The Economy-Wide Value-at-Risk from the Exposure of Natural Capital to Climate Change and Extreme Natural Events: The Case of Wind Damage and Forest Recreational Services in New Zealand

Abstract

The long-term management of natural capital is essential for the stable and resilient flow of ecosystem services for future generations facing climatic uncertainty. Understanding its resilience to extreme natural events, using biological principles, and integrating them into more holistic systems-wide modelling techniques is crucial to evaluate and design the wider economic impacts from alternative management interventions. Here we developed a probabilistic and system-wide bio-economic model to measure extreme economic impacts from natural events using the financial concept of Value at Risk. We have applied the new extreme economic impact metric to measure the economy-wide impact from the disruption of mountain-biking recreational services in the Whakarewarewa peri-urban forest in Rotorua, New Zealand from a potential windthrow event. We identified that extreme natural events, such as windthrows, could exert a substantial impact on the urban forest-dependent regional economy. This impact could potentially be intensified by the CO2 forest fertilization effects predicted under future climate scenarios and by adopting low-intensity silvicultural regimes currently rewarded by national climate change mitigation policies. Some of the insights from this study could be the precursors to develop robust adaptation strategies using robust decision-making techniques considering inclusive environmental-economic accounting frameworks.