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Technical Papers
Oct 28, 2021

Transportation Infrastructure Decision Flexibility in Response to Climate Change and Demand Uncertainties: The Mackenzie Valley Highway in Canada’s Northwest Territories

Publication: Journal of Infrastructure Systems
Volume 28, Issue 1

Abstract

Barge transport operations on the Mackenzie River, a major transportation corridor in the Northwest Territories, are impacted by multiple sources of uncertainties. In particular, the impacts of climate change on this important corridor have led to summer shipping seasons that are growing more volatile in terms of length and quality. This change can lead to a growing reliance on costly airlifts for delivering essential freight that cannot be delivered by barge during seasons that end early due to low water. The Government of Northwest Territories has been planning the construction of the Mackenzie Valley Highway (MVH) for decades to provide cheaper, more reliable transportation for communities. However, the costs of constructing the MVH are prohibitive, and traditional benefit-cost analyses are unable to consider flexible investment actions in response to uncertainties. Therefore, we apply a real options modeling framework to determine if and when to construct the different segments of the MVH, considering climate change and freight demand uncertainties. We first model climate and freight demand uncertainties as geometric Brownian motion processes. Next, a benefit-cost model is developed. Finally, we use the least-squares Monte Carlo method to solve for extended project values and optimal investment times for each segment. The results indicate that Segment 2 has the largest value with an optimal seven-year delay in investment time, followed by Segment 1, Segment 3, and Segment 4 in the last year of the planning period (or possibly beyond). Freight demand volatility appears to have the greatest impact on project values and investment years. The results show that, although the benefits of construction may not outweigh the costs now, they may at some future date; in between, decision makers have opportunities to change their minds as conditions change. This is particularly important in northern Canada, where highly costly infrastructure investment decisions are subject to massive uncertainties. Overall, we see such an approach as a tool to communicate the value of uncertainty in infrastructure benefit-cost analyses and as one tool in a larger decision-support toolbox that is required for major transportation investments in northern Canada.

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Data Availability Statement

Some or all data, models, or code that support the findings of this study are available from the corresponding author upon request. Some or all data, models, or code generated or used during the study are proprietary or confidential in nature and may only be provided with restrictions. The NTCL tow letters data is confidential. Available data includes Canadian Coast Guard buoy placement and removal dates. Maps and model code can also be made available upon request.

Acknowledgments

This work was sponsored by the Natural Sciences and Engineering Research Council of Canada (Engage Grant) and Transport Canada. The authors thank NTCL for providing data and the Government of the Northwest Territories (Darren Locke, Rob Thom, and Sonya Saunders) for their continued support for our work. The authors would also like to acknowledge the editor and two reviewers, who provided excellent comments instrumental to the improvement of this paper.

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Go to Journal of Infrastructure Systems
Journal of Infrastructure Systems
Volume 28Issue 1March 2022

History

Received: Jun 5, 2020
Accepted: Sep 3, 2021
Published online: Oct 28, 2021
Published in print: Mar 1, 2022
Discussion open until: Mar 28, 2022

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Data Analyst, CLEAResult, 1015 4th SW St., Calgary, AB, Canada T2R 1J4; formerly, Graduate Student, Dept. of Civil and Environmental Engineering, Univ. of Alberta, Edmonton, AB, Canada T6G 1H9. Email: [email protected]
Associate Professor, Dept. of Civil Engineering, Univ. British Columbia, Vancouver, BC, Canada V6T 1Z4; Adjunct Professor, Dept. of Civil and Environmental Engineering, Univ. of Alberta, Edmonton, AB, Canada T6G 1H9 (corresponding author). ORCID: https://orcid.org/0000-0002-5250-2796. Email: [email protected]
Jianjing Jin, S.M.ASCE [email protected]
Graduate Student Researcher, Dept. of Civil and Environmental Engineering, Univ. of Alberta, Edmonton, AB, Canada T6G 1H9. Email: [email protected]

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