You are here: Home / Toolbox / Details

---

Toolbox home References 1 detail page Policy brief available

Cost-effectiveness analysis is described in Table 3.7.2. CEA can only be used to compare options if there is a single outcome attribute of in addition to costs. In climate change adaptation, it is thus generally not possible to compare alternative strategies that affect different sectors, because it is very difficult to find a common outcome attribute across sectors. In contrast, comparing mitigation is more straightforward, as the attribute of carbon equivalent tonnes of emission reductions is at hand. Attributes describing adaptation benefits vary according to whether one evaluates the success of adaptation in relation to rising sea-levels, rising average temperatures, or changing variability resulting in more frequent extreme events, and so on. It is very difficult to find a common attribute, for example, to compare risk reduction of coastal flooding with benefits of cooling demand delivered from passive air conditioning in response to rising average temperatures (Zhu and van Ireland 2010). Within sectors, however, it may be easier to find common outcome attributes for adaptation options. For example, Kouwenhoven and Cheatham (2006) assess the cost-effectiveness of options with respect to the attribute of freshwater supply in Pacific Island nations that are being negatively affected by climate change. See Watkiss and Hunt (2011) for an extensive discussion of these issues.

An important consideration is that cost-effectiveness analysis is only a relative measure of a set of options in relation to a previously defined outcome. CEA does not provide an absolute measure of costs and benefits to ensure that an option is 'worth doing' in the sense of a CBA.

CEA also requires the setting of a baseline against which to compare outcomes and for doing so, the same remarks apply as in CBA above.

Table 3.7.2: Formal decision making methods.

Method type	Formal decision making
Sub-types	Cost-benefit analysis	Cost-effectiveness analysis	Multi-criteria analysis
Task	Choose which action should be taken.
Characteristics of AS	An actor making a single decision. A set of options (also called alternatives, strategies, actions) from which the actor chooses a baseline, which is a “do nothing” alternative against which to measure the values of the metrics.
	One metric by which the alternatives can be characterised in terms of their costs and outcomes	One metric by which the alternatives can be characterised in terms of their costs and a different metric by which alternative can be characterised in terms of their benefits (i.e., outcomes).	Several metrics by which the alternatives can be characterised in terms of their costs and benefits.
Steps taken	identify a set of options. choose a baseline against which the benefits and costs will be measured. calculate present value of cost (PVC) and present value of benefits (PVB) for each. decision rule: chose alternative with the highest netbenefits or benefit cost ratio	choose a metric for effectiveness E (e.g. cost, low impacts). choose a baseline against which the effects will be measured. choose a set of alternatives that may be applied to reach the target. for each alternative I, calculate cost effectiveness ratio (CER): CERi = Ei/Ci. decision rule: choose alternative i* with the highest CER*.	identify a set of options. identify multiple criteria and a weights for each criteria. associate a value for each criteria to each alternative. This steps yields a matrix.  compute the weighted sum (called score) for each alternative.  decision rule: choose the alternative with the highest score.
Results	A ranking of options.
Example cases	Sea-level rise as reported in Agrawala and Fankhauser (2008). For fresh water systems Callaway et al. (2007) and for the agricultural sector in Rosenzweig and Tubiello (2007).	Kouwenhoven and Cheatham (2006) address the cost-effectiveness of options for increasing freshwater supply in Pacific Island nations that are being negatively affected by climate change. Based on financial records and interviews with project teams, they calculate the cost of options are then evaluated on the basis of how much additional water harvesting potential they provide. They find that for three different communities rain-water harvesting is the most cost-effective option for providing greater access to freshwater. Other options such as improving water main infrastructure are more expensive per unit delivered. Mendes Luz et al. (2011) address the costeffectiveness of options to reduce the transmission/incidence of dengue fever. They develop a dynamic model of dengue transmission that includes the effects of the development of human immunity and insecticide immunity to test the effectiveness in terms of DALYs (disabilityadjusted life years) of 43 different strategies to reduce dengue incidence, including both larval targeted and adult targeted strategies. They find that all interventions caused emergence of insecticide resistance which will increase the magnitude of future dengue epidemics when combined with the loss of community immunity. The model showed that adult targeted strategies were more cost-effective than larvae targeted strategies.	National Adaptation Plan of Action for Lesotho (LMS 2007) identified and ranked 9 adaptation projects on the basis of criteria developed with a group of stakeholders made up of national level ministries, NGOs, and local governance representative. The options were ranked on the criteria of: i) impact on the economic growth rate of vulnerable communities; ii) impact on poverty reduction; iii) multi-lateral environmental agreement synergies; iv) employment creation; vi) prospects for sustainability. Miller and Belton (2011) evaluate policy options to improve water management faced with climate impacts in Yemen. The options were ranking according to multiple criteria of: public financing needs, implementation barriers, environment, social, economic, and political-institutional. A sensitivity analysis was also conducted in order to investigate how changes in weighting of criteria affected the ranking of options. They find that combining several options to provide incentives for water use efficiency, and to promote technology uptake into a portfolio is the preferred option.
Issues involved	A standard CBA cannot deal with the indirect benefits. A GE approach would be needed. Does not consider distributional effects of options. Outcomes are highly dependent on discount rates.	A metric for outcomes is necessary for CEA. This is difficult to identify for adaptation.

---

Toolbox detail pages

Access Toolbox detail pages to learn more on selected methods and tools.

CEA