The Future Coasts Aotearoa research programme aims to support New Zealand adapt to sea level rise (SLR), while recognising the social, cultural and economic impacts of this change on wellbeing.
How can communities plan for sea-level rise when the future is uncertain? ROA is a decision-making tool that helps weigh the costs, risks, and timing of climate adaptation strategies. Two regional studies, one in the Lower Waikato River and the other in the Lower Kaituna River, applied ROA to assess options like wetland restoration, stopbank upgrades, and managed retreat. These reports offer insights into how economic modelling can support flexible, locally informed responses to climate change.
A wide set of socio-economic tools have been used to consider the impact of SLR and adaptation including:
- Systems mapping to explore how community wellbeing is impacted by change
- Serious games to explore management options and trade-offs across people when responding to sea level rise
- MERIT modelling to investigate economy-wide implications of sea level rise on agriculture within coastal lowlands
- Agent-based modelling to consider the ways in which different sets of people may respond over time to different policies and resource constraints.
This combination of tools is intended to ensure that one single impact (e.g., economic) does not dominate discussions, and to enable a balance of environmental, cultural, and social perspectives.
What is real options analysis?
Real options analysis (ROA) is a form of cost benefit (economic) analysis that helps assess whether it’s worth investing in protective measures now or waiting until more is known about future risks. It’s particularly useful when the future is uncertain, yet decisions are costly and irreversible, like building stopbanks or elevating homes. For example, imagine that a community near a river facing rising sea levels has three adaptation options:
- Build a stopbank now
- Wait and see, then build later
- Do nothing.
ROA can help compare the costs and risks of each option. If the community builds too early, they might spend money unnecessarily. If they wait too long, they risk damage. ROA calculates the “option value” of waiting—essentially, the value of keeping choices open until more is known. This helps communities avoid premature decisions and plan flexible pathways that can adapt over time.
The use of ROA in Future Coasts Aotearoa research
ROA was intended to inform the debate about how to adapt to SLR, drawing out the trade-offs between different strategies. ROA was applied in two case studies: the Lower Kaituna River area and the Lower Waikato River area. The focus of the two ROAs differed. The focus in the Kaituna study was adaptation in the agricultural sector: should we continue to do as we are, or would it better to retreat? Or should we surrender the land to nature and just allow it to return to wetlands instead? By comparison, the focus of the Lower Waikato study was how whaanau of Te Puuaha o Waikato could live with change: should they elevate their homes, or support the resurgence of wetlands, or both?
While the focus of the studies differed, both:
- Considered the values of options under uncertainty about the future
- Included assessment of maintaining existing drainage and flood defences, and allowing defences to fall into disrepair so that natural forces can take over
- Used similar inputs: asset values, operating costs, adaptation costs, and timing of sea-level rise. They also included a monetised value for some of the ecosystem services achieved by rewetting dried wetlands.
Findings:
Cut-off probabilities guide strategy selection
- Both studies use cut-off probabilities to determine when a strategy becomes economically justified. Cut-off probabilities in ROA indicate the minimum likelihood of a hazard (e.g. sea-level rise) occurring for a strategy to be economically justified. A lower cut-off means the strategy is economically viable under more conservative assumptions; a higher cut-off means it requires greater certainty to be justified.
- Wetland restoration: ~24% (Waikato), ~9.3% (Kaituna)
- Stopbank enhancement: ~65% (Waikato), ~78.2% (Kaituna)
- Raising buildings or managed retreat: >100% (uneconomic) where assessed
Wetland restoration is economically promising
- Both studies found that wetland restoration is likely the least-cost strategy to adapt to rising sea levels, provided that the monetised ecosystem service values are accurate.
- However, they caution that these values carry high uncertainty, and more precise, site-specific data is needed to confirm viability.
Stopbank and drainage system enhancement is robust but costly
- Enhancing stopbanks and drainage systems to maintain the same level of protection into the future is a robust and viable strategy in both regions.
- It is not the least-cost option, and its economic justification depends on having high certainty about future sea-level rise (SLR).
- Delaying investment may reduce costs but increases risk exposure.
Managed retreat is not economically viable (where assessed)
- In Kaituna: managed retreat was assessed and found to be uneconomic, with a cut-off probability exceeding 100%, meaning that the cost of retreat plus residual loss is higher than the expected loss of doing nothing.
- In Waikato: managed retreat was not assessed.
Elevation of buildings was uneconomic
- In Waikato: elevation of dwellings was assessed and found to be uneconomic, except for specific high-value or highly exposed properties.
ROA has methodological limits
While ROA is useful for helping decision-makers understand the timing and cost-effectiveness of adaptation options, both studies observe that ROA should not be used in isolation. This is because economic tools like ROA do not adequately capture sociocultural values, especially those important to Māori communities. For example, the ROAs conducted do not include the impact of options on community connections to land. Nor do they consider the distribution of costs and benefits across society (some groups may benefit more than others from different adaptation options.)
For these reasons, the reports recommend using multi-criteria analysis as a complementary tool to better integrate non-monetised benefits, distributional effects, and community values to decision making.
Strengths and weaknesses of ROA compared to some other methods:
| Method | Strengths | Weaknesses |
| Real Options Analysis | Handles uncertainty well; supports flexible decision-making | Hard to include non-economic values; limited on equity and distributional impacts |
| Cost-Benefit Analysis | Simple and widely used; good for clear financial comparisons | Doesn’t handle uncertainty well; ignores timing and flexibility |
| Multi-Criteria Analysis | Can include social, cultural, and environmental values | Less precise on financial trade-offs; more subjective |
| Dynamic Adaptive Pathways Planning (DAPP) | Supports long-term planning and flexible pathways | Doesn’t quantify costs and benefits directly |
Recognised limitations of the studies
Data limitations constrained these studies. For example, lack of data meant that the ROAs did not include some effects of slowly rising groundwater, nor the effects of saltwater intrusion. This information would have implications for the cost of different adaptation options. As well, water velocity was not included which affects the estimated cost of damage from flooding.
Click below to explore each study in detail: