Analytic Hierarchy Process and Climate Risk Strategy

Decision Making and Climate Change – Summary

ClimBiz Ltd has analyzed the impact climate change might have on an electrical network or electric utilities strategies related to sources of energy production. Climate change will have wide ranging impacts and many options are available to organizations to address the risks and maximize the opportunities associated with climate change. Our whitepaper applies the analytic hierarchy process (AHP) to the complex decision-making process of needing to minimize environmental impact while maximizing reliability.

The white paper, entitled “Climate Foresight and Resilience for Electrical Networks” and available here, is intended to be a demonstration of the application of climate projections to corporate climate risk strategy development.

Introduction

Climate change will have wide ranging impacts on virtually all aspects of life on Earth. The science of climate change indicates that we can expect variations in many of the aspects of climate, such as land and ocean surface temperatures and Northern and Southern Hemisphere sea-ice extent . Those changes, in combination with a changing global circulation will result in rising global temperatures, changing precipitation patterns, changing probabilities of severe and disruptive weather such as thunderstorms, heat waves, droughts, hurricanes, and extreme precipitation.

The ClimBiz ADAPT Climate Projection Tool

As these changes evolve, it’s likely that the risk of disruption and damage due to physical climate risk will increase. The information used to assess how climate might change in the future are called climate projections. They are physically modeled scenarios of possible future climate outcomes. While there are significant efforts to reduce carbon dioxide inputs across the globe, we don’t know what the future holds with regard to carbon dioxide emissions. As a result, future climates are analyzed in terms of the impact caused by different carbon dioxide scenarios.

ClimBiz has focused on making climate projections available to non-scientists. Its ADAPT Climate Projection tool enables users to view climate projection information for countries and regions. We have learned a fair amount from the process of building and offering ADAPT.

One key lesson is that the climate projections can provide information about changes in climate for a region, but that it’s difficult for people to translate projections into possible impacts on their business. The value of a projection is not in knowing that climate is going change or what those changes might be, but rather in understanding what impact those changes might have on a business process, market, or activity. Developing an understanding of the possible impacts associated with climate change is critical for developing strategies to mitigate the risks or to maximize the opportunities associated with climate change.

Strategy Development for Climate Change Adaptation

The impact of climate change will have on large business organizations will be complex. Some impacts might be easy to understand. Other impact or risks won’t be acknowledged or realized until the changes are well underway. Planning for climate change is difficult in the corporate world in part because strategies should be implemented now for changes that may take decades to appear.

As a result, businesses need a framework to be able to make climate risk strategy analyses and development decisions. It is apparent that the development of a climate change strategy is a multi-criteria decision analysis that must take into consideration all the elements of a business that might be impacted or could be changed in the implementation of a strategy. In other words, it’s complex.

To quote the North Carolina State University Natural Resources Leadership Institute, “multi-criteria decision analysis is a valuable tool that we can apply to many complex decisions. It is most applicable to solving problems that are characterized as a choice among alternatives.”
The development of strategies to address the risks and opportunities associated with climate change is definitely a choice among alternatives. The analytic hierarchy process provides a specific concept and decision-making framework that facilitates analysis of the myriad of possible choices a business can make with regard to climate change.

The Analytic Hierarchy Process

The analytic hierarchy process is a decision-making process “for organizing and structuring complex decisions” developed by Thomas Saaty in the 1970s and 1980s. The AHP requires analysis of the problem in terms of a primary goal to be achieved and then breaking down all of the strategies and tactics that could be implemented to achieve that goal. Individually comparing the value and consequences of many actions that could be taken two at a time creates a priority ranking that is used to indicate preferred solutions.

Decision Criteria for Electrical Climate Foresight
The AHP has been widely used in many business applications. This concept has also been used for decision making in climate adaption. The European Union funded a project that lasted from 2007 to 2013 called MEDIATION . MEDIATION stands for Methodology for Effective Decision-making on Impacts and Adaptation. The project analyzed decision making frameworks for climate adaption decision making.

The MEDIATION project produced a useful summary of the application of AHP to two case studies. As noted in the “Key Messages” section “The approach [AHP] has high relevance for adaptation as it can evaluate options in situations of high complexity, considering different time horizons, uncertainty and multiple and interdependent variables requiring multi-dimensional trade-offs.” One of the case studies addresses the strategies the viticulture industry in Tuscany, Italy might consider to ameliorate the risks of climate change.

Climate Foresight and Resilience for Electrical Networks

ClimBiz recently released a whitepaper titled “Climate Foresight and Resilience for Electrical Networks ” that illustrates how electric networks and electric power companies could explore the implications of using a variety of generation options, including fossil fuels and renewable energy. The various options are assessed with an AHP process that considers the triple bottom line criteria of profitability, reliability, and responsibility. Here responsibility includes concern for reducing adverse environmental impacts.

Analysis of the impact of the Cost of Production on Energy Mix

The three critical components of the analysis are a suitable set of climate projections for the 21st century, a quantitative model of the enterprise, and a multi-criteria decision system for assessing alternatives. The projections include temperature, solar insolation, wind, and precipitation and are combined with a numerical model of the utility and external factors such as generation costs to create ensembles of possible cost and performance scenarios.
The final step here used AHP to sort through possible alternatives and assess them with a set of six criteria applied to a wide range of possible configurations of the generation assets. The weights for each criterion were assigned and the options evaluated. In a collective group strategy process involving a range of stakeholders, the weights would be supplied by the consensus of a pairwise comparison of the alternatives.

Thus the AHP concept was used to analyze difficult decisions about future strategies regarding future power production and the carbon dioxide emissions that come with it (or not!).

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