Climate change and extreme events: risk assessment of adaptation in Sydney

Measuring the potential costs of catastrophic climatic events is a challenging but important exercise, as the occurrence of such events is usually associated with substantial damage and high uncertainty. Risk assessments and measures to evaluate adaptation should focus on an appropriate time horizon that is consistent with the frequency of events, since a short-term view may disproportionally deflate the risk involved. This chapter illustrates key concepts that need to be considered when quantitatively evaluating adaptation to extreme climate events. Important issues include: measuring uncertainty using a probability distribution; the time value of money; the choice of discount rate values; the costs and benefits of adaptation; and sustainable decision making.