Sensitivity analysis in economic evaluation of payments for water and carbon ecosystem services

Jeffery D. Connor, David Summers, Courtney Regan, Hayley Abbott, Leon Van Der Linden and Jacqueline Frizenschaf

Ecosystem Services, 2022, vol. 54, issue C

Abstract: Payments for ecosystem services (PES) have become a widely accepted tool for mitigating ecosystem decline with hundreds of applications globally. Despite the extensive use of PES, challenges remain in evaluation of feasibility and impact. A key challenge relates to how the multiple, complex ecosystem and market processes determining outcomes are usually only understood with considerable uncertainty. These uncertainties arise throughout the processes to PES evaluation from the conceptual framing and modelling paradigm through to the input data and scenario assumptions. Understanding implications and risks arising requires rigorous and transparent uncertainty treatment and reporting. This article demonstrates best practice in transparent and rigorous PES evaluation with global sensitivity analysis (GSA). The approach systematically identifies uncertain parameters and applies Monte Carlo simulations with stochastic sampling from distributions of uncertain input parameters that are transformed to provide distributions of possible outcomes. The case study considered involves comparing the costs of forest regeneration with the stacked water and carbon value of ecosystem services derived from the vegetation. The results demonstrate the evaluation of multiple ecosystem service process and market uncertainties, quantifies their influence on the overall economic viability of the scheme and the relative impact of different uncertainties on scheme economic viability risks. The results and discussion outline how wider application of GSA could provide better pragmatic and informative assessment of the inevitable uncertainties within ecosystem service payment scheme evaluation.

Keywords: Payments for ecosystem services; Uncertainty and sensitivity analysis; Stacked and bundled benefits; Carbon; Water; Economics; benefit cost analysis (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecoser:v:54:y:2022:i:c:s2212041622000122

DOI: 10.1016/j.ecoser.2022.101416

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