Navigation Links
Financial tool considered climate change uncertainty to select land for conservation
Date:5/21/2012

URBANA - A tool commonly used by financial strategists to determine what shares to purchase to create a diversified stock portfolio was used to develop a diversified portfolio of another kind -- land to be set aside for conservation purposes given the uncertainty about climate change.

Instead of plugging into the formula the data for the history of a stock, University of Illinois environmental economist Amy Ando and agricultural economist Mindy Mallory used the historical climate data of the Prairie Pothole Region of the northern Great Plains to develop a new application of the financial tool called the Modern Portfolio Theory.

"It's a very well-known tool in finance," said agricultural economist Mindy Mallory. "There are many tools that are widely available to solve a portfolio problem. So it was really just a new marriage of the tool with a different kind of portfolio problem."

Mallory and Ando used the Modern Portfolio Theory to develop a diversified land portfolio for conservation in the Prairie Pothole Region. The region contains thousands of shallow wetlands created by glaciers and serves as breeding grounds for almost 200 species of migratory birds. The region is about 276,000 square miles and includes portions of Saskatchewan, Manitoba, and Alberta in Canada and Minnesota, Iowa, North and South Dakota, and Montana in the United States.

Ando said the U.S. Fish and Wildlife Service has already protected over 3 million acres in the region and seeks to quadruple that investment. The techniques incorporated in this study could help them make decisions based on the cost, risks, and benefits of the land.

Mallory explained that in the stock analogy, simple diversification would be like someone buying one of every kind of stock in the entire market. Ando seconded that simple land diversification, such as buying one acre in every county, would be just as farfetched a plan.

"For a long time, uncertainty due to climate change wasn't a problem so conservationists weren't even looking at diversifying," Ando said. "More recently, people have been thinking like that old phrase 'don't put all of your eggs in one basket' so simple diversification would be the first natural step to take and you wouldn't need a mathematical model. But buying some land in each area doesn't work very well."

The researchers modeled different future regional climate scenarios using historic conditions, warming of 2 and 4 degrees Celsius and a 10 percent increase in precipitation in the Prairie Pothole Region.

"What we found was that when we looked at benefits only, the area in the east was best," Mallory said. "But when we considered both benefits and costs, the less expensive land in the central area achieved the highest expected benefit."

Ando said there are major cost factors for buying the land or putting land under conservation easement. The eastern portion of the region includes Minnesota and Iowa, which are high land-cost states, became a big driver of their results.

"Setting aside land in that area for conservation is pretty expensive," Ando said. "In our study, we didn't include restoration of the land, which would result in additional costs."

Ando said their results showed that if climate change wasn't likely, "the current Fish and Wildlife holdings were pretty close to being on the efficient frontier. And while simple diversification schemes may be appealing, they did not perform well. Before we began the research, we didn't realize just how important it would be to think carefully about the diversification and not just divide the investment between the regions."

Mallory said that one of the biggest challenges of implementing this approach in planning is that to truly use this method it's important to know the probability distribution of the climate change outcomes.

"It's a really hard question, even for climate scientists who study the topic," Mallory said.

Another challenge is that the results are dependent upon policies as well as physical processes.

"There's uncertainty about whether countries will agree on climate change policy," Ando said. "If they do agree, you get one trajectory of carbon emissions with an associated set of probabilities of climate change. If they don't agree on policies, you get a different trajectory of carbon emissions with a different probability distribution over climate outcomes. So there's that uncertainty, on top of all of the physical uncertainties," she said.

Optimal portfolio design to reduce climate-related conservation uncertainty in the Prairie Pothole Region was published in the Proceedings of the National Academy of Sciences of the United States of America and funded by the University of Illinois.


'/>"/>

Contact: Debra Levey Larson
dlarson@illinois.edu
217-244-2880
University of Illinois College of Agricultural, Consumer and Environmental Sciences
Source:Eurekalert

Related biology news :

1. Communication Intelligence Corporation Reports Third Quarter 2008 Financial Results
2. Orchid Cellmark Reports Third Quarter 2008 Financial Results
3. bioMETRX, Inc. Highlights 3rd Quarter 2008 Financial Results
4. Entrust Announces Financial Results for Fourth-Quarter and Fiscal 2008
5. Aware, Inc. Reports Fourth Quarter and 2008 Financial Results
6. Aware, Inc. Reports First Quarter 2009 Financial Results
7. Striata and CIC Launch Integrated eSignature, eDelivery, and eBilling for the Financial Services Industry
8. Striata and CIC Launch Integrated eSignature, eDelivery, and eBilling for the Financial Services Industry
9. Aware, Inc. Reports First Quarter 2009 Financial Results
10. Aware, Inc. Reports Second Quarter 2009 Financial Results
11. Aware, Inc. Reports Third Quarter 2009 Financial Results
Post Your Comments:
*Name:
*Comment:
*Email:
(Date:3/22/2017)... , March 21, 2017   Neurotechnology , ... recognition technologies, today announced the release of the ... which provides improved facial recognition using up to ... a single computer. The new version uses deep ... accuracy, and it utilizes a Graphing Processing Unit ...
(Date:3/22/2017)... LIVERMORE, Calif. , March 21, 2017 ... recognition analytics company serving law enforcement agencies, announced today ... Sheridan as director of public safety business development. ... of diversified law enforcement experience, including a focus on ... Vigilant. In his most recent position, Mr. Sheridan served ...
(Date:3/20/2017)... , March 20, 2017 PMD Healthcare ... personal spirometer and Wellness Management System (WMS), a remote, ... Founded in 2010, PMD Healthcare is a Medical Device, ... a mission dedicated to creating innovative solutions that empower ... With that intent focus, PMD developed the first ever ...
Breaking Biology News(10 mins):
(Date:5/24/2017)... ... 23, 2017 , ... Federal funding for basic and applied scientific research — ... and other vital technologies — deserves continued support, say leaders of SPIE, the ... today in responding to the President’s budget request for Fiscal Year 2018. , The ...
(Date:5/23/2017)... Linda, Ca (PRWEB) , ... ... ... cells (PSCs) offer an unlimited source of human cardiovascular cells for research ... cardiac-directed differentiation methods makes it possible to generate large numbers of cardiomyocytes ...
(Date:5/23/2017)... ... 2017 , ... Energetiq Technology, a world leader in high ... accommodate its rapid growth. , The renovations at the company’s headquarters in Woburn, ... areas. The expansion includes, a state-of-the-art engineering facility, and a second clean manufacturing ...
(Date:5/22/2017)... ... 22, 2017 , ... Stratevi, a boutique firm that partners with healthcare companies ... opened an office in downtown Boston at 745 Atlantic Ave. , “We are ... generate evidence on the value they provide, not just to patients, but also payers. ...
Breaking Biology Technology: