Environmental Derivatives, Risk Analysis, and Conservation Management

Abstract

Two key challenges in conservation management are: (1) how to quantify and manage the risk that natural populations will fall below critical thresholds and (2) how to fund recovery plans should a population do so. Statistically estimated, process-based simulation models of two distinct fish populations are used to forecast the species population levels, and capture the risk of crossing a management defined trigger point. We show how to calculate the environmental derivative price, which is the amount a risk-neutral investor would require for promising a pay-out should the species abundance fall below the trigger level. The approach provides the potential for environmental derivatives to support species recovery, and a method for measuring the underlying "health" of a managed population and calculating risk-cost tradeoffs among alternative management strategies.

Accumulation by securitization: Commercial poaching, neoliberal conservation, and the creation of new wildlife frontiers

“…Hall (2013Hall ( , 1598, for instance, demonstrates the concept is vital in understanding the Òdispossessory responses to capitalist crises, the use of extraeconomic means of capital accumulation, and the creation, expansion and reproduction of capitalist social relationsÓ that are central to the phenomenon of land grabs. Writing on green grabbing also frequently deploys the concept to make sense of ÒgreenÓ projects ranging from biocarbon sequestration and climate change mitigation Lohmann, 2012; and nature-based derivatives (Little et al, 2013;Mandel et al, 2010;Sullivan, 2013) to tourism and hunting (Benjaminsen and Bryceson, 2012;Corson and MacDonald, 2012;Gardner, 2012;Snijders, 2012). Central to the latter is the contention that conservation practiceÑespecially neoliberal conservation practiceÑis a form of ongoing primitive accumulation or accumulation by dispossession as it encloses land and biodiversity and dissolves common access to it, thereby dispossessing rural populations of land, resources, and livelihood opportunities to provide new avenues for capital accumulation (BŸscher, 2009;Kelly, 2011;Neves and Igoe, 2012;Sullivan, 2013).…”

Risks, Resilience, and Natural Resource Management: Lessons From Selected Findings†

“…Little et al. [] show how to quantitatively calculate environmental derivative prices for two fish species (school whiting and tiger flathead). This price is calculated as the expected pay‐out determined from a simulation model used to generate Monte Carlo forecasts of a fish stock into the future, under an assumed management strategy and uncertain population parameters.…”

“…In their analysis, Little et al. [] defined the trigger population level at 20% of the initial observed biomass level for the two fish species. The derivative requires the investor to make a payout to the resource manager or regulator whenever the biomass goes below the trigger biomass level over a 20‐year period, thus initiating stock recovery efforts.…”

“…The derivative price that Little et al. [] calculated is the amount the investor is prepared to accept to deliver a $100 payout should the 20% biomass threshold be crossed, and varies with the initial level of the biomass, and also the chosen management strategy of the management agency. The lower is the initial biomass, or more risky is the management strategy, the higher is the derivative price.…”

Funding climate adaptation strategies with climate derivatives

“…Models that capture the processes governing the dynamics of the underlying index could provide reliable probabilistic forecasts, and thus accurate derivative prices (Caballero et al, 2002;Little et al, 2014). Climate models simulate the physical processes that influence atmospheric and oceanographic quantities such as temperature, pressure and precipitation at large spatial and temporal scales (Stock et al, 2011), and have been used to project future climates and inform climate adaptation planning and risk assessment (Stock et al, 2011;Holz et al, 2010;Tabor and Williams, 2010).…”