Search

A multivariate GARCH model of natural resources is specified to capture the effects of time varying portfolio risk. A special feature of the model is the inclusion of realized volatility for natural resource assets that are available at multiple frequencies as well as being sensitive to sudden changes in climatic conditions. Natural resource portfolios under climate change are simulated from bootstrapping schemes as well as being derived from global climate model projections. Both approaches are applied to a multiasset water portfolio model consisting of reservoir inflows, rainwater harvesting, and desalinated water. The empirical results show that while reservoirs remain the dominant water asset, adaptation to climate change involves increased contributions from rainwater harvesting and more frequent use of desalinated water. It is estimated that climate change increases annual water supply costs by between 7% and 44% over a 20‐year forecast horizon. [ABSTRACT FROM AUTHOR]

Ecological rehabilitation is subject to a variety of risks affecting the likely return on investment. We propose an options approach to allocating scarce conservation funds that explicitly allows for the irreversibility of investment and risks to investment payoffs. The approach captures ecosystem dynamics from extinction debt, as well as ecological and climatic risks at the project scale. Climatic risks are introduced through three channels: the effects of climate change on species loss, future rehabilitation benefits and frequency of catastrophic events. Our results suggest that allocating voluntary rehabilitation contracts on the basis of real options criteria increases cost-efficiency and delivers greater value for money for the Government when compared with the conventional cost-effectiveness criterion as it is illustrated for the case of Box Gum Grassy Woodland rehabilitation in Australia. [ABSTRACT FROM AUTHOR]

The sustainability of dynamic natural systems often depends on their capacity to adapt to uncertain climate-related changes, where different management options may be combined to facilitate this adaptation. Salt marshes exemplify such a system. Marsh sustainability under rapid sea level rise requires the preservation of transgression zones - undeveloped uplands onto which marshes migrate. Whether these uplands eventually become marsh depends on uncertain sea level rise and natural dynamics that determine migration onto different land types. Under conditions such as these, systematically diversified management actions generally outperform ad hoc or non-diversified alternatives. This paper develops the first adaptation portfolio model designed to optimize the benefits of a migrating coastal system. Results are illustrated using a case study of marsh conservation in Virginia, USA. Results suggest that models of this type can enhance adaptation benefits beyond those available through current approaches. [ABSTRACT FROM AUTHOR]