Assessing ecological infrastructure investments

Abstract

Conventional markets can underprovide ecosystem services. Deliberate creation of a market for ecosystem services [e.g., a payments for ecosystem services (PES) scheme] can close the gap. The new ecosystem service market alters behaviors and quantities of ecosystem service provided and reveals prices for the ecosystems service: a market-clearing equilibrium. Assessing the potential for PES programs, which often act as ecological infrastructure investment mechanisms, requires forecasting the market-clearing equilibrium. Forecasting the equilibrium is complicated, especially at relevant social and ecological scales. It requires greater disciplinary integration than valuing ecosystem services or computing the marginal cost of making a land-use change to produce a service. We conduct an ex ante benefit-cost assessment and forecast market-clearing prices and quantities for ecological infrastructure investment contracts in the Panama Canal Watershed. The Panama Canal Authority could offer contracts to private farmers to change land use to increase dry-season water flow and reduce sedimentation. A feasible voluntary contracting system yields a small program of about 1,840 ha of land conversion in a 279,000-ha watershed and generates a 4.9 benefit-cost ratio. Physical and social constraints limit market supply and scalability. Service delays, caused by lags between the time payments must be made and the time services stemming from ecosystem change are realized, hinder program feasibility. Targeting opportunities raise the benefit-cost ratio but reduce the hectares likely to be converted. We compare and contrast our results with prior state-of-the-art assessments on this system.

Keywords: ecosystem services; hydrology; incentives; natural capital; reforestation.

Fig. 1.

Map of the PCW showing the four subwatersheds considered in our analysis, as well as the physical and social extents of the market. The middle black line is on the Panama Canal.

Fig. 2.

Marginal cost for convertible land (physical extent of the market) and enrollable convertible land (social and physical extent of the market) with 95% confidence intervals, and marginal revenue under an average 11.7% ESE and an average 31.1% ESE (dashed and dotted lines, respectively) for the entire PCW. Marginal revenues are shown assuming an ESE is realized immediately (orange) and after a 7-y lag (purple).

Fig. 3.

Percent increase in runoff between forest and swidden mosaic by year, which provides the estimate of the ESE. The probability of exceedance is greatest in the dry season.

Fig. 4.

Average monthly Gatun Lake levels (meters) by market extent assuming in situ water management and an ESE of 11.7%. The upper (double-dashed) and lower (dashed) lines are the reservoir spill level and NeoPanamax draft restriction level in meters above sea level (MSL), respectively.

Fig. 5.

Marginal benefit (dashed) and marginal cost (solid) curves for the entire PCW and each subwatershed for enrollable convertible lands with a 7-y lagged ESE of 11.7% (A) and 0-y lagged ESE of 31.1% (B). Voluntary exchange levels for subwatershed-specific programs (○) and the quantity of hectares provided under an aggregate program (●) are shown. The arrows connect the closed circles to the open squares, which illustrate the actual marginal benefit that would be provided by an aggregate program. Black correspond to the aggregate program. Colors correspond to subwatersheds: yellow is Alajuela, green is Caño-Quebrado, red is Cirí Grande-Trinidad, and blue is Gatun.