Insurance value of land management scenarios under climate change: Trade-offs between ecosystem services and between stakeholder groups

Making efficient and equitable land use decisions in the presence of climate change requires a comparative evaluation of different land use (or management) scenarios under conditions of uncertainty. This paper presents a model to compare multiple land management scenarios in terms of their economic desirability (value) for different stakeholder groups under uncertainty. Uncertainty arises from the fact that any chosen land use scenario results in a probability distribution for the quantity of a particular ecosystem service. This uncertain quantity of services translates to income variability for stakeholders.

Assuming risk-averse stakeholders, and using concepts from decision making under uncertainty according to expected utility theory, two valuation measures, insurance value and willingness to pay, are derived. The insurance value idea is adapted from Baumgärtner (2007) and measures the value of the change in risk premium that occurs between two land use scenarios. Willingness to pay, on the other hand, measures total economic value associated with moving between two risky scenarios.

An inter-disciplinary application of this approach is presented for the “Sustainable coastal land management: Trade-offs in ecosystem services (COMTESS)” project in the North Sea and Baltic Sea coastal regions of Germany. COMTESS considers four land management scenarios – multiple use, carbon sequestration, stakeholder interviews and business as usual – under several climate change scenarios. Specifically, for each land management option, two cases of sea level rise (0.25m and 0.80m) are considered with three temperature change scenarios within each. The three scenarios are temperature increases of 1.8°C, 2.8°C and 3.6°C over the next one hundred years. Data is obtained through field experiments, model simulations and stakeholder interviews from multiple study sites in the project regions, including data on socio-economic characteristics of stakeholders, hydrological variables, coastal vegetation, plant and bird diversity. Relevant ecosystem services include forage and water for livestock, water for irrigation, habitat for birds, tourism, and reduction of greenhouse gas emissions among others. The objectives, in this application, are (1) to use the information on ecosystem services distribution to estimate the insurance value and the total economic value for each of the COMTESS management scenarios; and (2) to investigate the trade-offs between the four land management scenarios and between different stakeholder groups.