Socio-economic optimum of urban drainage expansion for climate change adaptation

The use of socio-economic methods for designing urban drainage expansion to account for climate change is gradually coming into practice and has recently become mandatory in Denmark. A few different return periods for damaging rainfall must be selected, and the one that leads to the greatest net present value taking expenses as well as savings into account should be chosen. Here, a method is suggested that addresses a continuum of return periods of the damaging rainfall instead of selecting only a few return periods for comparison. Based on log-linear relations for the damage costs caused by rainfall and the cost of drainage expansion as functions of the rainfall return period, and by adopting continuous discounting, an optimal solution has been determined by minimizing the present value of all incurred costs. Alternatively, using a cost-benefit analysis, the net present value has been maximized leading to the same optimum. The method is shown to be robust and has been further extended to consider refinancing into account, to assess the socio-economic costs of delaying climate change adaptation and to apply a time-varying discount rate.