Optimal spatial budget distribution of forest carbon payments that balances the returns and risks associated with conservation costs

Seong-Hoon Cho () and Bijay P. Sharma ()
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Bijay P. Sharma: University of Tennessee

Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, 2020, vol. 22, issue 8, No 6, 7239-7267

Abstract: 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 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10668-019-00486-2

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