**The purpose of cost-benefit analysis is to compare projects or policies among themselves in order to determine which one will provide the greatest net benefit for the individual conducting the analysis (private cost-benefit analysis) or for society at large (public cost-benefit analysis).**

The cost-benefit analysis approach (private as well as public) is simple: (i) identify competing projects; (ii) identify sources of uncertainty and future possible states of the world; (iii) evaluate the costs and benefits for each project, in all possible states of the world; (iv) calculate the present value of costs and benefits; (v) calculate the expected net present value of different competing projects (if we have or can estimate the occurrence probabilities of states of the world); and (vi) evaluate the robustness of the result, including in relation to hypotheses on probabilities.

Identification of competing projects in the case of adaptation raises no specific problem. In contrast, it is important to realize that **the initial (current) situation is not necessarily optimal in relation to current climate risks.** It is therefore essential to define the reference situation in relation to which the measures are evaluated so that the figures provided have a meaning (see Box n°4). In the case of protection projects concerning natural risks, it is, in fact, common that the protection levels observed in the field are not the result of a specific risk analysis and an explicit policy choice but, instead, are the result of an empirical historical process. In reality, "constant risk level" adaptation projects (i.e., reasoning in terms of efficiency costs rather than benefit costs) generally do not lead to optimal adaptation in relation to climate change.

**The specificity of adaptation projects is that their assessment must take the risks linked to climate change impacts into account** (limiting risks is the rationale for these projects).  As we emphasized above, uncertainty about climate change impacts is particularly important, and even more so at the level of small geographic scales.  On the one hand, it is difficult to list all of the possible states of the world.  On the other, it is not possible to link objective occurrence probabilities to these states – for instance because their occurrence is partially dependent on future mitigation actions.

Once the different climate scenarios are established, identification and evaluation of the costs and benefits of adaptation measures does not necessarily present any particular difficulties. However, two important points must be stressed. **First, even for a given climate scenario, the impacts and, therefore, the costs and benefits of adaptation measures can be uncertain.** For example, the response of forest ecosystems to climate change is widely unknown. **Second, climate shocks often have significant indirect effects** (for example, the effect of the degradation of an infrastructure on the rest of the economy, etc.) (see, e.g., Hallegatte et al., 2007b; Hallegatte, 2008).

In addition, climate change adaptation measures can have significant co-benefits or co-costs. For example, a modification of building norms can lead to an improvement in the comfort of housing units, in addition to making them more effectively adapted to climate change. We can even imagine that investments made within the framework of an adaptation plan could provide a solution to certain pre-existing problems. **These co-benefits and co-costs should be taken into account in the analysis.** By way of construction, most of the adaptation questions that arise today – and that may therefore be analyzed from a cost-benefit point of view – deal with choices whose consequences have very long-term implications (at least several decades). To assess these projects, as in the case of the assessment of mitigation projects, the discount rate adopted is therefore an important element in the analysis. This is neither the time nor place to discuss the discount rate. In any case, discount rates for public projects are often set by the government (the Green Book in the United Kingdom, the report of the French Planning Office in France (Lebègue, 2005), of the Office of Management and Budget circulars in the USA). Moreover, the discount rate often has 32/39