Cost Benefit Analysis

Lessons from Practice: Towards Climate Change

Resilient CitiesFawad Khan

Senior Associate, ISET

World Urban ForumRio de Janeiro, Brazil

23 March 2010

Overview

• CBA of Climate Resilience

• How to do a CBA– Qualitative – Quantitative

• Issues and learning

Risk and Potential Impacts

Risk

Economic

Social

Macroeconomice.g. loss of GDP

Direct

Loss of assets

Indirect

e.g. business interruption

Environmental

Hazard

Vulnerability

• Elements exposed

• Fragility

Loss of lifePopulation affected

eg. Loss of habitats

e.g.increase in diseasesDisaster

Event

eg. effect on biodiversity

CBA

Integrated flood protection in Semarang, Indonesia

City subject to seaside inundation due to land subsidence and riverine flooding in rainy season Land subsidence caused by (illegal) groundwater extraction

Elevation in 2003

Elevation in 2013 (scenario)

Costs and Benefits of the proposed Resilience Actions in Semarang City

Proposed Resilience

ActionsCOSTS BENEFITS

Economic Social Environmental

Other Economic Social Environmental

Other

Check dam Land acquisition

Landholder resistency

Risk of water distribution

Create little impact to

environment

Provide new livelihood in

fisheries sector

Provide water stock in drought

seasson

Create new ecosystem

Polder system High OM

prevent accessibilit

y to sea

Encroachment

Increase tension in

areas with no polder system

Coastal ecosystem

degradation

Support economic

activity of the regions

Provide public space

for city

Reduce impact of Sea

Level Rise

Credits Unpaid credits

Community burden to pay monthly pay (physicologic

al stress)

Economic productivity

Reduce loss of asset

Increase health and amenity

Index Ranking of Benefits and Costs Rank from 1 to 10, with 10 being the highest cost or best benefit AND 1 being the lowest cost or least

benefit

Proposed Resilience

ActionCOSTS BENEFITS

B/C Ratio Compariso

n

Economic Social Env’t OtherTOTAL

CEconomic Social Env’t Other

TOTAL

B

17 6 2 14 6 7 7 20 1.40

28 8 5 21 9 6 9 24 1.14

3.5 3 0 8 4 6 0 10 1.25

.

Quantitative Methodology

+inventory of assets

Methodology

+inventory of assets

Methodology

+inventory of assets

Quantitative Methodology

+inventory of assets

Structural Measures

Loss-Frequency Curve

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40

Cumulative Frequency

Lo

ss

(m

illio

ns

PK

R)

Current Conditions

Planned Highway

Best Estimate and Sensitivity Analysis

Best estimate No exposure

increase No subsidence

increase

No exposure and subsidence

increase NPV (million Rupiah) 369 296 330 257

C/B ratio 2.3 2.0 2.2 1.9 IRR 23% 19% 21% 18%

Qualitative vs. Quantitative

• Wrong Question!

• Data limitation vs. reality check

• Distributional vs. financial feasibility

• Qualitative for range of choices

• Quantitative for financing/investing

• Multi-criteria analysis

Multi-criteria Analysis

THANK YOU

For more Information on CBA:

Fkhan@isetpk.org

www.I-s-e-t.org