<strong>Cost</strong>-<strong>Effectiveness</strong> <strong>Analysis</strong>terms using discount rates and either anequivalent annualised cost or a total presentvalue).• Assess the potential benefits (effectiveness) ofeach option. In many but not all, these areexpressed as an annual benefit, relative to abaseline or reference case.• Combine these to estimate the costeffectiveness,by dividing the lifetime cost bythe lifetime benefit (or annualised costs byannualised benefit).At this point, all the options can be expressed inequivalent terms, as a cost per unit ofeffectiveness. This allows the ranking ofmeasures, identifying the most costeffectivenessoptions, i.e. those that deliver highbenefits for low costs.This information can then be used as an input toform a marginal abatement cost curve. <strong>Cost</strong>curves have been used for many decades inpolicy (and mitigation) analysis. In graphicalterms, they are often presented as cumulativebar charts.In simple terms, a cost curve presents all optionsin order of unit cost-effectiveness analysis,starting with the most cost-effective. At the sametime, it also assesses the total cumulativeeffectiveness of each option, as it is added.When considered together, this allows theestimation of the least-cost way to achieve aplan, programme or policy target /objective.An example is included below, showing a typicalmitigation cost curve. Each bar represents aspecific option. The options are arranged inorder of cost-effectiveness (left to right), asmeasured on the vertical axis by the cost per unitof abatement – €/CO 2. The width of each barindicates the total abatement potential of eachoption (i.e. the total effectiveness, in tonnes ofCO 2) – noting this could be for a local plan or anational level analysis. Wider bars show optionsthat can achieve larger total benefits, i.e. whichreduce more emissions. In the example, themarginal abatement costs of some cost-effectiveoptions are negative, showing these achievebenefits at negative cost, so called no regretoptions (e.g. energy efficiency).Abatement cost (€/tCO 2)Emissions potential (cumulative tCO 2)Example cost curve.To undertake a policy CEA, a target level of totaleffectiveness is first set and the cost curve isgenerated. As the graph presents options inorder of cost-effectiveness, it estimates thecumulative least-cost pathway to achieve thetarget, because it implements those options thathave high benefits for low cost first. By contrast,if the least cost-effective options wereimplemented first (those on the right of thefigure), it would cost far more to achieve thesame target level.The combination of options needed to achieve thetarget can thus be read off the graph. A similarapproach can be used to derive the total costs ofdifferent levels of ambition. In practice, CEA ismore involved, and further checks are needed toensure that options can be implemented together,and to consider other criteria.The Application to Adaptation<strong>Cost</strong>-effectiveness is already used in manysectors that are relevant to adaptation, such ashealth and flooding, and therefore has potentialfor appraising options to address future climatechange. The MEDIATION project has reviewedthe application of CEA to adaptation, includingexisting case studies in the academic and greyliterature.The first issue that the review has identified is thechoice of cost-effectiveness metrics foradaptation, and the related sector policyobjectives. This recognises there are a widerange of potential risks, across and betweensectors that could be considered. As part of thereview, MEDIATION has identified possible bysector, presented in Table 1.3