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

Haixing Liu,Albert S Chen,Yuntao Wang,Guangtao Fu,Chi Zhang

doi:10.1007/s11069-018-3349-1

Haixing Liu, Albert S Chen + Show 3 more

Open Access

https://doi.org/10.1007/s11069-018-3349-1

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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.

Highlights

Urban surface water flooding, as one of the major natural hazards in both developed and developing countries, can cause great environmental and economic damage and social interruption (Zhou et al 2012; Hirabayashi et al 2013; Yin et al 2015; Jenkins et al 2017; Lowe et al 2017)
This study develops a real options approach to assess adaptation options in urban surface water flood risk management under climate change
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

Summary

Introduction

As one of the major natural hazards in both developed and developing countries, can cause great environmental and economic damage and social interruption (Zhou et al 2012; Hirabayashi et al 2013; Yin et al 2015; Jenkins et al 2017; Lowe et al 2017). The summer floods of 2007 in UK led to 55,000 properties flooded with an estimated economic loss of £3.2 billion (Pitt 2008) This situation can get worse over the decades due to climate change and rapid urbanization (Dawson et al 2008; Jenkins et al 2017). Significant efforts have been made during the last few decades to develop cost-effective, long-term adaptation measures for alleviating increased flood risk through cost–benefit analysis (Lowe et al 2017). Lowe et al (2017) developed a new framework to assess flood risk adaptation measures by coupling a 1D–2D hydrodynamic flood model with an agent-based urban development model to consider the long-term effects of urban development and climate change Koukoui et al (2015) described a tipping pointopportunity method to identify the adaptation strategy with lower costs, considering the effects of climate change. Zhou et al (2012) developed a pluvial flood risk assessment framework to identify and access adaptation measures based on the cost–benefit process. Lowe et al (2017) developed a new framework to assess flood risk adaptation measures by coupling a 1D–2D hydrodynamic flood model with an agent-based urban development model to consider the long-term effects of urban development and climate change

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