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 nongovernmental 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: Plant riparian buffers: Plant 30m buffer of native vegetation along all stream-banks (1,291 ha). Plant floodplain vegetation: Plant native vegetation on 10% of cropland in catchment flood plain (total 1,631 ha). 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

Labour Capital 1

Plant Plant floodplain riparian buffers vegetation Monetised Costs x x x x

River dredging e river x x

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 Operating & maintenance Monitoring

x x x Monetised Benefits x x x x

Avoided damages - agriculture Avoided damages - livestock Avoided damages – housing Avoided damages – durable assets Avoided damages – indirect costs x Avoided damages – businesses x Provision of Non-timber forest x products Carbon sequestration x Non-monetised Benefits Soil erosion control x Maintenance of soil fertility x Biodiversity & habitat x Potential recreation values x Spiritual values x Source: Adapted from Brown et al. (2014)

x x x

x x

x x x x

x x x x

x x x

x x x

x

x

x x x x x

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): 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. Avoided damages – businesses: Difference between estimated damages accrued under adaptation options relative to a ‘doing nothing’ option for the average business in each catchment 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 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

Avoided damages – households Avoided damages - businesses Non-timber forest products Carbon sequestration

Severity of climate change

Current Moderate Severe Current Moderate Severe Current Moderate Severe Current Moderate Severe

Benefits from adaptation options (million of FJ$) Plant riparian Plant floodplain Dredge River buffers vegetation 443.3 370.7 889.4 447.5 373.5 906.4 455.6 379.2 938.9 221.6 222.4 593.0 223.8 224.1 604.3 227.8 227.5 626.0 295.5 444.8 0 298.4 448.2 0 303.8 455.0 0 517.2 444.8 0 522.1 448.2 0 531.6 455.0 0

Current Moderate Severe Source: Adapted from Brown et al. (2014) Total

1477.6 1491.8 1518.8

1482.6 1494.0 1516.6

1482.4 1510.7 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

Current Climate Change Riparian buffers

Total present value of benefits (FJ$ million)

Total present value of costs (FJ$ million)

Total NPV (FJ$ million)

1477.6

1465.0

12.6

Floodplain 1482.6 vegetation Dredging the river 1482.4 Source: Adapted from Brown et al. (2014)

1487.4

- 4.8

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 Total present value of benefits value of costs (FJ$ (FJ$ million) million) Current Climate Change Riparian buffers 1477.6 1465.0 Floodplain 1482.6 1487.4 vegetation Dredging the river 1482.4 1504.7 Source: Adapted from Brown et al. (2014)

Total NPV (FJ$ million)

Rank

12.6 - 4.8

1 -

- 22.3

-

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 Total present value of benefits value of costs (FJ$ (FJ$ million) million) Current Climate Change Riparian buffers 1477.6 1465.0 Floodplain 1482.6 1487.4 vegetation Dredging the river 1482.4 1504.7 Moderate Climate Change Riparian buffers 1491.8 1465.0 Floodplain 1494.0 1487.4 vegetation Dredging the river 1510.7 1504.7 Severe Climate Change Riparian buffers 1518.8 1465.0 Floodplain 1516.6 1487.4 vegetation Dredging the river 1564.8 1504.7 Source: Adapted from Brown et al. (2014)

Total NPV (FJ$ million)

Rank

12.6 - 4.8

1 -

- 22.3

-

26.8 6.6

1 2

6.0

3

53.8 28.2

2 3

60.1

1

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: Plant riparian buffers: Plant 30m buffer of native vegetation along all stream-banks (1,291 ha). Plant floodplain vegetation: Plant native vegetation on 10% of cropland in catchment flood plain (total 1,631 ha). 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

2

Plant riparian buffers

Plant floodplain vegetation

River dredging e river

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 Floodplain Planting Dredge River (Million FJ$) (Million FJ$) (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): 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. Avoided damages – businesses: Difference between estimated damages accrued under adaptation options relative to a ‘doing nothing’ option for the average business in each catchment

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 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

Avoided damages – households Avoided damages - businesses Non-timber forest products Carbon sequestration

Total

Severity of climate change

Current Moderate Severe Current Moderate Severe Current Moderate Severe Current Moderate Severe

Benefits from adaptation options (million of FJ$) Plant riparian Plant floodplain Dredge River buffers vegetation 443.3 370.7 889.4 447.5 373.5 906.4 455.6 379.2 938.9 221.6 222.4 593.0 223.8 224.1 604.3 227.8 227.5 626.0 295.5 444.8 0 298.4 448.2 0 303.8 455.0 0 517.2 444.8 0 522.1 448.2 0 531.6 455.0 0

Current Moderate Severe

Results and sensitivity analysis Considering the information that you have read, calculate the following (and fill the table below) NPV (Total benefits – Total costs) of each adaptation option under current climate change conditions. Rank from 1 to 3 the options according to their NPV, which one will be chosen? 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. 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) Current Climate Change Riparian buffers Floodplain vegetation Dredging the river Moderate Climate Change Riparian buffers Floodplain vegetation Dredging the river Severe Climate Change Riparian buffers Floodplain vegetation Dredging the river

Total present value of costs (FJ$ million)

Total NPV (FJ$ million)

Rank

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-indiaeconomicvaluation-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 Altamirano World Resources Institute January 2016 PICTURE: 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 nontechnical options) Source: USAID (2012) ; Picture: Kay Adams

USES ON PROJECTS CYCLE Start Situation analysis End Project evaluation Ex post CBA Project monitoring Mid term CBA

Problem analysis Identification of possible solutions/ options

What purpose would your CBA serve? Project implementation

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

Project design

Project feasibility Ex ante CBA

BENEFIT AND COSTS OF ADAPTATION (FLOODS)

Adaptation action

Costs

Benefits

Coastal revegetation

• • •

Space requirements Plants Maintenance 

•

• •

Compensation New housing/buildings Conflicts 

Coastal relocation

• Build sea walls

• • •

Materials and  equipment Labour Maintenance and  operation

• • • • •

Lost income from  businesses closures Losses to households Infrastructure  repairmen Provision of flood  relief subsidies and  services Health costs Education costs

BENEFIT AND COSTS OF ADAPTATION (FLOODS)

Adaptation action

Costs

Benefits

Coastal revegetation

• • •

Space requirements Plants Maintenance 

•

• •

Compensation New housing/buildings Conflicts 

Coastal relocation

• Build sea walls

• • •

Materials and  equipment Labour Maintenance and  operation

• • • • •

Lost income from  businesses closures Losses to households Infrastructure  repairmen Provision of flood  relief subsidies and  services Health costs Education costs

BENEFIT AND COSTS OF ADAPTATION (FLOODS)

Adaptation action

Costs

Benefits

Coastal revegetation

• • •

Space requirements Plants Maintenance 

•

• •

Compensation New housing/buildings Conflicts 

Coastal relocation

• Build sea walls

• • •

Materials and  equipment Labour Maintenance and  operation

• • • • •

Lost income from  businesses closures Losses to households Infrastructure  repairmen Provision of flood  relief subsidies and  services Health costs Education costs

BENEFIT AND COSTS OF ADAPTATION (FLOODS)

Adaptation action

Costs

Coastal revegetation

$ 4.5 million 

Coastal relocation

$ 10 million

Build sea walls

$ 8 million 

Note: Figures per year

Benefits $ 23 million

BENEFIT AND COSTS OF ADAPTATION (FLOODS)

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

Benefits

Coastal revegetation

(3x $ 4.5 million)/ 3.3

Coastal relocation

(3 x $ 10 million)/3.3

Build sea walls

(3 x $ 8 million)/3.3

Adaptation action

(3 x $ 23 million)/3.3

Net Benefits (present value)

Coastal revegetation

$ 28.3 million

Coastal relocation

$ 18.4 million

Build sea walls

$ 21.2 million

RISK AND CBA (UNCERTAINTY ANALYSIS) • 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? Picture: Kay Adams

NET PRESENT VALUE (SENSITIVITY ANALYSIS) Adaptation action

Costs

Benefits

Coastal revegetation

(3x $ 9 million)/ 3.2

Coastal relocation

(3 x $ 12 million)/3.2

Build sea walls

(3 x $ 9 million)/3.2

Adaptation action

(3 x $ 23 million)/3.2

Net Benefits (present value)

Coastal revegetation

$ 13.2 million

Coastal relocation

$ 10.4 million

Build sea walls

$ 13.2 million

QUESTIONS?

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