A risk analysis approach to transportation infrastructure climate protection investment

Abstract

Protecting transportation infrastructure from the impacts of climate change is crucial to the welfare of the communities it supports. Decisions to invest needed capital and accept the opportunity costs of directing funds to protection in place of other community needs involves tradeoffs between taking early action to prevent a future disaster event, but missing the mark, and deferring a decision to uncover uncertainties and take better actions. This paper proposes a real options analysis approach for determining a best timing for action while explicitly considering the benefits and risks of action deferral. While focused on protective decisions for combating the impacts of sea level rise and meteorological events to roadway infrastructure, its proposed methodology can be directly extended to other hazard classes (e.g., fire) and infrastructure types. The proposed approach and risk tradeoff analyses are demonstrated on a case study in the Washington, D.C. region.