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Cost Benefit Analysis tool is not a new tool but is in demand by adaptation planners. The World Resources Institute provides step-by-step guidance on how to use the tool. This document can be used with the Power Point presentation on this tool.

Cost Benefit Analysis

Background on Cost Benefit Analysis

The Pacific is highly vulnerable to extreme weather events. According to Brown et al. (2014a), climate

oriented disasters cause average annual direct losses of USFJ$284 million in the region, which are

amongst the highest per capita losses in the world. In Fiji, for example, solely in 2012, three natural

disasters – one 50-year flood, one 25-year flood, and one Category 4 cyclone – ravaged Viti Levu, Fiji's

largest island. Early estimates of damage equaled 4.3% of national GDP (Brown et al., 2014a).

Economic valuation (estimations of benefits and costs) of adaptation is relevant to address different

objectives, such as decisions on national sectoral policies or programs, or the appraisal and prioritization

of projects at subnational or local level (Watkiss et al., 2015). A common economic decision support tool

used in project appraisal is Cost Benefit Analysis (CBA). This method compares the monetized costs and

benefits of a proposal or range of options. For periodization purposes, a policy analyst using CBA would

select the best option amongst them – i.e. the one with the greatest benefits compared to costs. As long

as benefits exceed the costs, the policy change or option is justified and allows resources to be allocated

efficiently against other priorities (Watkiss et al., 2015).

The CBA eliminates risks associated with changing conditions on the elements affecting adaptation

projects such as future socioeconomic scenarios, climate conditions and its impacts. Under risk

conditions we can quantify random future outcomes – for instance through probabilities – and then risk

should be explicitly taken into account as much as possible. A way of including risk is through a

sensitivity analysis. Sensitivity analysis is a systematic method for examining how the outcome of a CBA

changes with variations in assumptions about project components that might change unexpectedly in

the future – such as a consequence of climate change.

This section explains to government officials, and representatives from the private sector and non-

governmental organizations with a technical or planning background the concept of cost benefit analysis

and how it can be used to prioritize adaptation projects.

5.4.2 Methodology

Cost-benefit analysis (CBA) is frequently used in government economic appraisal. It aims to value all

relevant costs and benefits of a proposed project/program to society, allowing comparison of costs and

benefits in a common metric – money (Watkiss et al., 2015). CBA compares options using net present

values (NPV), calculated as total discounted benefits minus total discounted costs, or benefit-cost ratios.

As it identifies whether benefits exceed the costs, it can justify intervention, and allows resources to be

allocated efficiently against other priorities, facilitating NPV ranking of options (Watkiss et al, 2015).

CBA differs from the traditional financial analysis in many ways (see Figure 1), which causes sometimes

confusion amongst analyst and decision makers. Probably the more noticeable between these two types

of analysis is that whereas financial analysis focus on profits or financial gains for a specific economic

agent (such as a firm) CBA focus on the overall societal impact – both in the environment and the

population.

Figure 1: Difference between financial and CBA

Source: P-CBA (2015).

CBA analysis is useful in different instances of decision making as it allow us to answer the following

questions (P-CBA, 2015):

– Is a project or activity worthwhile (to invest or not)?

– Which of these projects/activities should we choose?

– Which project will give us the best pay off per dollar invested?

– Which project will generate the highest value to society once we have paid for it?

Furthermore, in the context of project assessment it can help us to answer whether or not investing in a

project has been worthwhile; whereas the information generated can also inform how to

proceed/adjust project implementation (P-CBA-2015).

CBA can be used in different parts of a project cycle (see Figure 2). It can be used to assess project

feasibility at the first stages (Ex ante CBA), just after the adaption actions have been identified to see if

the project is worth to invest. It can be done more at the middle of the project cycle (Mid-term CBA),

either on the project implantation or project monitoring phases, to know how the project is performing

and if the planned benefits and costs have been occurred at the levels envisioned. Finally, at the end of

the project (Ex post CBA), to know the final tally or evaluation of the project and observe whether or not

the actual benefits along the project’s life were bigger than the costs. Figure 2: Role of CBA along the project cycle

Source: P-CBA (2015).

5.4.3 CBA AND ADAPTATION

In the application of CBA to climate adaptation, benefits are defined as the avoided damage costs of

climate change, whereas costs are related to the actual investments on implementing the adaptation

action. If benefits outweigh the costs of a given adaptation measure, there are net benefits and the

adaptation measure is economically efficient, meeting the principal criterion of CBA (Watkiss et al.,

2015). Applications exist for adaptation, see for instance AIACC (2006), that primarily use scenario-based

impact assessment to appraise measures, estimating baseline damage costs then applying CBA to

appraise responses under alternative climatic and socio-economic futures.

Although CBA is widely used, it has some limitations. For instance, it requires that all benefits and costs

are expressed in monetary terms, which is difficult to do particularly in non-market sectors (Watkiss et

al. 2015). As for its application to value adaptation actions, CBA faces important challenges as elements

such as capacity building and non-technical options are given lower priority or omitted because its

difficulty to quantify and value.

In the following subsections, we present the main steps to follow to perform a CBA focused in

adaptation options and how it can help to rank them.1 The steps are presented following an example of

Fiji’s single worst natural disaster since 1931, when a hurricane led to the highest recorded flood in the

Ba River catchment. History nearly repeated itself in 2009, when a severe monsoonal trough caused

significant damage, loss of life, and widespread flooding, particularly in Ba town. In January and March

2012, a flood of similar magnitude followed a tropical rain depression and severe rains with catastrophic

results.

Located in the north-western part of Viti Levu, Ba is the second largest province in Fiji by area and the

largest by population, with 231,762 residents. Sugar production, timber harvesting, and fishing are

important commercial activities, although the population is largely rural and generally poor (around 34%

poverty rate in Ba Province). 45,879 people are estimated to live within the boundaries of the

catchment, most of them in Ba Town and downstream, where flooding is a particular risk.

5.4.4 STEP 1: IDENTIFYING THE APPROPRIATE ADAPTATION OPTIONS

A cost benefit (CBA) study was conducted on disaster risk reduction (adaptation) measures for flooding

in the Ba River catchment in Viti Levu, Fiji. It identified the most economically effective adaptation

options for communities and households against flooding – we present only three as an illustrative

example. The analysis accounted for the biophysical and socioeconomic impacts of flooding, the costs,

benefits, and feasibility of management, and the potential impacts of climate change.

The study considered the costs and benefits of the adaptation options identified under three climate

change scenarios – current, moderate, and severe. For the purposes of the CBA it assumed a project life

of 100 years and net present values (NPV) are calculated using a standard discount rate of 8%. For this

particular exercise we consider only three options from the original study:

x Plant riparian buffers: Plant 30m buffer of native vegetation along all stream-banks (1,291 ha).

x Plant floodplain vegetation: Plant native vegetation on 10% of cropland in catchment flood plain

(total 1,631 ha).

x River dredging: Dredge lower portion of the Ba River (3,845,000 m3).

Once the adaptation options have bed identified, the analyst have to consider what elements associated

to their costs and benefits can be monetized or note. CBA will then only focus on those that can be

monetized. The following table provides an idea on this process.

Table 1: Identifying costs and benefits

Category Plant riparian buffers

Plant floodplain vegetation

River dredging e river

Monetised Costs Labour x x x

Capital x x x

1 This case study used as example is adapted from Brown, P., et al. (2014). ‘Evaluating Ecosystem-Based Adaptation for Disaster

Risk Reduction in Fiji’. Landcare Research-USP, Fiji. The figures are representative and does not reflect the original results of the

study.

Materials x x x

Operating & maintenance x x x

Monitoring x x

Monetised Benefits Avoided damages - agriculture x x x

Avoided damages - livestock x x x

Avoided damages – housing x x x

Avoided damages – durable

assets

x x x

Avoided damages – indirect costs x x x

Avoided damages – businesses x x x

Provision of Non-timber forest

products

x x x

Carbon sequestration x x x

Non-monetised Benefits Soil erosion control x x

Maintenance of soil fertility x x

Biodiversity & habitat x x

Potential recreation values x x

Spiritual values x x

Source: Adapted from Brown et al. (2014)

5.4.5 STEP 2: IDENTIFYING THE COST AND BENEFITS ASSOCIATED TO THOSE OPTIONS

The study identified the monetized costs can be categorized in capital, labor, materials, operating and

maintenance and monitoring. Furthermore, the study identified the following four categories of benefits

(avoided damages):

x Avoided damages – households: Difference between estimated damages accrued under

adaptation options relative to a ‘doing nothing’ option. Includes avoided damages for crops, livestock, housing, durable assets, and indirect costs.

x Avoided damages – businesses: Difference between estimated damages accrued under

adaptation options relative to a ‘doing nothing’ option for the average business in each

catchment

x Non-Timber forest products: Average household income obtained from the value of collecting,

using and/or selling non-timber forest products in one hectare of new forests, riparian buffers,

and floodplain vegetation

x Carbon sequestration: Value of carbon sequestered in native vegetation planted. Valued at

FJ$20 per ton carbon dioxide equivalent (FJ$ /tCO2e) based on average global market carbon

price

5.4.6 STEP 3: Valuing and discounting such costs and benefits

In the table 2, the estimated total discounted benefits (over 100 years) under three different severity of

damages from climate change are presented. The options produce different levels of benefits

corresponding to the severity of climate change. For instance, floodplain vegetation is more prone to be

affected by extreme weather events, whereas the river dredging tend to be less and thus can produce

higher benefits during such contingency.

Table 2: Valuing costs and benefits

Benefit Category Severity of climate change

Benefits from adaptation options (million of FJ$)

Plant riparian

buffers Plant floodplain

vegetation Dredge River

Avoided damages

– households

Current 443.3 370.7 889.4

Moderate 447.5 373.5 906.4

Severe 455.6 379.2 938.9

Avoided damages

- businesses

Current 221.6 222.4 593.0

Moderate 223.8 224.1 604.3

Severe 227.8 227.5 626.0

Non-timber

forest products

Current 295.5 444.8 0

Moderate 298.4 448.2 0

Severe 303.8 455.0 0

Carbon

sequestration

Current 517.2 444.8 0

Moderate 522.1 448.2 0

Severe 531.6 455.0 0

Total

Current 1477.6 1482.6 1482.4

Moderate 1491.8 1494.0 1510.7

Severe 1518.8 1516.6 1564.8


3.2.5 STEP 4: Comparing cost and benefits

Once the information of the monetized benefits and costs over the life of the project has been can

calculated, these can be compared to calculate the Net present value (NPV). This NPV is the difference

between total benefits and total costs of each adaptation option under current climate change

conditions discounted to the present day’s value. As presented in the third column of Table 3.

Table 3: Comparing cost and benefits

Total present value of benefits

(FJ$ million)

Total present value of costs (FJ$

million)

Total NPV (FJ$ million)

Current Climate Change

Riparian buffers 1477.6 1465.0 12.6

Floodplain

vegetation

1482.6 1487.4 - 4.8

Dredging the river 1482.4 1504.7 - 22.3


As we can observe both options 2 and 3 present a negative NPV, which means that their costs outweigh

the benefits. Therefore, it is not advisable to invest in these options. The only option worth investment

in this example is planting riparian buffers.

5.4.7 STEP 5: Ranking the adaptation options according to its Net Present Value (NPV)

The next step will be to rank the adaptation options according to their NPV, where the highest ranked

option (number 1) will be the one with the highest NPV. The rest of the options will follow the ranking in

descending order. For the particular example presented, there is only one option that can formally be

ranked (option 1 plant riparian buffers) because it is the only one that presented a positive NPV – see

Table 4.

Table 4: Ranking adaptation options Total present

value of benefits (FJ$ million)


million)


Rank


Riparian buffers 1477.6 1465.0 12.6 1 Floodplain

vegetation

1482.6 1487.4 - 4.8 -

Dredging the river 1482.4 1504.7 - 22.3 - Source: Adapted from Brown et al. (2014)

5.4.8 STEP 6: Sensitivity analysis

Sensitivity analysis examines how changes in the assumptions of an economic study affect its results.

These assumptions are made to best approximate the problem being studied. At the same time,

assumptions are typically subject to uncertainty and error. For example, climate change future

conditions may change. A properly designed sensitivity analysis can be powerful as it contributes to an

understanding of the relationships between the assumptions and the CBA results. An incorrectly

designed sensitivity analysis, however, can be used to support a flawed estimation and can lead to

wrong conclusions.

For the example, it is considered that the assumption of the future conditions of climate will change in

intensity. Changes are the assumed to be moderate and severe. The implication for our adaptation

options is that it effectiveness to protect against the impact of climate change will be different. For

instance we assume that as the effectiveness of the option changes so the benefits do see first column

of table 4. For sake of simplicity, it is assumed that costs are invariant to changes in climate conditions.

The new results for benefits are presented in table 4.

Table 5: Sensitivity analysis and re-ranking adaptation options Total present

value of benefits (FJ$ million)


million)


Rank



vegetation

1482.6 1487.4 - 4.8 -

Dredging the river 1482.4 1504.7 - 22.3 - Moderate Climate Change


vegetation

1494.0 1487.4 6.6 2

Dredging the river 1510.7 1504.7 6.0 3 Severe Climate Change


vegetation

1516.6 1487.4 28.2 3

Dredging the river 1564.8 1504.7 60.1 1 Source: Adapted from Brown et al. (2014)

From Table 4 it can be observed that under moderate and severe climate change conditions, all three

adaptation options present positive NPV. Hence, now they are susceptible to be ranked. Under

moderate climate change conditions planting riparian buffers is still the highest ranked option, followed

by planting floodplain vegetation and dredging the river. However, under severe climate conditions,

dredging the river becomes the highest ranked option, whereas riparian buffers and floodplain

vegetation are the second and third options respectively.

5.4.9 REFERENCES

AIACC (2006) Estimating and Comparing Costs and Benefits of Adaptation Projects: Case Studies in South

Africa and Gambia. Report on Assessments of Impacts and Adaptations to Climate Change, International

START Secretariat, Washington, D.C.

Brown, P., Daigneault, A., Gawith, D., Aalbersberg, W., Comley, J., Fong, P., and F. Morgan (2014).

‘Evaluating Ecosystem-Based Adaptation for Disaster Risk Reduction in Fiji’. Landcare Research-USP, Fiji.

P-CBA (2015). ‘The ABC of CBA’. Training Series Presentations, 08-10 April 2015, Fiji.

Watkiss, P., Hunt. A., Blyth, W., and J. Dyszynski (2015). ‘The use of new economic decision support tools for adaptation assessment: A review of methods and applications, towards guidance on applicability’. Climatic Change, 132: 401–416.

BREAK OUT GROUPS EXERCISE

Break out groups’ work (Day 3 CBA)2 Introduction

Fiji’s single worst natural disaster occurred in 1931, when a hurricane led to the highest recorded flood in the Ba River catchment. History nearly repeated itself in 2009, when a severe monsoonal trough

caused significant damage, loss of life, and widespread flooding, particularly in Ba town. In January and

March 2012, a flood of similar magnitude followed a tropical rain depression and severe rains with

catastrophic results.

Located in the north-western part of Viti Levu, Ba is the second largest province in Fiji by area and the

largest by population, with 231,762 residents. Sugar production, timber harvesting, and fishing are

important commercial activities, although the population is largely rural and generally poor (around 34%

poverty rate in Ba Province). 45,879 people are estimated to live within the boundaries of the

catchment, most of them in Ba Town and downstream, where flooding is a particular risk.

A cost benefit (CBA) study was conducted on disaster risk reduction (adaptation) measures for flooding

in the Ba River catchment in Viti Levu, Fiji. It identified the most economically effective adaptation

options for communities and households against flooding. The analysis accounted for the biophysical

and socioeconomic impacts of flooding, the costs, benefits, and feasibility of management, and the

potential impacts of climate change.

Adaptation options The study considered the costs and benefits of the adaptation options identified under three climate

change scenarios – current, moderate, and severe. For the purposes of the CBA it assumed a project life

of 100 years and net present values (NPV) are calculated using a standard discount rate of 8%. For this

particular exercise we consider only three options from the original study:

x Plant riparian buffers: Plant 30m buffer of native vegetation along all stream-banks (1,291 ha).

x Plant floodplain vegetation: Plant native vegetation on 10% of cropland in catchment flood plain

(total 1,631 ha).

x River dredging: Dredge lower portion of the Ba River (3,845,000 m3).

Identify costs and benefits

In the following table, identify (tick with a x) which category of monetised cost and benefits as well as

non-monetised benefits are applicable to each of the three adaptation options described above.

Category Plant riparian buffers

Plant floodplain vegetation

River dredging e river

2 This case study is adapted from Brown, P., et al. (2014). ‘Evaluating Ecosystem-Based Adaptation for Disaster Risk Reduction in

Fiji’. Landcare Research-USP, Fiji. The figures are representative and does not reflect the original results of the study.

Monetised Costs Labour

Capital

Materials

Operating & maintenance

Monitoring

Monetised Benefits Avoided damages - agriculture

Avoided damages - livestock

Avoided damages – housing

Avoided damages – durable

assets

Avoided damages – indirect costs

Avoided damages – businesses

Provision of Non-timber forest

products

Carbon sequestration

Non-monetised Benefits Soil erosion control

Maintenance of soil fertility

Biodiversity & habitat

Potential recreation values

Spiritual values

The study estimated the following discounted costs (over 100 years) for the three adaptation actions.

Cost Riparian Planting (Million FJ$)

Floodplain Planting (Million FJ$)

Dredge River (Million FJ$)

Capital 586.0 595.0 601.9

Labour 219.8 223.1 225.7

Materials 366.3 371.9 376.2

Operating and maintenance 146.5 148.7 150.5

Monitoring 146.5 148.7 150.5

Total

The study identified the following four categories of benefits (avoided damages):

x Avoided damages – households: Difference between estimated damages accrued under

adaptation options relative to a ‘doing nothing’ option. Includes avoided damages for crops,

livestock, housing, durable assets, and indirect costs.

x Avoided damages – businesses: Difference between estimated damages accrued under

adaptation options relative to a ‘doing nothing’ option for the average business in each

catchment

x Non-Timber forest products: Average household income obtained from the value of collecting,

using and/or selling non-timber forest products in one hectare of new forests, riparian buffers,

and floodplain vegetation

x Carbon sequestration: Value of carbon sequestered in native vegetation planted. Valued at

FJ$20 per tonne carbon dioxide equivalent (FJ$ /tCO2e) based on average global market carbon

price

In the following table, we present the estimated total discounted benefits (over 100 years) under three

different severity of damages from climate change. The options produce different levels of benefits

corresponding to the severity of climate change. For instance, floodplain vegetation is more prone to be

affected by extreme weather events, whereas the river dredging tend to be less and thus can produce

higher benefits during such contingency.

Benefit Category Severity of climate change

Benefits from adaptation options (million of FJ$)

Plant riparian

buffers Plant floodplain

vegetation Dredge River

Avoided damages

– households

Current 443.3 370.7 889.4

Moderate 447.5 373.5 906.4

Severe 455.6 379.2 938.9

Avoided damages

- businesses

Current 221.6 222.4 593.0

Moderate 223.8 224.1 604.3

Severe 227.8 227.5 626.0

Non-timber

forest products

Current 295.5 444.8 0

Moderate 298.4 448.2 0

Severe 303.8 455.0 0

Carbon

sequestration

Current 517.2 444.8 0

Moderate 522.1 448.2 0

Severe 531.6 455.0 0

Total

Current

Moderate

Severe

Results and sensitivity analysis

Considering the information that you have read, calculate the following (and fill the table below)

x NPV (Total benefits – Total costs) of each adaptation option under current climate change

conditions.

x Rank from 1 to 3 the options according to their NPV, which one will be chosen?

x Sensitivity analysis: calculate the NPV for each option now considering that climate change

impacts will be moderate and severe (fill the table with the results). Note: We assume that costs

are insensitive to climate change. Is it always the same option ranked as first? If not, discuss

why.

x Assume that you are a decision maker in charge of prioritizing and deciding in what adaptation

option the Government of Fiji will invest, how will you rank the options considering the severity

of climate change? Explain why.

Total present value of benefits

(FJ$ million)


million)


Rank


Riparian buffers Floodplain

vegetation

Dredging the river Moderate Climate Change


vegetation

Dredging the river Severe Climate Change


vegetation

Dredging the river

General References

Dinshaw, A and H McGray (2014) A Tailored View of Successful Adaptation to Climate Change. African

and Latin American Resilience to Climate Change Project. USAID.

Erin Gray and Arjuna Srinidhi. 2013. “Watershed Development in India: Economic valuation and adaptation considerations” Working Paper. Washington, DC: World Resources Institute. Available online at http://www. wri.org/publication/watershed-development-india-

economicvaluation-adaptation-considerations

Hammill A, and TM Tanner (2011) Harmonising climate risk management? Adaptation screening and

assessment tools for development co-operation. Working paper for the OECD Task Team on

Climate Change and Development Co-operation, May 2011.

McGray, H, A Hamill, and R. Bradley (2007) Weathering the Storm: Options for Framing Adaptation and

Development. Washington, D.C.: World Resources Institute.

Nilsson, M, A Jordan, J Turnpenny, J Hertin, B Nykvist and D Russel (2008), ‘The use and non-use of

policy appraisal tools in public policy making’ in Policy Sciences, 41 (4), 335‒355. Turnpenny JR, AJ Jordan, D Benson and T Rayner (2016) The Tools of Policy Formulation: An Introduction

in The Tools for Policy Formulation: Actors, Capacities, Venues, and Effects. AJ Jordan and JR

Turnpenny (eds). Elgar Online. Available from:

http://www.elgaronline.com/view/9781783477036.00011.xml

ECONOMIC METHODS TO PRIORITIZE OPTIONS:Cost-Benefit Analysis

Juan-Carlos AltamiranoWorld Resources Institute

January 2016PICTURE: ASIAN DEVELOPMENT BANK

WHAT IS COST-BENEFIT ANALYSIS?

CBA: Framework to assess the merits (gains and losses) of a project from the perspective of society (not a single individual or firm)

Picture: Kelvin Smith

CBA AND FINANCIAL ANALYSIS

Source: USAID (2012)

COST BENEFIT ANALYSIS USEFUL WHEN

• Decision making:– Is a project or activity worthwhile (invest or not)?– Which of these projects/activities should we choose?– Which project will give us the best pay off per dollar

invested?– Which project will generate the highest value to

society once we have paid for it?

• Project assessment:– Has investing in this project been worthwhile?

• Information generated can also inform how to proceed/adjust project implementation

Picture: Kay Adams

CBA AND ADAPTATION TO CLIMATE CHANGE

• Application of CBA to adaptation– benefits are defined as the avoided damage

costs of climate change; costs of implementing project

– If benefits outweigh the costs of a given adaptation measure, the measure is economically efficient

• These primarily use scenario-based impact assessment to appraise measures

Source: Watkiss et al. (2014) ; Picture: Kay Adams

WHEN CAN THIS METHOD BE USED?

• When you have climate scenarios at different resolutions and estimations of damages.

• Requirements (expertise, data, computational, financial): low-medium.

• Effectiveness: options face small-medium climate sensitivity

Source: USAID (2012) ; Picture: Kay Adams

STRENGTHS AND WEAKNESSES

• Strengths: – Direct analysis of economic benefits and

costs– Widely applied and well-studied.

• Weaknesses– requires all elements to be expressed in

monetary terms– Non-market sectors are difficult to valuate

(adaptation, capacity building and non-technical options)

Source: USAID (2012) ; Picture: Kay Adams

USES ON PROJECTS CYCLE

Source: USAID (2012) and adapted from Gamper and Turcanu (2007 )

Ex post CBA

Mid term CBA

Ex ante CBA

Identification of possible solutions/

options

Project feasibility

Projectimplementation

Project evaluation

Project design

Problem analysisSituation

analysis

Project monitoring

Start

End What purpose

would your CBA serve?

BENEFIT AND COSTS OF ADAPTATION (FLOODS)

Adaptation action Costs BenefitsCoastal revegetation • Space requirements

• Plants• Maintenance

• Lost income from businesses closures

• Losses to households• Infrastructure

repairmen• Provision of flood

relief subsidies and services

• Health costs• Education costs

Coastal relocation • Compensation• New

housing/buildings• Conflicts

Build sea walls • Materials and equipment

• Labour• Maintenance and

operation


Adaptation action Costs BenefitsCoastal revegetation $ 4.5 million

$ 23 millionCoastal relocation $ 10 millionBuild sea walls $ 8 million Note: Figures per year


Future value = Present Value x Compound factor [future value of my money]

Present value = future value/discount factor[present value of my future money]

NET PRESENT VALUE

Adaptation action Costs BenefitsCoastal revegetation (3x $ 4.5 million)/ 3.3

(3 x $ 23 million)/3.3Coastal relocation (3 x $ 10 million)/3.3Build sea walls (3 x $ 8 million)/3.3

Adaptation action Net Benefits (present value)Coastal revegetation $ 28.3 millionCoastal relocation $ 18.4 millionBuild sea walls $ 21.2 million

RISK AND CBA (UNCERTAINTY ANALYSIS)

Picture: Kay Adams

• Uncertainties arise from: – Predictions about the future– Data limitations– Limited understanding of the causal relationships

between natural environment, technology, and human behaviour

– Some costs and benefits are hard to value accurately

• If we use wrong parameters or assumptions, this may lead to erroneous or misleading results and conclusions.

• So, how can we account for uncertainty in CBA?

NET PRESENT VALUE (SENSITIVITY ANALYSIS)

Adaptation action Costs BenefitsCoastal revegetation (3x $ 9 million)/ 3.2

(3 x $ 23 million)/3.2Coastal relocation (3 x $ 12 million)/3.2Build sea walls (3 x $ 9 million)/3.2

Adaptation action Net Benefits (present value)Coastal revegetation $ 13.2 millionCoastal relocation $ 10.4 millionBuild sea walls $ 13.2 million

QUESTIONS?

PICTURE: ASIAN DEVELOPMENT BANK

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