IDEAS home Printed from https://ideas.repec.org/p/ags/eerhrr/107574.html
   My bibliography  Save this paper

Notes on Applying Real Options to Climate Change Adaptation Measures, with examples from Vietnam

Author

Listed:
  • Dobes, Leo

Abstract

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.

Suggested Citation

  • Dobes, Leo, 2010. "Notes on Applying Real Options to Climate Change Adaptation Measures, with examples from Vietnam," Research Reports 107574, Australian National University, Environmental Economics Research Hub.
    • Handle: RePEc:ags:eerhrr:107574
    DOI: 10.22004/ag.econ.107574
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/107574/files/EERH_RR75.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.107574?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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, April.
    7. 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.
    8. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Myung-Jin Kim & Robert J. Nicholls & John M. Preston & Gustavo A. Almeida, 2022. "Evaluation of flexibility in adaptation projects for climate change," Climatic Change, Springer, vol. 171(1), pages 1-17, March.
    2. Dobes Leo & Jotzo Frank & Stern David I., 2014. "The Economics of Global Climate Change: A Historical Literature Review," Review of Economics, De Gruyter, vol. 65(3), pages 281-320, December.
    3. Peter Linquiti & Nicholas Vonortas, 2012. "The Value Of Flexibility In Adapting To Climate Change: A Real Options Analysis Of Investments In Coastal Defense," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-33.
    4. Heuson, Clemens & Gawel, Erik & Gebhardt, Oliver & Hansjürgens, Bernd & Lehmann, Paul & Meyer, Volker & Schwarze, Reimund, 2012. "Fundamental questions on the economics of climate adaptation: Outlines of a new research programme," UFZ Reports 05/2012, Helmholtz Centre for Environmental Research (UFZ).
    5. Dobes, Leo, 2012. "Adaptation to Climate Change: Formulating Policy under Uncertainty," Working Papers 249390, Australian National University, Centre for Climate Economics & Policy.
    6. Heuson, Clemens & Gawel, Erik & Gebhardt, Oliver & Hansjürgens, Bernd & Lehmann, Paul & Meyer, Volker & Schwarze, Reimund, 2012. "Ökonomische Grundfragen der Klimaanpassung: Umrisse eines neuen Forschungsprogramms," UFZ Reports 02/2012, Helmholtz Centre for Environmental Research (UFZ).
    7. Paul Watkiss, 2015. "A review of the economics of adaptation and climate-resilient development," GRI Working Papers 205, Grantham Research Institute on Climate Change and the Environment.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. World Bank, 2011. "Climate Change and Fiscal Policy : A Report for APEC," World Bank Publications - Reports 2734, The World Bank Group.
    2. Dobes Leo & Jotzo Frank & Stern David I., 2014. "The Economics of Global Climate Change: A Historical Literature Review," Review of Economics, De Gruyter, vol. 65(3), pages 281-320, December.
    3. Dobes, Leo, 2012. "Adaptation to Climate Change: Formulating Policy under Uncertainty," Working Papers 249390, Australian National University, Centre for Climate Economics & Policy.
    4. Golub, Alexander (Голуб, Александр), 2018. "Methodological Issues of Assessing Investment Risks in Projects Weakening the Dependence of the Russian Economy on Natural Resources and Providing a Transition to Low-Carbon Development [Методологи," Working Papers 071802, Russian Presidential Academy of National Economy and Public Administration.
    5. Lee, Shun-Chung & Shih, Li-Hsing, 2010. "Renewable energy policy evaluation using real option model -- The case of Taiwan," Energy Economics, Elsevier, vol. 32(Supplemen), pages 67-78, September.
    6. Gren, Ing-Marie & Carlsson, Mattias & Elofsson, Katarina & Munnich, Miriam, 2012. "Stochastic carbon sinks for combating carbon dioxide emissions in the EU," Energy Economics, Elsevier, vol. 34(5), pages 1523-1531.
    7. Golub, Alexander & Herrera, Diego & Leslie, Gabriela & Pietracci, Breno & Lubowski, Ruben, 2021. "A real options framework for reducing emissions from deforestation: Reconciling short-term incentives with long-term benefits from conservation and agricultural intensification," Ecosystem Services, Elsevier, vol. 49(C).
    8. Cheng, Ching-Tsung & Lo, Shang-Lien & Lin, Tyrone T., 2011. "Applying real options analysis to assess cleaner energy development strategies," Energy Policy, Elsevier, vol. 39(10), pages 5929-5938, October.
    9. Paul Watkiss & Alistair Hunt & William Blyth & Jillian 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, Springer, vol. 132(3), pages 401-416, October.
    10. Steve Newbold & Charles Griffiths & Christopher C. Moore & Ann Wolverton & Elizabeth Kopits, 2010. "The "Social Cost of Carbon" Made Simple," NCEE Working Paper Series 201007, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2010.
    11. Klaus Mittenzwei & David S. Bullock & Klaus Salhofer, 2012. "Towards a theory of policy timing," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(4), pages 583-596, October.
    12. Aalbers, Rob & Shestalova, Victoria & Kocsis, Viktória, 2013. "Innovation policy for directing technical change in the power sector," Energy Policy, Elsevier, vol. 63(C), pages 1240-1250.
    13. Brody, Michael & Eshchanov, Bahtiyour & Golub, Alexander (Голуб, Александр), 2020. "Approaches to Optimize Uzbekistan’s Investment in Irrigation Technologies," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 136-147, April.
    14. Julien Chevallier & Stéphane Goutte, 2014. "The goodness-of-fit of the fuel-switching price using the mean-reverting Lévy jump process," Working Papers 2014-285, Department of Research, Ipag Business School.
    15. Dobes, Leo, 2009. "People versus planners: Social Preferences for Adaptation to Climate Change," Research Reports 94890, Australian National University, Environmental Economics Research Hub.
    16. Erin Baker & Olaitan Olaleye & Lara Aleluia Reis, 2015. "Decision Frameworks and the Investment in R&D," Working Papers 2015.42, Fondazione Eni Enrico Mattei.
    17. Nicholas Stern, 2013. "The Structure of Economic Modeling of the Potential Impacts of Climate Change: Grafting Gross Underestimation of Risk onto Already Narrow Science Models," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 838-859, September.
    18. David Martimort & Stéphane Straub, 2016. "How To Design Infrastructure Contracts In A Warming World: A Critical Appraisal Of Public–Private Partnerships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(1), pages 61-88, February.
    19. Matti Liski & Iivo Vehviläinen, 2016. "Gone with the Wind? An Empirical Analysis of the Renewable Energy Rent Transfer," CESifo Working Paper Series 6250, CESifo.
    20. Dannenberg, Astrid & Mennel, Tim & Osberghaus, Daniel & Sturm, Bodo, 2009. "The economics of adaptation to climate change: the case of Germany," ZEW Discussion Papers 09-057, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:eerhrr:107574. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/asanuau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.