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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

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.

Suggested Citation

  • Knoke, Thomas & Steinbeis, Otto-Emmanuel & Bösch, Matthias & Román-Cuesta, Rosa María & Burkhardt, Thomas, 2011. "Cost-effective compensation to avoid carbon emissions from forest loss: An approach to consider price-quantity effects and risk-aversion," Ecological Economics, Elsevier, vol. 70(6), pages 1139-1153, April.
  • Handle: RePEc:eee:ecolec:v:70:y:2011:i:6:p:1139-1153
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    References listed on IDEAS

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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. De Pinto, Alessandro & Robertson, Richard D. & Obiri, Beatrice Darko, 2013. "Adoption of climate change mitigation practices by risk-averse farmers in the Ashanti Region, Ghana," Ecological Economics, Elsevier, vol. 86(C), pages 47-54.
    3. 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.
    4. Utkur Djanibekov & Asia Khamzina, 2016. "Stochastic Economic Assessment of Afforestation on Marginal Land in Irrigated Farming System," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(1), pages 95-117, January.
    5. repec:eee:ecomod:v:272:y:2014:i:c:p:175-187 is not listed on IDEAS
    6. Mohebalian, Phillip M. & Aguilar, Francisco X., 2016. "Additionality and design of forest conservation programs: Insights from Ecuador's Socio Bosque Program," Forest Policy and Economics, Elsevier, vol. 71(C), pages 103-114.
    7. 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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