Economic analysis of power projects: integration of climate change and disaster resilience

From the perspective of economic and financial analysis, a climate change resilience assessment can be defined as an elaboration of how an investment project performs under alternative futures that are subject to high uncertainty about climate change impacts, and an assessment of the cost-effectiveness of mitigation and adaptation options to improve a project’s resilience. As a matter of general methodology, this is no different to the assessment of other risks and uncertainties routinely faced in project design. The main difference is that the uncertainties are much more difficult to define: the uncertainty about the nature, timing and extent of climate change impacts is much greater than the better-known uncertainties that have long been part of project design and appraisal. The objective of this good practice note is to present a methodology for the integration of climate change and disaster/hazard resilience assessments into the framework of economic analysis as set out in the World Bank’s guidelines for economic analysis of power sector investment projects.