Real Options Analysis of Strategies to Manage Coastal Hazard Risks: Southern Units J-L Technical Report
- Author
- Infometrics
- Year
- 2017
- Publisher / Organisation
- Hawke's Bay Regional Council
- Month
- November
- Pages
- 33
- Keywords
- hazard, strategy
- Summary
- The Hawke’s Bay Regional Council (HBRC), Napier City Council (NCC) and Hastings District Council (HDC) have convened a Technical Advisory Group (TAG) to develop strategies for adapting to coastal hazard risks caused by climate change. Infometrics was requested by the TAG to look at whether the use of Real Options Analysis (ROA) would provide worthwhile insight into the development of those strategies. ROA is an expanded version of cost-benefit analysis that assesses whether there is value in waiting for more information before an expensive and possibly irreversible investment is undertaken, and whether an alternative investment might suffice in the meantime. In the case of an increasing risk of coastal inundation for example, is it better for a community to retreat inland in the very near future (which is effective, but expensive), or is it better to construct some form of coastal defence that provides protection from most inundation scenarios for the next 20-30 years, and perhaps for much longer if the effects of climate change end up being less severe than anticipated? The ROA provides the councils with a costing assessment that enables decision making that can be flexibly implemented over time as the climate changes and as its impacts increase. This ensures that decisions taken today do not create further risks which are costly to reverse in the future, and that a range of options have been assessed for their ability to meet community objectives over time. The ROA complements Multi-Criteria Decision Analysis and the application of the Dynamic Adaptive Policy Pathways framework. Broadly, the results demonstrate that a flexible investment strategy, enabling a change of course in the future, is more likely to deliver a lower cost outcome than pursuing a single option. The main results for each unit are presented below.