Technical Policy Briefing Notes - 2
Cost-Effectiveness Analysis
Strengths and Weaknesses
Policy Briefs
Cost-Effectiveness Analysis
Strengths and Weaknesses
A key part of the MEDIATION project has been
to identify the strengths and weaknesses of different approaches.
The key strength of CEA is that it avoids valuation of economic benefits, enhancing applicability where valuation is difficult or contentious (e.g. ecosystems). The approach is also relatively simple to apply, and the communication of results is concise and easy to understand – helped by the widespread use of CEA in mitigation.
The potential weaknesses relate to the need to choose a single common cost-effectiveness metric and the consideration of uncertainty (see previous section). These are both critical issues for adaptation. It is also highlighted that the analysis of adaptation benefits (effectiveness) is location and technology specific, often requiring analysis of (local) impacts, which change for each baseline and for each scenario considered. These impacts – and the resulting benefits of options – also vary over time, and thus multiple cost curves are needed to address different time periods. All of this means that the application of CEA to adaptation has much higher resource needs for adaptation than for mitigation.
Finally, CEA tends to focus on technical options, because these can be easily assessed in terms of costs and benefits (effectiveness). However, adaptation is now seen as a process as well as an outcome, and capacity building and nontechnical (soft) options are considered an important and early priority. Such non-technical options do not lend themselves easily to the quantitative analysis in CEA, thus they tend to be given lower priorities (or omitted). This issue is compounded by the strict linear sequencing adopted in cost-effectiveness analysis, where options are considered as discrete options implemented in turn: this contradicts the emphasis in the adaptation literature for portfolios of options and the need to explicitly consider inter-linkages.
A summary of some of the key strengths and weakness of the approach is presented below.
The key strength of CEA is that it avoids valuation of economic benefits, enhancing applicability where valuation is difficult or contentious (e.g. ecosystems). The approach is also relatively simple to apply, and the communication of results is concise and easy to understand – helped by the widespread use of CEA in mitigation.
The potential weaknesses relate to the need to choose a single common cost-effectiveness metric and the consideration of uncertainty (see previous section). These are both critical issues for adaptation. It is also highlighted that the analysis of adaptation benefits (effectiveness) is location and technology specific, often requiring analysis of (local) impacts, which change for each baseline and for each scenario considered. These impacts – and the resulting benefits of options – also vary over time, and thus multiple cost curves are needed to address different time periods. All of this means that the application of CEA to adaptation has much higher resource needs for adaptation than for mitigation.
Finally, CEA tends to focus on technical options, because these can be easily assessed in terms of costs and benefits (effectiveness). However, adaptation is now seen as a process as well as an outcome, and capacity building and nontechnical (soft) options are considered an important and early priority. Such non-technical options do not lend themselves easily to the quantitative analysis in CEA, thus they tend to be given lower priorities (or omitted). This issue is compounded by the strict linear sequencing adopted in cost-effectiveness analysis, where options are considered as discrete options implemented in turn: this contradicts the emphasis in the adaptation literature for portfolios of options and the need to explicitly consider inter-linkages.
A summary of some of the key strengths and weakness of the approach is presented below.
| Key strengths Benefits expressed in physical terms, therefore does not require monetary valuation of benefits. Increases applicability to non-market sectors. Relatively simple approach to apply and provides easily understandable ranking and outputs that easy to understand. Frequently used for mitigation, and thus approach widely recognised and has resonance with policy makers. Use of cost curves can assess different policy targets and how to achieve these at least cost, look at how to achieve greatest benefits for available resources, or look at the cost implications of progressively more ambitious policies. | Potential weaknesses Optimises to a single metric, which can be difficult to pick. Less applicable for cross-sectoral or complex risks. The focus on a single metric omits important risks, and does not capture all costs and benefits (attributes) for option appraisal. Tends to work best with technical options, and can therefore omit or give lower priority to capacity building and soft (non-technical) measures. Sequential nature of cost curves ignores portfolios of options and inter-linkages. Does not lend itself to the consideration of uncertainty and adaptive management, tending to work with central tendency. |
note download this briefing note