24 Accounting for Health Impacts of Climate Change Cost–Benefit Analysis of Climate Change Adaptation Investments The goal of the economic analysis of adaptation options is to provide decision makers with information on expected costs and benefits of each technically feasible option and to rank these options according to the net total benefit (measured in present value terms). In circumstances where all adaptation options deliver exactly the same benefits, it is sufficient to undertake a cost-effectiveness analysis where adaptation options are compared in terms of the cost of achieving the stated benefit. With respect to climate change and the assessment of adaptation options, cost–benefit analysis plays an identical role. The cost–benefit analysis of adaptation options aims to identify and quantify all impacts of the various adaptation options deemed to be technically feasible, and then to monetize these impacts into costs and benefits. In this sense, the cost–benefit analyses of adaptation options are no different than for any other investment project, and will be implemented along a similar step-wise process.15 Specific features of climate change pertain to the uncertainty associated with its various impacts. For example, will extreme weather events become more frequent or more severe, and if so, by how much? Or will the recurrence of flooding or droughts increase? Given the significant uncertainty associated with the predicted impacts of climate change, conducting cost–benefit analysis of adaptation options requires paying particular attention to the treatment of risk and uncertainty in the assessment of the costs and benefits of adaptation options. This process is described in more details below. The cost–benefit analysis of adaptation options to climate change is to a large extent similar to the type of cost–benefit analysis developed in the context of natural disaster risk management.16 As such, it is important to recognize the task of the economist to monetize the impacts of climate change and the adaptation options as these have been identified and quantified by other experts (engineers, hydrologists, health experts, etc.). This issue will be discussed further below in the section on cost–benefit analysis of adaptation. (i) A key feature of the approach is to recognize that costs and benefits of the adaptation options must be assessed by identifying and quantifying the impacts of climate change under two scenarios: • Scenario 1: What would be the expected health impacts of climate change if there were to be no adaptation measures in place? Scenario 2: What would be the expected health impacts of climate change if there were to be adaptation measures in place? • Once these two scenarios are described, the benefit of the adaptation options is assessed together with the quantified and monetized impacts “with vs. without” the adaptation options in place. (ii) The cost–benefit analysis and the alternative adaptation options should account for the following important factor. First, to recognize that climate change hazards and vulnerabilities may change over the time of an investment project. Hence, the assessment of the adaptation benefits may be different if they are based on an assumption of existing population, ignoring that future population may be different throughout the lifetime of the project. These changes in vulnerability need to be explicitly accounted for in the assessment of the costs and/or benefits of some or all adaptation options. This issue is discussed in detail below. 15 See Boardman et al. (2005) for a description of the step-wise process. 16 See for example Mechler (2005).