TY - JOUR
T1 - Cost-effective compensation to avoid carbon emissions from forest loss
T2 - An approach to consider price-quantity effects and risk-aversion
AU - Knoke, Thomas
AU - Steinbeis, Otto Emmanuel
AU - Bösch, Matthias
AU - Román-Cuesta, Rosa María
AU - Burkhardt, Thomas
N1 - Funding Information:
We are grateful to the “Deutsche Forschungsgemeinschaft” (DFG) for financial support of the study ( KN 586/5-2 ) and to the members of the research group FOR 816 whose research initiative made the study possible. We are also grateful to two anonymous reviewers and Baltazar Calvas for helpful comments as well as to Kristin Dzurella, Arman Schwarz, and Laura Carlson for the language editing.
PY - 2011/4/15
Y1 - 2011/4/15
N2 - 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.
AB - 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.
KW - Carbon compensation
KW - Endogeneity of tropical land-use
KW - Financial modeling of land-use shares
KW - Indirect land use change (iLUC)
KW - Land diversification
KW - Risk aversion
KW - Uncertainty
UR - http://www.scopus.com/inward/record.url?scp=79953747028&partnerID=8YFLogxK
U2 - 10.1016/j.ecolecon.2011.01.007
DO - 10.1016/j.ecolecon.2011.01.007
M3 - Article
AN - SCOPUS:79953747028
SN - 0921-8009
VL - 70
SP - 1139
EP - 1153
JO - Ecological Economics
JF - Ecological Economics
IS - 6
ER -