Conserving biodiversity in the face of climate change

A framework is provided for designing adaptation policies for conserving Australian biodiversity in the face of climate change.

Uncertainty about climatic effects and the resilience of biodiversity are intrinsic as are ‘species loss’ and ‘sunk cost’ irreversibilities, nonlinearities in damage responses, long policy maker time horizons and ambiguities in objectives.

Policy insight can be gleaned from the economics of information and using ‘real options’ models that account for possible catastrophic risks.

The Natural Resource Ministerial Council provides an ‘action plan’ that can be used in this setting. The case for investing in information and for pursuing a range of safety-first policies and insurance options is emphasised.

1. Introduction. Most scientists accept that environmentally-damaging, anthropogenic, global warming has been a reality over the past century and that, unless societies reduce their greenhouse gas emissions, warming will become a more serious global concern over the next 50-70 years. Even with active greenhouse gas management policies it is also widely agreed that global warming will continue because of lags in climate generation. This has led to policies being developed which seek adaptation to the effects of global warming as it is expected to unfold. These policies accept that future global warming is a reality and seek to learn to live with it.

Adaptation policies are of particular concern to individual countries whose greenhouse gas emissions contribute in only a minor way to aggregate global emissions. While such countries can, and should, seek international cooperative agreements to manage emissions, they only exert a marginal impact on aggregate global emissions and it is this global ‘public bad’ that will impact on the climate change likely to be experienced in their country.

One class of adaptation strategies, of concern to Australia, relate to biodiversity resources. Biodiversity has intrinsic value since citizens value species and habitats that exist per se. Biodiversity also has instrumental value in improving the quality of life of citizens who consume the direct service flows stemming from its existence and, indirectly, through biodiversity’s role in insuring a reliable supply of agricultural, water resource and other outputs.

This paper shows how to determine economically efficient public policies to reduce climate change’s impact on the range and richness of Australian biodiversity. It emphasises issues of limiting species extinctions to advance the community’s intrinsic demands for conservation. However avoiding extinctions, by itself, is a narrow conservation perspective. More generally we think of policies to improve the resilience of Australian biodiversity to climate change. How does one design an response to climate change when costs and benefits of dealing with the problem are uncertain as are physical and environmental effects, when there is controversy over the discount rate to be used and when damages associated with biodiversity destruction are highly nonlinear, involve important irreversibilities and when policy makers must address events over distant time horizons.

This is a complex policy design task because of the interaction between risk and the irreversibilities. But economic theory suggests approaches to analysing such issues using ‘real options’ theory: See Pindyck (2007).

Section 2 below provides background information on the biodiversity conservation problem posed and articulates factors complicating its resolution. Section 3 examines policy developments in Australia in relation to this problem and articulates an approach based on that proposed by the Natural Resource Ministerial Council (2004). Section 4 makes final remarks.

2. Global warming and biodiversity conservation. Most of Australia will warm by between 1-6o C by 2070. Annual rainfall is likely to fall in the south and southeast where population and agricultural production are concentrated and evaporation will increase. Some sparsely-populated inland and north western areas will have moister summers. To provide perspective, with a 4-6oC increase in temperature, Melbourne’s climate would resemble that of Moree in northern NSW. Forecast climatic effects are not necessarily marginal – they could be very significant. Globally a 6oC average temperature matches the temperature increase experienced since the last ice age.

2.1 Climatic uncertainty. Precise climatic effects are complex and difficult to forecast. Meteorological science shows the relation between greenhouse gas concentrations and climate is highly uncertain. There is substantial uncertainty concerning effects on climate of measures to control emissions and the high natural variability of climate masks slowly evolving induced climate trends. Furthermore, Australia spans regions from the tropics to the mid-latitudes and already has a highly variable climate because of the El Niño Southern Oscillation (ENSO). This brings about Dorothy Mackellar’s description of Australia’s climate as one of ‘droughts and flooding rains’, particularly in eastern Australia. Climate change can intensify extreme climatic outcomes with increased intensity and frequency of droughts, heavy rains, floods and cyclones. With higher temperatures too there will be more heatwaves and fewer frosts. Impacts on specific average rainfall patterns are highly uncertain with reduced rainfall in the southwest but with either uncertain rainfall effects in northern and eastern Australia. Pittock (2003), (2005, 256-257) provides further information.

Finally, while climate change is recognised to be generated by global greenhouse gas emissions its effects will differ widely by region and even by continent: See Wolfson and Schneider (2002, 36-40). But while information on general trends in a broad region are often useful, species conservation concerns often involve analysing specific habitats. Indeed, endangered species may occupy very narrow geographic regions that may be subject to anomalous climatic and environmental experiences. Conservation biologists will therefore be forced to place considerable weight on aggregated, uncertain climate forecasts.

A major initial observation is therefore a simple one: The effects of climate change in Australia are geographically diverse and hence exceedingly complex. They are also highly uncertain in terms of both specific temperature and rainfall effects.

2.2 Environmental uncertainty. While analysis has focused on the impacts of climate change for human life, a growing literature addresses consequences for non-human life and particularly for biodiversity. Flora and fauna face difficulties in adapting to, or migrating from, changed climates, even with gradual climate change, due to the human fragmentation of landscapes. If, as expected, substantial climatic changes occur over a short period, such as 50-100 years - on a geological timescale this is abrupt - effects will be severe.

A possible extreme environmental consequence of climate change is an ensuing wave of species extinctions globally and a destruction of biodiversity values. Thomas et al (2004) estimate that, in regions covering one fifth of the earth, 15-37% of plant and animal species could face extinction by 2050 should a middle-of-the-road scenario for increased emissions eventuate. If emissions are on the high side, the range jumps to 21-52%. Note the wide range in these estimates and their sensitivity to assumptions regarding mitigation responses.

The Stern Review (2006) endorsed these estimates. A warming of 2oC was expected to leave 15-40% of the world’s currently extant species extinct.

In Australia, the Climate Change Network, at their website, identifies 90 Australian species at risk from climate change - for the most part species identified at this site are currently threatened species. What is required is an indication of the sensitivity of various species and habitats to climate change – on their resilience - and, on this, there is only partial information.

For example, Hughes et al. (1996) examine the distribution of 819 species of Eucalyptus the major tree type characterising the Australian landscape. The majority of these individual species occupy small discrete regions defined by narrow temperature zones. More than 200 species have ranges spanning 1oC while 82 span just 2oC. Should Australia’s temperature rise by 3oC this century half of Australia’s Eucalyptus would grow outside their current zone. How well they would adapt to this is uncertain but there is potential for sensitivity.

Clearly knowledge of climate change effects on biodiversity is limited partly because of uncertainty about the effectiveness of natural adaptive responses, the role of geographical fragmentation of landscapes and the assault that might be launched on certain areas by invading exotic and natural species. Most of the information that is available is individual species and habitat specific. Given ecosystem complexities and the partial nature of information, uncertainty is intrinsic to analysis of the effects of climate change on biodiversity and to assessing species and habitat resilience in the face of climate change. As Pittock (2003, p. 168) states:

‘…there is relatively little specific information about the long-term capacity for and rates of adaptation of ecosystems in Australia that can be used to predict likely outcomes. Therefore, a large degree of uncertainty inevitably exists about the future of the Australian natural ecosystems under climate change.’

Our second major observation is also simple. The specific effects of climate change on biodiversity are highly uncertain.

2.3. Policy objective uncertainty. Finally, it is important to clarify what policy objectives are with respect to conserving biodiversity. These are complex because the idea of ‘biodiversity’ is itself complex – it is a pseudo-cognate concept (Gaston (1996, 1)) with different users of the term having distinct concepts in mind but using it as if it had a common meaning. It is difficult to formulate policies towards a loosely-defined notion.

Even ignoring definitional niceties, the development of biodiversity conservation strategies in Australia, as in most countries, has been partly ad hoc and partly based on delivery of sound conservation outcomes. It is acknowledged, for example, that land with high agricultural value has been under-supplied for conservation purposes.

With respect to biodiversity conservation per se, specific objectives of policy are diffuse and numerous: See Environment Australia (2001). Policies sometimes seek to limit extinctions and sometimes to retain representative habitats. In seeking strategies to deal with exogenous climate changes we are not addressing simple objectives.

Moreover, as benefits and costs from biodiversity conservation are distributed into the distant future the inter-temporal valuation issue of choosing a discount rate arises in choosing between conservation options. There is disagreement and uncertainty in assigning discount rates which becomes crucially important in problems with long-term time horizons. One can argue that if discount rates are anything other than very low and if costs of acting are borne now while benefits accrue in the distant future then, on the basis of cost-benefit analysis, the best policy is to do nothing – since discounted benefits then may not justify costs. Thus if conserving a species provides a $1 billion benefit in 200 years that is worth only $58,000 today at a discount rate of 5%. Moreover, intergenerational arguments - placing significant weight on the environment we hope to transfer to our children - suggest discounting at a low rate. Pindyck (2006) shows that being uncertain about the discount rate means itself that the rate used should be set at less than the expected future discount rate in the absence of uncertainty with the difference increasing as the planning time-horizon increases. For long-term planning, a rate close to zero is not implausible.

2.4. Irreversibilities. Inter-temporal aspects of any plan to address effects of climate change on biodiversity make the task complex and, again, uncertain.

Finally, important irreversibilities impact on policy-making. These pull in opposite directions in terms of desired policy intensities and the timing of interventions and substantially complicate policy planning.

(i) Species loss effects – in particular species extinctions - are irreversible. This creates incentives to adopt active management policies early even if benefits from doing so fall somewhat short of costs. The existence of the possibility of a future benefit from not allowing a species to go extinct provides an ‘option value’ rationale for species protection that reflects the irreversible loss of options that extinctions imply – indeed this is the core idea of the ‘real options’ approach to irreversible investments under uncertainty: See Dixit and Pindyck (1994). The existence of option values provides a bias towards early adoption of policy and for greater policy stringency.

(ii) Sunk cost effects also arise however because policies to deal with climate change problems impose sunk costs for society. For example, investing in captive-breeding programs or the translocation of species are expensive discrete investments that are not recoverable should the investments prove unwise because uncertain policy costs and benefits turn against such provisions. For example, if long-term conservation costs should turn out to be higher than expected while long term benefits are lower. This provides a motivation to wait for better information before investment in biodiversity protection is undertaken. Cost benefit analysis which accounts for this value of waiting, will be biased toward postponing adoption of such policies and for reducing policy stringency.

This is an important summary point. Irreversibilities combined with uncertainty can sometimes increase and sometimes decrease both the timing and extent of desired conservation effort. Without good empirical evidence – and this is lacking to this point – there is no way of making a simple qualitative judgement a priori. It is necessary to assess the relative size of ‘species loss’ and ‘sunk cost’ effects. Some literature – based it must be acknowledged on plausible though invented data - suggests ‘sunk cost’ effects are relatively strong implying a case for deferred and reduced intensity investments rather than pursuit of high intensity conservation policies now: See Pindyck (2000), (2002).

2.5 Nonlinearities and thresholds. The case for emphasising ‘sunk cost’ irreversibilities is tempered by the prospects for non-linearities in the damage response of the environment to climate change when uncertain critical thresholds occur: See Pittock (2005, 99-105). Such non-linearities can be accounted for by allowing for the prospect of a catastrophic risk of a substantial damage response. A biodiversity example might be widespread species extinctions while at the climate level catastrophic risks include possible rapid deglaciation of the polar ice sheets or collapse of the conveyor belt circulation in the North Atlantic. Note that given the complexity of environmental systems, catastrophic risks could also take the form of currently unanticipated consequences: See Grant and Quiggin (2006). In this case previously undiscovered consequences of climate change for biodiversity may be discovered in the future and events previously regarded as impossible may turn out to be possible. We may also find out that we know less than we thought we did.

Clarke and Reed (1994) show that, if the degree of risk of catastrophic collapse is strongly related to the extent of policy intervention, so a critical level of lack of conservation effort can bring about a wave of costly extinctions, greater stringency in control is sought. In simple terms this provides a case for pursuing ‘safety first’ options. If, however, greater risk is expected that is unrelated to the extent of policy intervention then, by a familiar triage argument, less should be expended on protecting species since their value has unalterably fallen.

Intuition suggests that a case for early action is also motivated by standard arguments emphasising the increasing value of natural capital relative to person-made capital as society advances. With technical progress, person-made capital can be augmented and replaced while natural capital cannot. Also, with increasing wealth if it is supposed that demands for biodiversity conservation are a luxury good, so more is demanded with increased affluence, there is again an argument favouring early adoption of adaptation policies to improve biodiversity resilience: See Krutilla (1967).

2.6 Summing up. There is uncertainty about the scale of climate change, climate change impacts on biodiversity and about what the impacts of an adaptive policy should seek to achieve. There are also significant irreversibilities that add complexity to the planning task. Formal economic model building can help sort out the qualitative role of these complicating factors and can suggest sensible policies.

As a general matter, the high uncertainty in analysing this policy task suggests a need to invest in providing information on the extent of climatic effects and consequent biodiversity impacts. It also suggests a case for monitoring the environment’s response to climate change. Finally, the high risks suggest that a policy focus with emphasis on a narrow range of policy options is inappropriate. A number of policy responses need to be sought and backup ‘insurance’ options pursued lest major policy responses should fail. For example, with respect to endangered species protection, one might simultaneously seek to strengthen the protection accorded to that species in its current environment, seek to translocate that species to new environments and perhaps also seek a captive breeding response as insurance.

Uncertainty needs to be incorporated into formal decision models by attaching probabilities to the various anticipated outcomes with account taken for possible surprise events. Probabilities should be assigned using expert judgement even if the costs and benefits assigned to outcomes reflect policy-maker or community values.

The general policy prescription involves increased investment in biodiversity conservation to reflect the increased risk that this valuable community asset is exposed to. In part this investment reflects the fact that species will endogenously migrate as climate change proceeds. Thus investment effort will need to be devoted to improving the resilience of existing conservation efforts, the adaptability of new areas a receptor sites for new species and to preventing unwanted species invasions.

3. A policy framework. Australian governments have prepared an ‘action plan’ for addressing climate change impacts on Australian biodiversity: See Natural Resource Ministerial Council (2004). The NRMC’s intention is for each state and territory to undertake specific initiatives to implement this plan and for the commonwealth to coordinate efforts. The plan splits into three types of undertaking that are broadly consistent with the framework set out above. They involve investment in information, investment in minimising biodiversity impacts and integration of policy designs into pre-existing conservation planning and policies for managing new efforts. Suggestions are now made to develop this framework using economics. The economics of information and investment provide the main conceptual and practical guidelines to conservation planning where risk and irreversibility play a major role.

3.1 Increasing knowledge. This NRMC objective seeks to improve knowledge of the impacts of climate change on biodiversity over time horizons where adaptation planning is sensible; to improve understanding of adaptation responses and to increase the capacity to assess costs and benefits of different policy responses. These objectives also need to be augmented to include improving knowledge of the specific likely extent of climate change. The NRMC also emphasise the need to transmit these types of information to policy makers and the broader community.

The economically desired investment in information depends on the extent of uncertainty faced, costs of acquiring information and the benefits consequent to having better information. As emphasised above, there is substantial uncertainty regarding effects of global warming and on the resilience and adaptability of biodiversity to climate change. Information about climate change is in some respects a global public good that will be underprovided by private markets partly because it can be drawn on at low cost. Hence, unless costs are prohibitive, there is a case for public investment in long-term meteorological and climate research to gain information. A basic question is the extent of likely climate change given plausible assumptions about global mitigation responses.

Information on the adaptability of Australian biodiversity is, in the main, a local public good that must be generated primarily in Australia. This is likely to be much more expensive than climatic information as it will need to be site and species specific. Such informational investments inevitably call for prioritization since exhaustive characterisations are impractical.

Climatic and biological information accrues through time with experience of climatic change, through observing the adaptability of ecosystems and through independent science-based learning. Given learning possibilities there are incentives to monitor developments and to delay acting on developments until information quality improves. While the need to ‘wait’ is a standard incentive in dynamically-evolving uncertain systems, significant effects of climate change will occur short-term, over perhaps 30-70 years.

Moreover, it might be expected that adaptation strategies could become both more expensive and less effective as the pace of climate change increases. As with the climate change issue as a whole, there are incentives to act promptly on the basis of imperfect information rather than to wait for much more accurate information. This means that policy responses should be closed-loop feedback rules reflecting the current state of knowledge and which evolve as knowledge evolves.

A particular information concern is to identify ‘at-risk’ species and to list them as threatened under threatened species legislation. This makes sense if high costs are associated with species extinctions. Moreover, addressing the extinction issue enables policy authorities to simplify one of the key irreversibility constraints namely the species conservation constraint.

A final specific information concern is to identify climate change effects on the distribution of new and established exotic as well as native invasive species. While some species will be damaged by climate change the survival prospects of others may be improved thereby damaging the survival prospects of competitive species.

3.2 Minimising biodiversity impacts. These impacts are classified into different categories by geographic area and actions sought to minimise the harmful effects of climate change. One focus is on impacts on hydrological cycles and consequent impacts on inland aquatic and semi-aquatic species. Another looks at impacts on marine, estuarine and coastal ecosystems. A third focus looks at terrestrial systems. Concern also focuses on minimising the impact of invasive species whether they are exotic or native species.

Clearly there are a range of adaptation investments that can improve the resilience of biodiversity. For the most part NRMC emphasise investments building on current conservation efforts. These fall into several areas.

Policies designed to increase the environmental resilience of existing conservation zones. This includes policies for increasing conservation reserve size, measures to improve and restore streams and aquatic environments, limiting land degradation and invasive pest species and to provide appropriate fire management regimes. For many conservation efforts the general prescription for policy responses is for more active management.
Investments in new reserves that seek to strengthen the capacity of the reserve system as a whole to act as refuges for vulnerable species that migrate in response to climate change. This might include investments in wildlife corridors that facilitate migrations and the translocation of particular threatened species. An important aspect is to develop partnerships between government and landowners to facilitate linkages and stepping stones to assist biodiversity adaptations.

Efforts should be devoted to protect species whose existence is threatened by climate change. These species require investments as discussed above but might also call for conservation in captive-breeding programs, zoological and botanical gardens and/or germ-plasm/seed banks.

If a pessimistic assessment of the likely success of adaptation measures is taken insurance policies can be adopted to reduce the probability of extinctions. The NRMC suppose captive breeding and translocation strategies are expensive compared to adapting current conservation policies. They may however make sense as fallback insurance options that imperfectly realise conservation objectives should more general programs fail.

Translocation policies require specific analysis since they are complex and expensive.
The radical strategy of assisted migration involves moving species to climatic zones where they have improved survival prospects. This policy triggers strong, mixed feelings from conservation biologists because the procedure is risky even though not undertaking the strategy may condemn species to extinction. Parmesan (2006) reviewed studies on the ecological effects of climate change and concluded that many plant species are already now budding earlier in the spring, animals migrate earlier and the ranges of many species are shifting to higher latitudes, as they track climates that suit them. So migrations are already occurring.

These adjustments have occurred over the past 2 million years as the planet has swung between ice ages and warm periods. But the current warming is different as the earth was already relatively warm when it began. It will also be more difficult for some species to move since, when the planet warmed at the end of past ice ages, retreating glaciers left behind empty landscapes. Today’s species face obstacle courses of cities, farms and other human settlements. Animals and plants will also have to move quickly if they are to keep up with relatively quick climatic changes.

Many conservation biologists believe alternatively that conventional strategies may help combat extinctions from global warming. Bigger reserves and corridors connecting them, could give species more room to move. McLachlan, Schwartz and Hellmann (2007) examine this debate.

Assisted migration may be the only way to save some species but biologists need to do it safely and effectively. The basic question is: Which species to move and where to take them? If numerous species face extinction then prioritization is inevitable. Those selected need to be relocated to regions where they can survive in a warmer climate. Simply moving a species is no guarantee it will survive since many species depend on other species for survival. Finally, a transplanted species is an invasive one which might start to harm other species. Will some migrant populations need to be controlled or eliminated?

Some argue that assisted migration should be a measure of last resort used sparingly. But further species migrations will occur and, as species shift their ranges, some will push into preserves that are refuges for endangered species.

3.3 Incorporating strategies into current practise. Finally, the action plan examines the integration of thinking about impacts of climate change into current biodiversity planning. The premise is that these programs exist so one can build on the knowledge of them. But in addition, new land use strategies might need to be developed to accommodate adaptation to climate change planning.

To make current conservation efforts responsive to climate change issues:

Existing conservation strategies must incorporate climate change into monitoring and reporting systems and use this information to provide policy advice on climate change-induced effects on conservation. A particular concern is with rural adjustment policy and links between the action plans for biodiversity and that for agricultural adaptations: See NRMC (2006).

Major issues concern how the national reserve systems can be linked to provide corridors for species migrations in the face of climate change. Specifically how can such measures be linked to agricultural land reclamation programs and what are the cost and benefits of such programs?
There is a need to review new land use and reserve planning policies to account for climate change and to make provision for species adaptations. Again there is the need to provide policy advice on these issues.

To include impacts of climate change on decision-making associated with listing threatened and endangered species and to develop recovery plans for such species. While emphasis should be on planning at habitat or biome level, flora and fauna species checklists should be used to determine vulnerable species not protected by broader conservation efforts.

These developments belong prior to the derivation of specific investment policies. Their articulation and refinement is the major output of attempts to address climate change impacts using economics.

Directing policy towards pre-existing conservation efforts is sensible also from the perspective of offsetting the effects of uncertainties by emphasising win-win options. Such efforts are useful if anticipated climatic outcomes eventuate but, in so far as they strengthen current programs, they will advance conservation objectives even if climate change impacts are less severe than expected. Win-win options can also be encouraged by thinking about synergies with the agricultural sector through enhanced conservation and water resource management policies. Again payoffs will eventuate even if anticipated climatic changes are unrealised. These win-win payoffs have the incidental benefit of helping to secure community support for addressing impacts of climate change on non-marketed biodiversity.

4. Final comments. A major issue in biodiversity conservation in the face of climate change is the interaction between high risk and irreversibility. The existence of risk provides incentives to invest in information and provides consequent conflicting incentives to wait for additional better information. However irreversibilities can drive an emphasis on dealing promptly with a problem before it becomes severe.

In this setting utilising adaptation policies to ameliorate climate change effects makes sense. These policies can be both passive reflecting observed changes in biological systems and anticipatory adaptation: See Schneider & Kuntz-Duriseti (2002). Proactive policies involve strengthening the resilience of biological systems now to deal with climate change impacts in the decades ahead.

As a general proposition it makes sense to rely on a range of policy responses and to view policy as adaptive or closed-loop rather than an open-loop response. It also makes sense to err on the side of caution in predicting longer-term effects of climate change on biodiversity.

Unless one believes in science fiction, biodiversity losses are irreversible so it is sensible to be prepared to deal with the worst that can happen. This suggests assigning higher than expected values to biodiversity losses to reflect their option values and to prepare worst-that-can-happen policy responses to climate change effects. Most importantly it also implies the need to devise back-up plans involving species translocations and captive breeding.

With these uncertainties it makes little sense to seek to develop a comprehensive national conservation response a priori. Test runs should be devised using case studies of a representative sample of conservation sites as the basis for a more comprehensive plan. The test runs should include a focus on conservation efforts in Australia’s single conservation hotspot namely south west, Western Australia, in Alpine habitats such as the Victorian Alps or the Snowy Mountains, in the rainforest habitats of northern Queensland, in coral reef habitats such as the Great Barrier Reef and in the rangeland areas of southern Queensland or central Western Australia. The costs and benefits of various adaptation policies need to be measured and species loss and sunk cost effects identified in each of these settings. The likelihood of catastrophic risks should be examined and their possible implications for policy intervention identified.

The case studies should assess the economics of conservation efforts at the various sites, examine existing plans for dealing with climate change and, where necessary, look at cost-minimising options for improving resilience as discussed above. The options examined should include ‘doing nothing’, investing in improved resilience onsite and, as a limiting policy, arranging species translocations. The ‘doing nothing’ option is relevant for species whose viability is unthreatened and, using triage arguments, for species whose extinction is inevitable.

Given the information and management expertise possessed and the existence of existing conservation resources it makes sense, as the NRMC review suggest, to base an adaptation strategy around existing conservation efforts. This will reflect the existing reserve system and pre-existing efforts to promote conservation on private land, including wildlife corridors. But conservation priorities could change in regions most affected by climate change and this needs to be reflected in planning.

Along with attempts to strengthen existing conservation efforts there needs to be a critical emphasis on where existing efforts are vulnerable and possibly made redundant by climate change impacts. As the NRMC note, to the extent that climate change causes changes in agricultural land values, there are both problems and opportunities for new approaches to planning.

The significant contribution economics can make in helping to understand the impact of climate change on biodiversity is to provide a framework for assessing objectives and the scope of policy. Cost benefit analyses, adapted to account for information acquisition issues under risk, can be used to prioritise conservation options. The emerging literature on cost-benefit analysis under uncertainty, where significant irreversibilities are involved, shows the structure of the policy design task.

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