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An assessment of the optimum timing of coastal flood adaptation given sea-level rise using real options analysis

An assessment of the optimum timing of coastal flood adaptation given sea-level rise using real options analysis
An assessment of the optimum timing of coastal flood adaptation given sea-level rise using real options analysis
There is large uncertainty about the changing magnitude and occurrence of coastal flood events with sea-level rise; which poses significant challenges to adaptation planning. Recent decision-making employs flexible options that can be modified/adjusted over time to address uncertainty. This research analyses a real option based method for assessing adaptation investment timing under coastal flooding and sea-level rise. This method recognises and values the flexibility of waiting as an additional adaptation option under an uncertain future, that is, the key question concerns when the option is best implemented? Real options are applied using a test-case in Lymington (UK), a floodprone coastal town. Our findings show that the option value (i.e., the net value of the overall benefit minus cost) grows with rising sea level to a maximum, which is the optimal time for the adaptation investment. The optimum investment time tends to occur at the same magnitude of sea-level rise (relative to 1990) across most sea-level rise scenarios for the same socio-economic scenario. Hence, monitoring sea-level rise provides important information to plan adaptation. The analysis provides an analytical framework on how and when to implement the adaptation option given the various future scenarios which can be developed further
1-17
Kim, Myungjin
2b3cf1b7-35b9-4f13-b5d3-b064b6c885f8
Nicholls, Robert
4ce1e355-cc5d-4702-8124-820932c57076
Preston, Jonathan
ef81c42e-c896-4768-92d1-052662037f0b
De Almeida, Gustavo
f6edffc1-7bb3-443f-8829-e471b6514a7e
Kim, Myungjin
2b3cf1b7-35b9-4f13-b5d3-b064b6c885f8
Nicholls, Robert
4ce1e355-cc5d-4702-8124-820932c57076
Preston, Jonathan
ef81c42e-c896-4768-92d1-052662037f0b
De Almeida, Gustavo
f6edffc1-7bb3-443f-8829-e471b6514a7e

Kim, Myungjin, Nicholls, Robert, Preston, Jonathan and De Almeida, Gustavo (2019) An assessment of the optimum timing of coastal flood adaptation given sea-level rise using real options analysis. Journal of Flood Risk Management, 12 (S2), 1-17, [e12494]. (doi:10.1111/jfr3.12494).

Record type: Article

Abstract

There is large uncertainty about the changing magnitude and occurrence of coastal flood events with sea-level rise; which poses significant challenges to adaptation planning. Recent decision-making employs flexible options that can be modified/adjusted over time to address uncertainty. This research analyses a real option based method for assessing adaptation investment timing under coastal flooding and sea-level rise. This method recognises and values the flexibility of waiting as an additional adaptation option under an uncertain future, that is, the key question concerns when the option is best implemented? Real options are applied using a test-case in Lymington (UK), a floodprone coastal town. Our findings show that the option value (i.e., the net value of the overall benefit minus cost) grows with rising sea level to a maximum, which is the optimal time for the adaptation investment. The optimum investment time tends to occur at the same magnitude of sea-level rise (relative to 1990) across most sea-level rise scenarios for the same socio-economic scenario. Hence, monitoring sea-level rise provides important information to plan adaptation. The analysis provides an analytical framework on how and when to implement the adaptation option given the various future scenarios which can be developed further

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Accepted/In Press date: 30 August 2018
e-pub ahead of print date: 25 September 2018
Published date: November 2019

Identifiers

Local EPrints ID: 425400
URI: http://eprints.soton.ac.uk/id/eprint/425400
PURE UUID: b7bd5158-f076-45de-93d7-48f503770243
ORCID for Robert Nicholls: ORCID iD orcid.org/0000-0002-9715-1109
ORCID for Jonathan Preston: ORCID iD orcid.org/0000-0002-6866-049X
ORCID for Gustavo De Almeida: ORCID iD orcid.org/0000-0002-3291-3985

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Date deposited: 17 Oct 2018 16:30
Last modified: 07 Oct 2020 07:00

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