Climate Change Policy: The Effect of Real Options Valuation on the Optimal Mitigation‐Adaptation Balance

Maybee, Bryan; Packey, Daniel J.; Ripple, Ronald D.

doi:10.1111/j.1759-3441.2011.00158.x

Cited by 11 publications

(19 citation statements)

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“…Generic difficulties with valuing climate change and disaster risk reduction strategies are well known (i.e. Maybee et al, 2012). For example desalination plants were constructed in a number of Australian cities towards the end of the Millennium Drought in the early 2000s in response to the extended drought conditions.…”

Section: Common Shortfalls When Valuing the Benefits And Costs Of Adamentioning

confidence: 99%

Pitfalls in developing coastal climate adaptation responses

Gibbs

2015

Climate Risk Management

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a b s t r a c tIncreasing awareness of the risks to coastal communities and infrastructure posed by sea level rise and possible climate-induced changes to the frequency and intensity of catchment flooding events have triggered a large number of studies that have assessed the risk, and developed a prioritisation of actions. These prioritised action recommendations are typically encapsulated in climate adaptation plans and pathways documents, risk reduction strategies, and climate action plans. These studies typically involve a vulnerability assessment task and an action prioritisation task, often performed in the same study. Most of the focus on research and method development over recent decades has been on the first task that aims to quantify the vulnerability of coastal communities and infrastructure. It is argued here that as a result of this emphasis on assessing vulnerability, at the cost of adequate consideration of response actions, along with the linear 'fix and forget' management approach to climate adaptation, has led to a lack of uptake in coastal climate adaptation studies and strategies. To this end the aim of the work presented here is to highlight common shortfalls in this fix and forget approach and in particular in the response prioritisation task. Ways that these shortfalls can be avoided, based on knowledge from decision theory, are presented. IntroductionOver the last two decades an increasing number of climate change risk and adaptation studies have investigated potential climate change-induced impacts to coastal settlements and infrastructure. This is presumably in response to the increasing global awareness of the potential impacts of climate change delivered either through acute and sporadic natural hazards (i.e. floods, wildfires), creeping or slow-moving changes to environmental conditions (i.e. extended droughts), or interactions between both (IPCC, 2013). In such interaction cases synoptic extreme events are exacerbated by slow moving changes to underlying conditions (for example increased rainfall intensity and coastal flooding during storms potentially exacerbated by a globally warmer atmosphere).Many of these studies have considered potential impacts to coastal areas where creeping sea level rise is expected to increase the risk profile for a number of coastal settlements (e.g. Appelquista and Balstrømb, 2014). These studies are being delivered by a variety of providers ranging from the academic and research community, to general and specialised environmental and engineering consultants. Furthermore, like any new discipline or service offering, a range of methodological approaches have been developed and applied. However to date there has been little comparison or consensus of approaches http://dx.

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Section: Common Shortfalls When Valuing the Benefits And Costs Of Adamentioning

confidence: 99%

Pitfalls in developing coastal climate adaptation responses

Gibbs

2015

Climate Risk Management

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“…Maybee et al . () investigated the economics of this question, and proposed a theoretical optimisation approach. In this work, the authors use the net marginal benefit (NMB) approach to identify the optimum balance between the mitigation and adaptation components of the strategy to be used in response to a changing climate.…”

Section: Introductionmentioning

confidence: 99%

“…To arrive at the static optimal mix of mitigation and adaptation activities ( i = m , a ) to be undertaken, Maybee et al . () set the NMB of the two components (mitigation and adaptation) to be equal, thereby maximising the total benefits that will be realised from the strategy to be implemented . The optimum combination solution for the mitigation and adaptation components of the climate change programme occurs, for non‐negative values, at the point where (assuming there is sufficient budget) the net MB for mitigation (NMB m ) is equal to the net MB for adaptation (NMB a ), or:

{NMB}_{m} = {NMB}_{a} .

This equality point maximises the total benefits accruing to both programmes, as shown in Figure .…”

Section: Introductionmentioning

confidence: 99%

“…As a result, Maybee et al . () extended their optimisation analysis to discuss the theoretical effects that using a real options valuation (ROV) would have on the optimal mixture of climate change mitigation and adaptation components used within an overall strategy. Extending upon that discussion, this study relaxes the known inputs assumption associated with the costs and benefits of mitigation, and adaptation programmes being known and certain, as was assumed in Maybee et al .…”

Section: Introductionmentioning

confidence: 99%

“…Extending upon that discussion, this study relaxes the known inputs assumption associated with the costs and benefits of mitigation, and adaptation programmes being known and certain, as was assumed in Maybee et al . (), to allow the presence of uncertainty, as introduced through Government‐created sources, to effect the static optimisation results directly, and then discuss what the outcome of combining these results with a ROV would be.…”

Section: Introductionmentioning

confidence: 99%

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The Effect of the Inclusion of Uncertainty on the Optimal Allocation of Resources to Climate Change Mitigation and Adaptation Programmes

Maybee

Packey

2014

J of App Econs and Policy

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How to deal with our changing climate is one of the most controversial topics facing modern society. The two most prevalent choices are to mitigate the effects through global programmes, or adapt to the changes at the local level. While both have positive and negative traits, the reality is that a combination of the two strategies is required. This is the second study in a series investigating the mitigation–adaptation balance from an economic perspective. Using an expected value approach, this study discusses the theoretical sources and impact of uncertainty associated with implementing a mitigation or adaptation programme on the strategic optimisation.

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The complementarity and comparability of climate change adaptation and mitigation

Watkiss

Benzie

Klein

2015

WIREs Climate Change

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Both mitigation and adaptation can reduce the risks of climate change. This study reviews the complementarity and comparability between the two, looking first at the global level and then at the national‐to‐local domain. At the global level, the review finds differing definitions and viewpoints exist in the literature. Much of the economic literature reports that global mitigation and adaptation are substitutes (in economic terms). In contrast, the scientific literature considers them to be complementary (in policy terms), as they address different risks that vary temporally and spatially. The degree of complementarity and comparability therefore depends on the perspective taken, although there is a policy space where the two can overlap. However, the governance, institutional, and policy‐based literature identifies that even if a global mitigation and adaptation mix could be defined, it would be highly contentious and extremely difficult to deliver in practice. The review then considers the complementarity and comparability of mitigation and adaptation at the national‐to‐local domain, in national policy and at sector level. The review finds there is greater potential for complementarity at this scale, although possible conflicts can also exist. However, the institutional, governance, and policy literature identifies a number of barriers to practical implementation, and as a result, complementary mitigation and adaptation action is unlikely to happen autonomously. Finally, the lessons from the review are drawn together to highlight policy relevant issues and identify research gaps. WIREs Clim Change 2015, 6:541–557. doi: 10.1002/wcc.368 This article is categorized under: Integrated Assessment of Climate Change > Methods of Integrated Assessment of Climate Change The Carbon Economy and Climate Mitigation > Benefits of Mitigation Climate and Development > Sustainability and Human Well‐Being

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Climate Change Policy: The Effect of Real Options Valuation on the Optimal Mitigation‐Adaptation Balance

Cited by 11 publications

References 5 publications

Pitfalls in developing coastal climate adaptation responses

Pitfalls in developing coastal climate adaptation responses

The Effect of the Inclusion of Uncertainty on the Optimal Allocation of Resources to Climate Change Mitigation and Adaptation Programmes

The complementarity and comparability of climate change adaptation and mitigation

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