Technical Policy Briefing Notes - 2
Cost-Effectiveness Analysis
Key Messages
Policy Briefs
Cost-Effectiveness Analysis
Key Messages
- There is increasing interest in the
appraisal of options, as adaptation moves from theory
to practice. In response, a number of existing and
new decision support tools are being considered, including
methods that address uncertainty.
- The
FP7 MEDIATION project has undertaken a detailed review of
these tools, and has tested them in a series of case studies.
It has assessed their applicability for adaptation
and analysed how they consider uncertainty.
The findings have been used to provide information
and guidance for the MEDIATION Adaptation Platform and are
summarised in a set of policy briefing notes.
- One
of the tools that has been widely applied to climate change
mitigation, and is also being considered for adaptation, is Cost-Effectiveness Analysis (CEA).
- CEA
can be used to compare and rank the relative attractiveness of
different options, and to identify the least cost combination
of options to achieve pre-defined targets using cost
curves.
- CEA has been
widely used in climate change mitigation. However, the
MEDIATION review highlights the application to adaptation
is much more challenging. This is because adaptation
is a response to many local, regional or national level
impacts, rather than to a single global burden, i.e. there is
no single common metric. The application of CEA
to adaptation is therefore much more demanding, in
terms of analysis detail and resources.
- A
key issue for CEA is the choice of costeffectiveness metrics.
The MEDIATION review has identified a set of potential metrics
by sector, however, it is stressed it can
be difficult to pick these, especially
when considering complex or cross-sectoral risks.
- Further,
most applications of CEA do not consider uncertainty, working
with single cost curves. However, the use of central
estimates for future climate change is
not recommended. For adaptation, uncertainty has the
potential to alter the ranking of options and the overall cost
curve, and thus needs consideration.
- The
review has considered the strengths and weakness of the
approach for adaptation.
- The
key strength of CEA is that it avoids valuation of economic
benefits, and can thus be used where valuation is difficult
or contentious (e.g. ecosystems). The approach is
also relatively easy to apply, and the results are concise and
easy to understand.
- The
potential weaknesses relate to the use of a single common
metric and the consideration of uncertainty, both critical
issues for adaptation. Further, CEA tends to focus
on technical options, and often omits
capacity building and non-technical options, while
the linear sequencing adopted contradicts
the adaptation focus on portfolios of options
and inter-linkages.
- Previous
applications of CEA to adaptation have been reviewed, and a
case study is presented for the biodiversity in Finland.
- The
review and case studies provide useful information on the
types of adaptation problem types where CEA might
be appropriate, as well as data needs,
resource requirements and good practice lessons.
- The
review identifies CEA is most useful for near-term assessment,
particularly for identifying low and no regret options, in
areas where monetary valuation is difficult. It is
most applicable where there is a clear
headline indicator and where climate uncertainty is low.
- A number of good practice lessons are highlighted. The most important of these are to ensure that adaptation CEA does not focus only on technical options, and that it considers uncertainty through multiple cost curve analysis. Furthermore, the need to consider all attributes of options is highlighted. Finally, it is considered good practice to undertake CEA within an iterative plan, to capture enabling steps, portfolios and inter-linkages, rather than using the outputs as a simple technical prioritisation.
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