Evaluation of flexibility in adaptation projects for climate change
Evaluation of flexibility in adaptation projects for climate change
Climate change adaptation inherently entails investment decision-making under the high levels of uncertainty. To address this issue, a single fixed large investment can be divided into two or more sequential investments. This reduces the initial investment cost and adds flexibility about the size and timing of subsequent investment decisions. This flexibility enables future investment decisions to be made when further information about the magnitude of climate change becomes available. This paper presents a real option analysis framework to evaluate adaptations including flexibility to reduce both the risk and uncertainty of climate change, against increasing coastal flooding due to sea-level rise as an example. The paper considers (i) how to design the sequence of adaptation options under growing risk of sea-level rise, and (ii) how to make the efficient use of flexibility included in adaptations for addressing uncertainty. A set of flexibilities (i.e. wait or future growth) are incorporated into single-stage investments (i.e. raising coastal defence from 2.5 mAOD to 3.5mAOD or 4.0 mAOD) in stages so that multiple-stage adaptations with different heights are created. The proposed method compares these sequentially growing adaptations in economic terms, including optimisation, providing additional information on the efficiency of flexible adaptation strategies given the uncertainty of climate change. The results from the evaluation enable decision-makers to identify long-lasting robust adaptation against the uncertainty of climate change.
Coastal adaptations, Flexibility, Multiple-stage adaptation, Real options, Sea-level rise, Uncertainty
Kim, Myung-jin
b72ee217-5634-478b-b102-8a264f8d37bf
Nicholls, Robert J.
4ce1e355-cc5d-4702-8124-820932c57076
Preston, John M.
ef81c42e-c896-4768-92d1-052662037f0b
De Almeida, Gustavo A.
f6edffc1-7bb3-443f-8829-e471b6514a7e
22 March 2022
Kim, Myung-jin
b72ee217-5634-478b-b102-8a264f8d37bf
Nicholls, Robert J.
4ce1e355-cc5d-4702-8124-820932c57076
Preston, John M.
ef81c42e-c896-4768-92d1-052662037f0b
De Almeida, Gustavo A.
f6edffc1-7bb3-443f-8829-e471b6514a7e
Kim, Myung-jin, Nicholls, Robert J., Preston, John M. and De Almeida, Gustavo A.
(2022)
Evaluation of flexibility in adaptation projects for climate change.
Climatic Change, 171 (1-2), [15].
(doi:10.1007/s10584-022-03331-0).
Abstract
Climate change adaptation inherently entails investment decision-making under the high levels of uncertainty. To address this issue, a single fixed large investment can be divided into two or more sequential investments. This reduces the initial investment cost and adds flexibility about the size and timing of subsequent investment decisions. This flexibility enables future investment decisions to be made when further information about the magnitude of climate change becomes available. This paper presents a real option analysis framework to evaluate adaptations including flexibility to reduce both the risk and uncertainty of climate change, against increasing coastal flooding due to sea-level rise as an example. The paper considers (i) how to design the sequence of adaptation options under growing risk of sea-level rise, and (ii) how to make the efficient use of flexibility included in adaptations for addressing uncertainty. A set of flexibilities (i.e. wait or future growth) are incorporated into single-stage investments (i.e. raising coastal defence from 2.5 mAOD to 3.5mAOD or 4.0 mAOD) in stages so that multiple-stage adaptations with different heights are created. The proposed method compares these sequentially growing adaptations in economic terms, including optimisation, providing additional information on the efficiency of flexible adaptation strategies given the uncertainty of climate change. The results from the evaluation enable decision-makers to identify long-lasting robust adaptation against the uncertainty of climate change.
Text
Main_text of M. Kim et al.(ver 1.2)
- Accepted Manuscript
More information
Accepted/In Press date: 5 March 2022
Published date: 22 March 2022
Keywords:
Coastal adaptations, Flexibility, Multiple-stage adaptation, Real options, Sea-level rise, Uncertainty
Identifiers
Local EPrints ID: 456270
URI: http://eprints.soton.ac.uk/id/eprint/456270
ISSN: 0165-0009
PURE UUID: 83a05232-6263-40b7-93e1-af7127c25cda
Catalogue record
Date deposited: 27 Apr 2022 00:58
Last modified: 17 Mar 2024 03:34
Export record
Altmetrics
Contributors
Author:
Myung-jin Kim
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics
