Adaptation Pathways and Real Options Analysis: An approach to deep uncertainty in climate change adaptation policies

Abstract

Governments face the daunting task of developing policies and making investment decisions for climate change adaptation in an environment that consist of complex, interlinked systems with manifold uncertainties. Instead of responding to surprises and making decisions on ad hoc basis, a structured approach to deal with complex systems and uncertainties can provide indispensable support for policy making. This contribution proposes a structured approach for designing climate adaptation policies based on the concepts of Adaptation Pathways, Adaptive Policy Making, and Real Options Analysis. Such an approach results in incorporation of flexibility that allows change over time in response to how the future unfolds, what is learned about the system, and changes in societal preferences. The approach is illustrated by looking at drainage policies and measures to address flooding in Singapore.