Climate change uncertainty: building flexibility into water and flood risk infrastructure (original) (raw)
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Journal of Flood Risk Management, 2014
This paper provides practical experience with two climate impact and adaptation assessment methods: Real-In-Options (RIO) optimisation and Adaptation Tipping Points (ATP). These methods were selected because they both provide insight into and promote the ability of the system to deal with future change and thus can be used within a resilience approach. The resilience approach takes a dynamic perspective on adaptive processes and the effects of these processes at/across different spatio-temporal scales. Although the two methods share a similar aim, they have considerable differences in orientation and application. RIO optimisation aims to minimise the expected costs of acquiring climate change resilience. To achieve this aim, it uses probabilistic climate data to identify the optimal set of adaptive strategies in response to advances in knowledge about future climate change. The ATP method is virtually independent of climate change scenarios, and in particular of probabilities of climate change. Rather, it requires input from decision makers and other stakeholders to select the preferred adaptive strategy. This paper discusses the concept, procedures, case examples and benefits/limitations of each method, examining its usefulness for informing adaptation-related decision making. Based on this, it gives specific recommendations on which method to use under what circumstances. bs_bs_banner J Flood Risk Management •• (2013) ••-••
Planning Flood Risk Infrastructure Development under Climate Change Uncertainty
Procedia Engineering, 2016
Policymakers and engineers today are faced with a difficult task of planning for large scale infrastructure that can cater to the climatic and socioeconomic changes that the future will bring. As the performance of these large infrastructure systems is sensitive to uncertain climatic parameters, it becomes difficult to "lock-in" a particular capital intensive and rigid infrastructure system as the best solution to tackle climate change. To address this problem, a new approach based on adaptation pathways and adaptive policy making approach is increasingly gaining traction. It enables decision makers and engineers to address unforeseen uncertainties by adapting the system consistently to new futures as they unfold. Albeit this approach provides an overview of the different available options, it does not help to choose the best pathway that should be followed in current time to deal with uncertainty. This study extends this approach; by identifying the preferred pathway that should be selected from the range of possible developed pathways. The methodology employed also highlights the benefits of using Real Options Assessment as a valuation tool capable of quantifying the value of flexibility that new design concepts instil in infrastructure systems.
Two frameworks are presented that can be used to account for climate change uncertainty in investment decision making related to urban drainage and flooding systems, either cause-based or effect-based. In the former, Real-In-Options (RIO) is proposed as an approach to identify the optimal set of adaptive strategies in response to advances in knowledge about future climate change. Other approaches align with the effect-based framework. A relatively simple approach to implementing this framework is to use Adaptation Tipping Points (ATPs), which have been defined as the points where the magnitude of climate change is such that the current strategy can no longer meet the pre-set objectives. Responses for this approach aim to extend the location and timing of these ATPs to some acceptable future point. This paper compares the RIO approach with the ATP approach. The emphasis is on the procedural steps, benefits and limitations. The paper concludes with a summary of the key characteristics...
With concerns regarding global climate change increasing, recent studies on adapting to nonstationary climate change recommended a different planning strategy that could spread risks. Uncertainty in global climate change should be considered in any decision-making processes for flood mitigation strategies, especially in areas within a monsoon climate regime. This study applied a novel planning method called real option analysis (ROA) to an important water resources planning practice in Korea. The proposed method can easily be applied to other watersheds that are threatened by flood risk under climate change. ROA offers flexibility for decisionmakers to reflect uncertainty at every stage during the project planning period. We successfully implemented ROA using a binomial tree model, including two real options-delay and abandon-to evaluate flood mitigation alternatives for the Yeongsan River Basin in Korea. The priority ranking of the four alternatives between the traditional discount cash flow (DCF) and ROA remained the same; however, two alternatives that were assessed as economically infeasible using DCF, were economically feasible using ROA. The binomial decision trees generated in this study are expected to be informative for decision-makers to conceptualize their adaptive planning procedure.
The use of real options in optimum flood risk management decision making
2010
Making decisions regarding the most appropriate long term flood risk related intervention investments is complex. The complexity of the decisions primarily relates to the evolving nature of flood risk, with particular regard to global climate change but also future socio economic development scenarios. Methods are required that are capable of analysing intervention options in a rational manner, taking account of future uncertainties. Real Options is a recognised approach for facilitating adaptive strategies. It enables the value of flexibility to be explicitly included within the decision making process. In the context of flood risk management, where climate change is influential but uncertain, Real Options offers a practical yet powerful approach that can be used to assist decision makers. A computational framework is under development which will have the capability to assess the most appropriate set of interventions to make in a flood system and the opportune time to make these interventions, given the future uncertainties. This framework captures the concepts of real options to evaluate potential flood risk management opportunities across a range of future climate change and socio economic scenarios. Preliminary aspects of the framework have been applied to a small section of the Thames Estuary, and initial results show that the method allows suitable inclusion and evaluation of different flood defence options previously deemed uneconomical.
Water Resources Research, 2018
Planning water supply infrastructure includes identifying interventions that cost-effectively secure an acceptably reliable water supply. Climate change is a source of uncertainty for water supply developments as its impact on source yields is uncertain. Adaptability to changing future conditions is increasingly viewed as a valuable design principle of strategic water planning. Because present decisions impact a system's ability to adapt to future needs, flexibility in activating, delaying, and replacing engineering projects should be considered in least-cost water supply intervention scheduling. This is a principle of Real Options Analysis, which this paper applies to least-cost capacity expansion scheduling via multistage stochastic mathematical programming. We apply the proposed model to a real-world utility with many investment decision stages using a generalized scenario tree construction algorithm to efficiently approximate the probabilistic uncertainty. To evaluate the implementation of Real Options Analysis, the use of two metrics is proposed: the value of the stochastic solution and the expected value of perfect information that quantify the value of adopting adaptive and flexible plans, respectively. An application to London's water system demonstrates the generalized approach. The investment decisions results are a mixture of long-term and contingency schemes that are optimally chosen considering different futures. The value of the stochastic solution shows that by considering uncertainty, adaptive investment decisions avoid £100 million net present value (NPV) cost, 15% of the total NPV. The expected value of perfect information demonstrates that optimal delay and early decisions have £50 million NPV, 6% of total NPV. Sensitivity of results to the characteristics of the scenario tree and uncertainty set is assessed.
Learning about climate change uncertainty enables flexible water infrastructure planning
Nature Communications, 2019
Water resources planning requires decision-making about infrastructure development under uncertainty in future regional climate conditions. However, uncertainty in climate change projections will evolve over the 100-year lifetime of a dam as new climate observations become available. Flexible strategies in which infrastructure is proactively designed to be changed in the future have the potential to meet water supply needs without expensive overbuilding. Evaluating tradeoffs between flexible and traditional static planning approaches requires extension of current paradigms for planning under climate change uncertainty which do not assess opportunities to reduce uncertainty in the future. We develop a new planning framework that assesses the potential to learn about regional climate change over time and therefore evaluates the appropriateness of flexible approaches today. We demonstrate it on a reservoir planning problem in Mombasa, Kenya. This approach identifies opportunities to reliably use incremental approaches, enabling adaptation investments to reach more vulnerable communities with fewer resources.
Using real options analysis to evaluate the impacts of climate change on water security
In this paper the applicability of using Real Options Analysis to understand and measure the impacts of strategies deployed to counter the effects of climate change in a river catchment, are explored. The advantages of Real Options Analysis over the traditional discounted cash flow approaches are detailed. In addition, two limitations of the approach (the problems associated with assessing the very long time periods involved in climate change and the lack of estimated probabilities with which to assess various options) are identified. In terms of assessing the long term impacts of climate change, it is suggested that the analysis should be split into three manageable time horizons of 30 years each. While the results of doing this are not strictly comparable with the current ideas of a discounted cash flow, they are internally logically consistent with a Real Options Analysis and as a consequence should afford policy makers with the opportunity of comparing strategies. With respect to the problem of not having an objective measurement of the probabilities of climate events occurring, it is believed that incorporating the output of a dynamically downscaled global climate model into the yield function of the analysis may prove beneficial. Thus, any uncertainty is internalised and can be simulated directly on the outputs. The method outlined in this paper will be applied to evaluate water security in the Krishna Basin in India.
Incorporating real options into flood risk management decision making
2010
Effective flood risk management involves the quantification of flood risk and the implementation of cost effective, sustainable and environmentally and socially acceptable measures that reduce flood risk. Making decisions regarding the most appropriate long term intervention investments is complex. The complexity of the decisions primarily relates to the evolving nature of flood risk, with particular regard to global climate change but also future socio economic development scenarios. Methods are required that are capable of analysing intervention options in a rational manner, taking account of future uncertainties. Real Options is a recognised approach for facilitating adaptive strategies. It enables the value of flexibility to be explicitly included within the decision making process. In the context of flood risk management, where climate change is influential but uncertain, Real Options offers a practical yet powerful approach that can be used to assist decision makers. In order to provide sustainable management of flood risk over short, medium and long term timescales whilst adapting to and mitigating the effects of climate change a Real Options based decision framework is being developed. This framework enables the evaluation of the most appropriate set of flood risk management intervention measures and the most opportune time to make these interventions. Investment decisions are evaluated across a range of future uncertainties. The framework will enable the valuation of flexibility within the investment process, underpinning the concepts of real options and will employ an optimised decision framework to evaluate potential flood risk management opportunities. The framework has been applied to a small section of the Thames Estuary, and preliminary results show that the method allows suitable inclusion and evaluation of different flood defence options previously deemed uneconomical. Incorporating real options into flood risk management decision making Real Options, 15