Real Options Analysis of Constructed Wetlands as Nature-Based Solutions to Wastewater Treatment Under Multiple Uncertainties: A Case Study in the Philippines

Constructed wetlands (CWs) are man-made ecosystems that mimic the properties of natural wetlands. They are being utilized to treat various types of wastewater, from domestic to agricultural, municipal, commercial, and industrial effluents. Despite their economic viability and environmental benefits, their widespread adoption is challenged with several uncertainties, including public support, technology learning, and the impacts of climate change. This study proposes a valuation framework that considers these uncertainties to analyze the feasibility of CWs. Using existing CWs in the Philippines as a case, this study employs the real options approach to (1) evaluate the feasibility of CW projects using cost–benefit analysis, (2) calculate the value of postponing decisions to implement CWs projects using real options analysis, and (3) identify the optimal investment decisions for CWs considering the opportunity costs of waiting and uncertainties in public support and the impacts of climate change. Results found that the project is feasible with a net present value of USD 88,968. Yet, the real options value at USD 208,865 indicates that postponing the project may be a more optimal decision. Considering the cost of waiting, the valuation identified the threshold at 5.56% to immediately implement the project. The calculated values increase with uncertainty in public support but decrease with uncertainty in climate change’s impacts. Yet, these uncertainties prolong the decision to implement CW projects until they are resolved. The findings from this case study provide a basis for recommendations to support the adoption of CWs as nature-based water treatment for a more sustainable future.