Optimal Budget Allocations for Protected Area Acquisition To Store Carbon in a Local Community Under Economic Growth Uncertainty

Bijay P. Sharma,Seong-Hoon Cho,Chad M. Hellwinckel

doi:10.1017/age.2020.10

Abstract

We analyze optimal budget allocations to acquire protected areas for carbon storage while balancing risk and return from protection under economic growth uncertainty in a local community. Our study is the first to explore how risk of uncertain economic growth affects cost of protected area acquisition using real estate values at the parcel level, enabling us to estimate the site-specific opportunity cost of carbon storage. The Pareto optimal trade-off frontier between the expected carbon storage benefit and its variance provides a continuum of risk-return combinations. The pattern of the trade-off relationship implies that risk mitigation is less costly in terms of foregone expected benefit when risk is higher than when it is lower. Our results also find that the difference in cluster-specific budget allocations between the strong economic growth scenario and the weak economic growth scenario subsequently decreases between the point of expected benefit maximization and the point of variance minimization. Our findings of optimal hectares of land for protected area acquisition for carbon storage and corresponding benefits and costs serve as an empirically informed knowledge base to help a local community prioritize acquisition of potential protected areas for carbon storage under economic growth uncertainty.

Highlights

Due to increased economic growth in recent years, cities in the United States are facing yet another wave of sprawl, with development converting hinterlands surrounding cities to urban uses (Sorensen et al 2018)
Economic growth fluctuations are a vital source of uncertainty related to conservation costs because the opportunity cost of holding land depends on fluctuations in the returns from competing land uses such as urban development (Schatzki 2003; Verick and Islam 2010)
The literature dealing with spatial targeting of conservation investments has largely focused on the risk associated with ecological benefits under climatechange induced uncertainty, with little concern for the economic growth uncertainty reflected in conservation costs (e.g., Mallory and Ando 2014; Armsworth et al 2015; Albers et al 2016; Shah et al 2017)

Summary

Introduction

Due to increased economic growth in recent years, cities in the United States are facing yet another wave of sprawl, with development converting hinterlands surrounding cities to urban uses (Sorensen et al 2018). In establishing protected areas through acquisition, the non-market values of those areas to communities are typically acknowledged, and valuations have been approached through estimating communities’ willingness to pay (WTP) for the programs using survey analysis (Cho, Newman, and Bowker 2005; Hemby 2016; Vizek and Nielsen-Pincus 2017). Those studies typically estimate WTP for hypothetical or factual programs to assess potential support and values to the communities. The opportunity cost of deforestation for urbanization fluctuates depending on real estate market conditions and affects the performance of conservation investments (Cho et al 2018; Cho and Sharma 2019)

Methods

Results

Conclusion