Notes on Applying Real Options to Climate Change Adaptation Measures, with examples from Vietnam
A factor common to all adaptation measures is the uncertainty that is the hallmark of climate change. The timing, intensity and location of climate change impacts is not known to any degree of precision. Because most deterministic analyses and policy prescriptions ignore this uncertainty, their recommendations are likely to waste community resources. Except by chance, adaptation measures will either be over-engineered, or they will be inadequate and result in harm. Applying real options thinking allows an incremental and flexible approach. Adaptation measures are implemented only as better knowledge becomes available over time. Several examples are given of real options in the Mekong Delta, with a comparison of net present values of two housing alternatives. It is essential to undertake net present value calculations when comparing different projects to ensure that the value of any options is weighed against other costs and benefits.
|Date of creation:||Nov 2010|
|Contact details of provider:|| Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 2601|
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: https://crawford.anu.edu.au/research_units/eerh/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anda, Jon & Golub, Alexander & Strukova, Elena, 2009. "Economics of climate change under uncertainty: Benefits of flexibility," Energy Policy, Elsevier, vol. 37(4), pages 1345-1355, April.
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
- Neil Ross Lambie, 2010.
"Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme,"
Australian Journal of Agricultural and Resource Economics,
Australian Agricultural and Resource Economics Society, vol. 54(2), pages 203-217, 04.
- Lambie, Neil Ross, 2010. "Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(2), June.
- Robert Repetto & Robert Easton, 2009. "Climate Change and Damage from Extreme Weather Events," Working Papers wp207, Political Economy Research Institute, University of Massachusetts at Amherst.
- Dobes, Leo, 2009. "Adapting More Cleverly To Climate Change By Using ‘Real Options’ To Address The Uncertainties," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 47615, Australian Agricultural and Resource Economics Society.
- Leo Dobes, 2008. "Getting Real about Adapting to Climate Change: Using ‘Real Options’ to Address the Uncertainties," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 15(3), pages 55-72.
- Viggo Nordvik & Kim Robert Lisø, 2004. "A primer on the building economics of climate change," Construction Management and Economics, Taylor & Francis Journals, vol. 22(7), pages 765-775. Full references (including those not matched with items on IDEAS)