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

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.

Impact of Urban Growth and Changes in Land Use on River Flood Hazard in Villahermosa, Tabasco (Mexico)

“…According to Jenkins et al [34], climate change and the rapid urbanization will be the two main factors responsible for increased flood rates in the coming decades. For this reason, the application of an approach that determines the impact of climate change on the future flood scenarios in Villahermosa, similar to the one proposed by Liu et al [35], is a crucial aspect to be considered in further developments of this study.…”

Is green infrastructure a viable strategy for managing urban surface water flooding?

“…The advantage of this approach is a speed increase versus traditional modelling techniques, enabling development and analysis of many interventions and rainfall scenarios (Liu et al 2018). Previous research has identified comparable accuracy with a 5 to 20 time speed increase using CADDIES compared with other models such as Infoworks ICM (Gibson et al 2016;Wang et al 2018).…”

Investing in climate change adaptation and mitigation: A methodological review of real-options studies

“…Some of the studies on flood risk control focused on other types of uncertainty and did not explicitly consider climate uncertainty. Park et al ( 2014 ), Kim et al ( 2018 ) and Liu et al ( 2018 ) emphasized the importance of market uncertainty and temporal flexibility when timing investments in flood control. They used binomial lattices, decision trees and Monte Carlo simulations as solution methods.…”