Simplifying real options analysis for climate change adaptation
Supporting decision-makers to evaluate the economic benefit of climate adaptation infrastructure projects
New infrastructure needed in response to climate change impacts will require cost analysis suitable to the scale of the project. Real options analysis (ROA) is used to help decision-makers accelerate, delay or rescale investment, but it is not widely used due to its complexity and resource-intensive nature, which is unsuitable for small scale projects.
We need a tool that better suits small-to-medium sized climate adaptation projects funded by local authorities with few resources for in-depth economic analysis. This will be useful for roading projects, where almost half of all local council expenditure on road improvements was for projects with budgets of less than $1m.
As a result of this research, decision-makers will have a “first pass” filter, to identify which economic analysis would best suit the proposed project. This will help decision-makers allocate scarce analytical resources to the projects where they can add the most value.
Graeme GuthrieVictoria University of Wellington