Assessing real options in urban surface water flood risk management under climate change

Haixing Liu, Yuntao Wang (), Chi Zhang, Albert S. Chen and Guangtao Fu
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Haixing Liu: Dalian University of Technology
Yuntao Wang: Dalian University of Technology
Chi Zhang: Dalian University of Technology
Albert S. Chen: University of Exeter
Guangtao Fu: University of Exeter

Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, 2018, vol. 94, issue 1, No 1, 18 pages

Abstract: Abstract Developing an adaptation option is challenging for long-term engineering decisions due to uncertain future climatic conditions; this is especially true for urban flood risk management. This study develops a real options approach to assess adaptation options in urban surface water flood risk management under climate change. This approach is demonstrated using a case study of Waterloo in London, UK, in which three Sustainable Drainage System (SuDS) measures for surface water flood management, i.e., green roof, bio-retention and permeable pavement, are assessed. A trinomial tree model is used to represent the change in rainfall intensity over future horizons (2050 s and 2080 s) with the climate change data from UK Climate Projections 2009. A two-dimensional Cellular Automata-based model CADDIES is used to simulate surface water flooding. The results from the case study indicate that the real options approach is more cost-effective than the fixed adaptation approach. The benefit of real options adaptations is found to be higher with an increasing cost of SuDS measures compared to fixed adaptation. This study provides new evidence on the benefits of real options analysis in urban surface water flood risk management given the uncertainty associated with climate change.

Keywords: Real options; Flood risk; Climate change; Adaptation measures; NPV; SuDS (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11069-018-3349-1

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