Last year I organised a dialogue on climate change adaptation within New Zealand’s transport sector. The purpose of the dialogue was to facilitate discussions between researchers, stakeholders and government on adaptation issues relevant to the sector. Motu Note #40, released today, summarises those discussions.
Climate change has uncertain supply-side impacts on transport because we don’t know when, where or how big will be the events (e.g., storms, floods and landslides) that threaten to damage our infrastructure. These impacts affect other parts of the transport network by diverting flows away from damaged areas and putting pressure on alternative routes.
Climate change also has uncertain demand-side impacts on transport through impacts on sectors that use the network. For example, climate change may trigger land use changes by altering the yields of different crops or the attractiveness of different settlement areas. These changes shift the spatial allocation of human activity and, consequently, shift users’ derived demand for transport infrastructure. However, it is unclear how people will vary their land use in response to climate change because such responses involve complex tradeoffs between economic, social and cultural factors.
The uncertainty around climate change impacts creates challenges for transport planners, who must forecast climate change itself, how people will respond to the change, and how those responses translate into spatial shifts in the derived demand for transport.
One solution is to apply real options analysis (ROA) to transport planning and investment decisions. ROA extends traditional cost-benefit analyses by accounting for managerial flexibility in response to the realisation of future uncertainties, such as the time and place of climate change impacts. For example, ROA provides tools for valuing the ability to abandon roads that get flooded during storms. These tools help planners identify investments that meet users’ needs across a range of climate change scenarios.
However, real options provide an incentive to delay investments in order to draw more samples from, and thereby learn more about, the temporal and spatial distributions of climate change impacts. Such delays halt investment decisions made by transport network users, who rely on the network to conduct economic and social activities, and by utility providers, who provide services that co-locate with transport infrastructure.
My coauthors and I discuss these issues further in Motu Note #40.