INVESTIGATION ON USEFULNESS OF REAL OPTIONS ANALYSIS IN PLANNING OF COASTAL PROTECTION FACILITIES CONSIDERING CLIMATE CHANGE

Abstract

 There is concern that global warming will increase the risk of storm surge damage in coastal areas. However, climate change is influenced by a variety of factors and is highly uncertain. Yasuda et al. (2024) applied real options analysis to the planning of coastal protection facilities as a method to cope with this uncertainty and demonstrated its effectiveness, but comparative studies with cost-benefit analysis and phased maintenance plans have not been sufficiently conducted. This study evaluates the usefulness of real options analysis, cost-benefit analysis, and phased maintenance plan by comparing the three analyses. As a novelty from the study by Yasuda et al., this study also examines the impact of the social discount rate (4.0% and 2.0%) on the calculation of damages by taking into account future changes in assets in light of economic growth. The results of the analysis indicated that real option analysis is an effective analytical method for reducing total social costs in both scenarios. Furthermore, comparing the real options analysis and the phased maintenance plan in terms of the number of construction projects, the scenario with an increase in the number of construction projects is significantly reduced in the real options analysis when the social discount rate based on the latest social conditions is 2.0%, compared to when the social discount rate is 4.0%.