

2030

2010

Replacement value by class

$ Billions, 2010 dollars

Population 11.7 million

Analysis scope includes 77 counties along the Gulf Coast,involving an asset value of over $2 trillion1

Source: ESRI; Energy Velocity

1 Includes 30 Louisiana parishes


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10,000 years on the basis o statistical data and the dynamic development o tropical cyclones thathave occurred in the North Atlantic over the past hundred years. This simulation produces cyclonetracks that may have never occurred in reality but may occur in the uture.

A comparison o simulated and historical climate data (or example, requency o various wind speeds)can test the validity o the articially generated event set. When producing an annual occurrence set,it must be ensured that the distribution o probabilistic cyclones into Sar-Simpson Intensity Scalecategories and the cyclones landall characteristics correspond to historical records and/or the lawso physics. The validated event set based on the latest scientic research gives a reliable picture oexposure to cyclones in the Gul Coast.

2. Economic value assessment: This step requires estimating the size and location o current and uture

assets o economic value. Because the impact o the hazard changes spatially, it is important to alsodistribute the value o assets. Note - we use assets here to mean the replacement value o physicalassets or the economic value o business interruption. However, a holistic assessment o the valueat risk rom climate change can additionally include second-order macro-economic impacts, humanlives, socioeconomic actors such as health, and ecosystem degradation in addition to physical assetvaluation. 23 asset classes are valued spatially across the Gul Coast (on a zip-code basis) or bothproperty and economic value. A current baseline or assets/economic value is developed, and thengrown to 2030 based on a range o industry and government sources5.

Scenario 2 Scenario 3Scenario 1

Modules Description Calculation Output

Hazard

module

Value

module

Vulnerability

module

Severity and frequency

of hazard for different

climate change scenarios

Value of assets,

Incomes, and

Human elements

Vulnerability curves for

different assets, incomes,

and human elements

based on hazard severity

for different climate

change scenarios

H VA VX X

H

VA

V

Expected loss per

climate change

scenario

We use 3 assessments to quantify expected losses fordifferent climate scenarios2


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The Gul Coast has over $2 trillion dollars in asset value today (Exhibit 1). Asset values are expectedto grow to over $3 trillion in the 2030 timerame. Residential and commercial assets are key sourceso value. Among industrial assets, oil and gas, and electric utility assets are key sources o value. Theanalysis includes a detailed and granular assessment o oil and gas and electric utility assets. Over50,000 oil and gas structures (including pipelines, oshore structures and wells), and over 500,000miles o electric transmission / distribution assets and ~300 generation acilities are modeled across theGul Coast.

3. Vulnerability assessment: Vulnerability curves relating value at risk to events o dierent severities arecreated in this assessment step. A vulnerability curve shows the correlation between hurricane severityand asset loss, where asset loss is presented as a proportion o total asset value. Event severities arespecied by dierent metrics (or example, height o storm surge, wind speed) and assessed in hazardassessment. The result o this step is a set o vulnerability curves that plot the percentage o value

damaged by hazards o dierent severity.

Categories o assets typically have dierent vulnerability curves (or example, residential property maylook quite dierent rom utility assets in its vulnerability to extreme winds). Similarly, within a single assetcategory, curves are highly sensitive to parameters such as construction codes or materials used.Given the availability o robust insurance data in the Gul Coast, these curves are tuned or the dierentasset categories.

The Gul Coast currently aces an annual expected loss o $ 14 billion; losses are expected toincrease going orward:

Based on an analysis o hazards, assets and vulnerabilities, the Gul Coast aces signicant losses today.On an average annual basis, current losses amount to $14 billion today. These losses are expected to

increase going orward to ~$18 billion (no climate change) to $23 billion per year (with extreme climatechange) in the 2030 timerame, based on the scenario. Losses may also increase urther in the 2050timerame, ranging rom ~$26 billion to $40 billion per year, based on the climate change scenario(Exhibit 3).

These losses also represent a signicant annual impact o ~2-3 percent on the regions GDP. Also,losses amount to ~7 percent o the regions capital investment implying that the region spends about~7% o its invested capital each year on rebuilding inrastructure rather than on capital investments thatcould be driving uture economic growth. The impact o a severe hurricane in the near-term could alsohave a signicant impact on the growth and re-investment trajectory in the region.

However, a key point is that regardless o climate change, the Gul Coast aces an increase in risks romnatural hazards going orward. Approximately hal the increase in loss aced by the Gul Coast is drivenentirely by economic growth (baseline growth in risky areas) and subsidence (not related to climatechange).

The risk prole o the region (the severity and requency o economic loss) is also expected to shit goingorward (Exhibit 4). Examining the requency distribution o loss highlights two key shits in the 2030timerame. First, extreme loss years may increase in magnitude. That is, damages rom a 100-year lossyear (e.g., 2005 with hurricanes Katrina and Rita) may increase by ~70 percent in the 2030 timerame.Second, more extreme loss years may occur more requently going orward. For example, extreme lossyears (like the Katrina/Rita year) may be 2.5 times as likely to occur in the 2030 timerame that is, suchloss years may occur at least once each lietime (1 in 40 years) rather than once every 100 years.


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Among economic sectors, the oil and gas industry and commercial/residential interests are particularlyvulnerable - together these sectors contribute a signicant share o annual expected loss (88 percento loss in the 2030 timerame). Among oil and gas assets, oshore assets are particularly vulnerable todamage.

Over the next 20 years, losses along the Gul Coast add up to a signicant amount ~$ 350 billion.To place this in context, this amount could be used to re-build the entire asset base in New Orleansapproximately six times over.

There are a number o potentially attractive measures that can prevent loss:

To address loss, a range o potential adaptation measures are identied that can reduce the impact ohurricanes. Identiying a ull range o measures provides a broad set o options to mitigate and preventrisk. Key actions considered ranged rom inrastructure- or asset-based, technology-based and systemicor behavior all r isk mitigation or prevention measures.

In addition to risk mitigation measures, there are also nancial measures including insurance instrumentsthat can be used to transer risk. These measures are particularly relevant to protect against lowrequency, but signicantly high-impact events.

Source: Swiss Re

2050

39.5

26.3

34.6

2030

23.4

18.8

21.5

2010

14.2

Climatescenarios

Annual average expected loss in 2010 and 2030$ Billions; 2010 dollars

Percent of areascapital investment1 7.6 6.8 6.4

Percent of GDP 2.7 2.4 2.3

1 No climate change; includes impact of subsidence2 Based on BEA historical average of capital investment (private and total government expenditures) as a percentage of GDP

Extreme climate scenario

Average climate scenario

No climate change

Extreme storms drive significant economicdamage with losses increasing going forward3

Average annuallosses can

increasesignificantly by2100 (to $131-211 M)


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The primary ocus is on assessing measures that are known and executable today, so uture innovationsin technology are not assessed. This choice has the benet o making the measures much more tangibleto decision-makers, but the results o the analysis must be considered rom the point-o-view thatuture developments (e.g., new building materials/methods that may be more hurricane resilient) canbe incorporated. Correspondingly, the analyses should be repeated periodically (recommend every veyears), to incorporate new innovations in adaptation.

The analysis then considers both the costs and benets o the measures in order to help prioritize actions.Costs o a measure capture lie cycle costs over time, including capital expenditures, operating expenditures,and operating expenditure savings. Costs are discounted over time to capture a present value cost.

Benets o measures are estimated in terms o averted loss. Similar to the cost calculations, benetso each measure are estimated over time, and the discounted present value o benets is used toestimate cost to benet ratios o measures.

In the near-term, potentially attractive measures can address almost all the increase in loss,and keep the risk prole o the region constant.

Expected loss is likely to increase going orward, rom $14 billion today, to $19 billion to $24 billion in2030 leading to an increase in loss o ~$5 billion to $10 billion (based on the climate change scenario).

Loss frequency curve for annual loss

$ Billions; 2010 dollars

0 50 100 150 200

50

300

250

200

150

100

0

2030, extreme climate scenario

2030, expected climate scenario

2030, base climate scenario

2010, todays scenario

Source: Swiss Re; Press searches

Return period(50 = 1/50 years)

A year like 2005, with

Katrina/Rita (1 / 100

year) may have a ~$200bn impact in 2030 (withno climate change)

Under extreme climate

change, such a year

may occur 2.5x more

often or once everylifetime (1/40 years)

Extreme event lossesmay exceed $200 bn

(>25% of GDP

in 2030)

The level of damage from a1/100 year event will occur

1/40 years under an extremeclimate scenario

1

2

1

2

The risk profile of the region will also shift going forward


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This work has identied a set o potentially attractive measures that can address almost all o thisincrease in loss going orward. There are measures that can address ~$7 billion per year in annualexpected loss in the 2030 timerame.

These measures include those with a cost to benet (C/B) ratio o less than 2 (Exhibit 5). The reason wehave chosen a C/B ratio o less than 2 (rather than 1) in order to identiy a potentially attractive set isthat several measures (e.g., wetlands protection or levees) have strong co-benets that are not capturedin the analysis (which ocuses primarily on averted loss). These co-benets include aspects such asbiodiversity protection, ecosystem services or second order economic eects (e.g., risk aversion thatencourages economic growth).

Assessing the potential loss aversion is particularly uncertain, even or measures or which extensiveresearch exists or example, or building codes to x roos against hurricane winds. On the cost side,

we have minimized uncertainties in the test cases by evaluating only measures already developed andtested. However, while we veried costs locally using bottom-up estimates, the cost gures or the testcases are just that estimates and incorporates a set o assumptions. Finally, these estimated costsare societal costs/benets. They do not consider taxes or other private actor costs, so the analysisdeveloped here cannot be used to determine individual economics.

Measures are compared on an overall cost curve (Exhibit 5). The width o each bar in a cost curverepresents the total potential o that measure to reduce expected loss up to 2030 or a given scenario.

The height o each bar represents the ratio between costs and benets or that measure.

0.17

2.5

5

32.58

10

0

9.59.08.58.04.0 7.57.06.56.05.55.00.5 3.53.0

Cost/benefit

4.5

1.66

0.34 0.44 0.640.69

0.69 0.80 1.26 1.64

6.765.192.703.31

15.15

3.82

6.18

0.44 2

10.01.0 10.51.5 11.02.00

1.791.95

15

35

2.30

0

2030 Loss averte$ bn

Resilience, new distribution

Incrementalincrease in lossunder averagechange $7.3 billion

Sandbags

Refineries levees

Roof cover,retrofits

Levees, petrochemicalplants, high risk

Roof wall, new builds

Beach nourishment

Higher designspecifications

for offshoreproduction

Disconnec-table FPSO

Replacesemisubs

w/ Drill Ships

Roof shape

Home elevation,new builds, high risk

Local levees, high risk

Roof wall, retrofits, high risk

Resilience, retrofit distribution, low risk

Wetlands restoration

Levees

Opening protection, new builds

Barrier island restoration

Roof wall, retrofits, low risk

Opening protection,retrofits

Home elevation,retrofits, low risk

Averageannualloss in2030 is$21.5 bn

A range of attractive measures can address the increase

in annual loss between today and 2030 and keep the riskprofile of the region constant5


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The assembled cost curve shows rom let to right the range o measures rom least to most cost-ecient. The results o the cost curve can be used to start discussions on the dierent measures andthe opportunity to avert expected losses.

There are a set o particularly low cost measures on the let hand side o the curve, that typicallyinclude low cost measures, such as new building codes or industries (e.g., resilience measures or newdistribution lines) or buildings (e.g., roo cover measures).

These measures translate to nine broad eorts to reduce risk across all sectors: residential/commercial,inrastructure/environmental, oil and gas and electric utility (Exhibit 6). On the whole, approximately $44 billion o public unding will be required over the next 20 years to und key inrastructure projects(including wetlands and levees). Some $76 billion in private unding will be required. However policymakers may need to support and incent some private capital investment e.g., by subsidizing homes inlow-income areas built to higher building codes

Ater these 9 eorts are put in place, there is still ~$14 billion in annual expected loss remaining inresidual risk. For tail-risk (extreme events), insurance or risk transer measures are more cost-ecientthan physical measures in providing coverage. Existing insurance penetration in the Gul Coast can helpcover approximately hal o the $14 bn in residual loss.

Residential/

commercial1 Improved building codes

Oil and gas

6 Floating productionsystems

7 Replacing semi-subs withdrill ships

8 Levees for refineries andpetrochemical plants

Infrastructure/

Environmental3 Wetlands restoration1

2 Beach nourishment

4 Levee systems1

Electric utility 9 Improving resilience ofelectric utility systems

1.7

0.3

0.4

0.1

1.4

0.7

0.5

1.1

1.3

7.5

Loss

averted, 2030

$ Billions

The governmentmay need to

support orincentivize someprivate capitalinvestment, e.g.,by subsidizinghomes in low-income areasbuilt to higherbuilding codes

1 Included despite high C/B ratios due to strong co-benefits, risk aversion2 Total capital investment, non-discounted, across 20 years

5 Improved standards foroffshore platforms

Total

Average C/B ratioX

0.7

1.3

1.6

0.7

0.5

3.3

0.7

3.8

0.9

CapEx

required2

$ BillionsPublic funding

Private funding

121

16

18

44 76

15

5

11

18

1

25

12

Measures can translate into broad near-term actions to protectour region that are cost effective and will help our economyand our environment

6


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There are our key risk transer actions that can help address residual loss that include: increasingpenetration o existing insurance (through more aordable premiums that are linked to physical measures);decreasing the prevalence o underinsurance (through incentives that encourage updating o insuredvalue o property); encouraging additional sel insurance; and transerring top-layer risk (e.g., throughcatastrophe bonds).

Implementing key measures will require broad engagement across the region:

Actions are dispersed and will involve a broad set o structures, activities and stakeholders. For example,some 230 miles o beach nourishment activities, 1,000 square miles o wetlands restoration, ~ 540,000miles o new, rebuilt or retrotted distribution lines will be required.

Actions will need to be taken by policy makers (ederal, state and local), electric utilities, the oil and gas

industry and inrastructure developers. There will be a strong need or leadership and coordinationacross stakeholders.

However, while signicant and broad engagement will be required across the Gul Coast, these actionsare also essential in order to place the region on a resilient path going orward. The alternative will beto give in to a spiral o increasing loss and greater economic and human impact.

Endnotes

1 Pielke et. al, Normalized Hurricane Damage in the United States: 1900-2005

2 An average relationship o wind speed to sea surace temperature across work by Emanuel, Knutson and Bengstonhelped develop average wind speed to sea surace temperature relationships (Emanuel (2005) Increasingdestructiveness o tropical cyclones over the past 30 years. Nature 436; Knutson and Tuleya (2004) Impact oCO2-induced warming on simulated hurricane intensity and precipitation: Sensitivity to the choice o climate modeland convective parameterization. J. Climate 17; Bengtsson et al (2007) How may tropical cyclones change in awarmer climate?, Tellus 59)

3 Results or GCM SSTs sourced rom Pro. Reto Knutti, ETH Zurich based on IPCC B1, A1B and A2 scenarios;

4 Vermeera and Rahmstor. Global sea level linked to global temperature. 2009.

5 Key sources include Federal Emergency Management Agency (FEMA), Bureau o Economic Analysis (BEA), Bureauo Ocean Energy Management, Regulation and Enorcement (BOEMRE), Energy Velocity, Handy-Whitman, Energy

Inormation Administration

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