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Cost-effective compensation to avoid carbon emissions from forest loss: An approach to consider price-quantity effects and risk-aversion

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  • Knoke, Thomas
  • Steinbeis, Otto-Emmanuel
  • Bösch, Matthias
  • Román-Cuesta, Rosa María
  • Burkhardt, Thomas
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    Abstract

    Analyses were carried out on financial compensation to avoid loss of tropical forests and related carbon (C) emissions when marginal financial yield declined for land-use options with extended areas, and when a risk-averting perspective (modeled according to financial theory around the capital asset pricing model) is assumed. The approach in this study was to consider natural forest, forest plantation, pasture, and cropland simultaneously to investigate how an optimized land-use distribution may reduce the amount of compensation necessary to avoid C emissions from forest loss. The financial compensations derived were as high as US$ 176 per hectare per year when comparing natural forests only with the most profitable alternative (croplands). However, compensation decreased to US$ 124 for risk-neutral decision-makers, who would strive for optimized land-use allocation, and to only US$ 47 per hectare per year for risk-avoiders, who would look to maximize the reward-to-variability ratio. Sensitivity analyses indicated that the compensation under risk-aversion increased much less than under risk-ignoring when increased productivity of agricultural land-use or growing demand for agricultural products was simulated. It was concluded that considering appropriate diversification strategies and the well documented human behavior to avoid risks is an important step in developing cost-effective compensation policies.

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    Bibliographic Info

    Article provided by Elsevier in its journal Ecological Economics.

    Volume (Year): 70 (2011)
    Issue (Month): 6 (April)
    Pages: 1139-1153

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    Handle: RePEc:eee:ecolec:v:70:y:2011:i:6:p:1139-1153

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    Web page: http://www.elsevier.com/locate/ecolecon

    Related research

    Keywords: Financial modeling of land-use shares Uncertainty Risk aversion Carbon compensation Land diversification Endogeneity of tropical land-use Indirect land use change (iLUC);

    References

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    Cited by:
    1. Anderson, Blake & M'Gonigle, Michael, 2012. "Does ecological economics have a future?," Ecological Economics, Elsevier, vol. 84(C), pages 37-48.
    2. Clasen, Christian & Griess, Verena C. & Knoke, Thomas, 2011. "Financial consequences of losing admixed tree species: A new approach to value increased financial risks by ungulate browsing," Forest Policy and Economics, Elsevier, vol. 13(6), pages 503-511, July.
    3. Thomas Knoke, 2013. "Uncertainties and REDD+: Implications of applying the conservativeness principle to carbon stock estimates," Climatic Change, Springer, vol. 119(2), pages 261-267, July.

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