Optimal spatial budget distribution of forest carbon payments that balances the returns and risks associated with conser
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Optimal spatial budget distribution of forest carbon payments that balances the returns and risks associated with conservation costs Seong‑Hoon Cho1 · Bijay P. Sharma1 Received: 15 March 2019 / Accepted: 30 September 2019 © Springer Nature B.V. 2019
Abstract We determine the optimal spatial budget distribution of forest carbon payments that balances the returns and risks associated with conservation costs (opportunity cost of forestland) affected by future economic growth scenarios using a case study of the central and southern Appalachian region of the USA. A further focus is to evaluate the county-level tradeoffs between the returns and risks of future economic growth that affect the expected benefits and variance of forest carbon storage by constructing a mean–variance tradeoff frontier. Because of concavity of the mean–variance tradeoff frontier, mitigating risk by dispersing budget allocations among counties is advisable, particularly if conservation agencies focus on the returns with little or no regard for the risks associated with future growth at the initial policy-making stage. The different dispersions of the budget among counties for different weights placed on risk minimization provide clear evidence that spatial targeting for conservation and restoration investments such as forest carbon payments needs to consider the risk preferences of conservation agencies regarding conservation costs. Our findings suggest that failing to anticipate the potential risks will lead to suboptimal conservation targets and budget allocations, if conservation agencies are risk averse with little or no regard for the return-maximizing objective. Keywords Economic growth · Expected benefit · Forest carbon payments · Optimal spatial budget distributions · Tradeoff frontier
1 Introduction Payments for ecosystem services (PES) have the potential to be effective tools to mitigate climate change by promoting forest-based carbon sequestration (Adams et al. 1993; Alig et al. 2010; Lewandrowski et al. 2004; Lubowski et al. 2006; Cho et al. 2017; Sharma et al. * Seong‑Hoon Cho [email protected] Bijay P. Sharma [email protected] 1
Department of Agricultural and Resource Economics, University of Tennessee, 2621 Morgan Circle, Knoxville, TN 37996‑4518, USA
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2019). Much attention has been given to spatial targeting of incentive payments to achieve cost efficiency of forest carbon sequestration (De Jong et al. 2000; Antle et al. 2003; Nelson et al. 2008; O’Connor 2008; Mason and Plantinga 2011a, b; Kim and Cho 2018; Cho et al. 2019). These programs face uncertainty because the opportunity costs of holding and managing forestland fluctuate with economic growth conditions (Schatzki 2003; Verick 2010; Cho et al. 2018). Incentive payment programs developed from historic estimates of forest carbon sequestration that ignore uncertainty in program costs may provide inaccurate estimates of the economic efficiency of forest carbon sequestration, and thus may mislead the spatial targeting o
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