Climate change adaptation investment decisions can be made more efficiently if uncertainty and new information are considered in their economic appraisal. Real options analysis (ROA) is a robust decision-making tool that allows for the incorporation of both uncertainty and new information. In this opinion article, we argue that ROA is a valuable tool, providing the analysis is designed to reflect the real-world characteristics of the decision context. We highlight the differences between traditional risk-based ROA, and scenario-based ROA, and discuss the relative merits of the approaches from the perspective of their assumptions and use of climate information.

The online version of the paper “The added value of real options analysis for climate change adaptation” is accessible here

Wreford, A, Dittrich, R, van der Pol, TD. The added value of real options analysis for climate change adaptation. WIREs Clim Change. 2020; 11:e642. https://doi.org/10.1002/wcc.642

Despite widespread efforts to implement climate services, there is almost no literature that systematically analyzes users’ needs. This paper addresses this gap by applying a decision analysis perspective to identify what kind of mean sea level rise (SLR) information is needed for local coastal adaptation decisions. We first characterize these decisions, then identify suitable decision analysis approaches and the sea level information required, and finally discuss if and how these information needs can be met given the state of the art of sea level science.

The online version of the paper “Meeting User Needs for Sea Level Rise Information: A Decision Analysis Perspective”  is accessible here

Hinkel, J., Church, J. A., Gregory, J. M., Lambert, E., Le Cozannet, G., Lowe, J., et al. (2019). Meeting user needs for sea level rise information: A decision analysis perspective. Earth’s Future, 7, 320– 337. https://doi.org/10.1029/2018EF001071

For the long-term management of coastal flood risks, investment and policy strategies need to be developed in the light of the full range of uncertainties associated with mean sea-level rise (SLR). This, however, remains a challenge due to deep uncertainties involved in SLR assessments, many ways of representing uncertainties, and a lack of common terminology for referring to these. To contribute to addressing these limitations, this paper first develops a typology of representations of SLR uncertainty by categorising these at three levels: (i) SLR scenarios versus SLR predictions, (ii) the type of variable that is used to represent SLR uncertainty, and (iii) partial versus complete uncertainty representations. Next, it is analysed how mean SLR uncertainty is represented and how representations are converted within the following three strands of literature: SLR assessments, impact assessments, and decision analyses. We find that SLR assessments mostly produce partial or complete precise probabilistic scenarios. The likely ranges in the report of the Intergovernmental Panel on Climate Change are a noteworthy example of partial imprecise probabilistic scenarios. SLR impact assessments and decision analyses mostly use deterministic scenarios. In conversions of uncertainty representations, a range of arbitrary assumptions are made, for example on functional forms of probability distributions and relevant confidence levels. The loss of quality and the loss of information can be reduced by disregarding deterministic and complete precise probabilistic predictions for decisions with time horizons of several decades or centuries, and by constructing imprecise probabilistic predictions and using these in approaches for robust decision-making.

The online version of this article is accesible here

van der Pol, T.D., Hinkel, J. Uncertainty representations of mean sea-level change: a telephone game?. Climatic Change 152, 393–411 (2019). https://doi.org/10.1007/s10584-018-2359-z

The targets of the Paris Agreement make it necessary to redirect finance flows towards sustainable, low-carbon infrastructures and technologies. Currently, the potential of institutional investors to help finance this transition is widely discussed. Thus, this paper takes a closer look at influence factors for green investment decisions of large European insurance companies. With a mix of qualitative and quantitative methods, the importance of policy, market and civil society signals is evaluated. In summary, respondents favor measures that promote green investment, such as feed-in tariffs or adjustments of capital charges for green assets, over ones that make carbon-intensive investments less attractive, such as the phase-out of fossil fuel subsidies or a carbon price. While investors currently see a low impact of the carbon price, they rank a substantial reform as an important signal for the future. Respondents also emphasize that policy signals have to be coherent and credible to coordinate expectations.

Weblink to the paper: https://www.tandfonline.com/doi/full/10.1080/20430795.2018.1528809