Impact of multiple interacting financial incentives on land use change and the supply of ecosystem services

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<ul><li><p>in</p><p>4, A</p><p>Land use changeMarket-based instrumentsSpatial modeling</p><p>es ationspam</p><p>of haband</p><p>between commodity price and carbon price in supplying food and ber, carbon sequestration, freshwater, and indirectly, habitat services. Water price displayed synergies with commodity price, andtensions with carbon price in supplying fresh water services. For the supply of habitat services, abiodiversity price depended on either high carbon prices or low commodity prices. Interaction effects</p><p>incentistem sment2008;systemgloba</p><p>unanticipated consequences which may be positive (co-benets),</p><p>overet al.,r thestem</p><p>act, with consequences for land use and ecosystem services</p><p>Contents lists available at SciVerse ScienceDirect</p><p>.els</p><p>Ecosystem</p><p>Ecosystem Services () toward achieving a policy objective. Other incentives may be1 Tel.: +61 8 8303 8581.(Bryan, 2013). The interaction of nancial incentives occurs aslandholders change land use and management in response to thetotality of economic opportunities and risks (Just and Antle, 1990).Some nancial incentives act synergistically, working together</p><p>2212-0416/$ - see front matter Crown Copyright &amp; 2013 Published by Elsevier B.V. All rights reserved.http://dx.doi.org/10.1016/j.ecoser.2013.03.004</p><p>n Corresponding author. Tel.: +61 8 8303 8663.E-mail addresses: brett.bryan@csiro.au (B.A. Bryan),</p><p>neville.crossman@csiro.au (N.D. Crossman).Pleassuppeffects is the focus of this paper.Policy interventions such as nancial incentives often have</p><p>In many agro-ecosystems, multiple nancial incentives co-existfor the supply of ecosystem services. These incentives may inter-voluntary markets, auctions, and certication programs (Farleyand Costanza, 2010; Tallis et al., 2008). However, little is known ofthe potential for interaction between nancial incentives and theresulting impacts on policy efciency and ecosystem services(Zhang and Pagiola, 2011). Exploring these incentive interaction</p><p>predominance of trade-offs between ecosystem servicesspace and time (Raudsepp-Hearne et al., 2010; Rodriguez2006; Tallis et al., 2008) means that the failure to considebroader impacts of nancial incentives across multiple ecosyservices often leads to negative outcomes (Bateman, 2009).marketed goods and services (e.g. cereals), to regionally- orlocally-implemented market-based schemes designed to encou-rage the production of non-marketed ecosystem services (e.g.habitat). The latter include a range of policy instruments such asdirect payments/rewards, tax incentives, cap and trade markets,</p><p>recognize spatial heterogeneity in service provision (Crossmanand Bryan, 2009; Crossman et al., 2010). Recent studies havesought to harness these co-benets through the bundling ofmultiple ecosystem services (Connor et al., 2008; Deal et al.,2012; Wainger et al., 2010; Wendland et al., 2010). However, the1. Introduction</p><p>In agro-ecosystems, nancialwhich affect the supply of ecosyinuence on land use and manage2006; Bryan, 2013; Lubowski et al.,Broadly, nancial incentives for ecoerated by institutions ranging frome cite this article as: Bryan, B.A., Croly of ecosystem services. Ecosystemmay reduce policy efciency wherever multiple incentives encourage the supply of services from agro-ecosystems.</p><p>Crown Copyright &amp; 2013 Published by Elsevier B.V. All rights reserved.</p><p>ves commonly occurervices through their(Antle and Stoorvogel,Metzger et al., 2006).services may be gen-l commodity trade in</p><p>negative (trade-offs), or even perverse (the opposite of what wasintended) (Merton, 1936). In agro-ecosystems, commodity marketsare a prime example which have increased agricultural productionof marketed services like food and bioenergy, but at the expense ofnon-marketed services like habitat and water quality (Power,2010). The potential for achieving co-benets has been demon-strated, particularly through the spatial targeting of paymentswhich prioritize cost-effectiveness across multiple services andImpact of multiple interacting nancialand the supply of ecosystem services</p><p>Brett Anthony Bryan 1, Neville David Crossman n</p><p>CSIRO Ecosystem Sciences and Sustainable Agriculture Flagship, Waite Campus, SA 506</p><p>a r t i c l e i n f o</p><p>Article history:Received 5 October 2012Received in revised form6 February 2013Accepted 28 March 2013</p><p>Keywords:Agri-environment scheme</p><p>a b s t r a c t</p><p>Multiple nancial incentivimpact of incentive interacchange potential. Taking afrom agriculture to carbonexhaustive combinationscarbon sequestration andcharacterized by synergies</p><p>journal homepage: wwwssman, N.D., Impact of mulServices (2013), http://dx.dcentives on land use change</p><p>ustralia</p><p>re increasingly common for managing agro-ecosystems. We explored thes across multiple ecosystem services through their inuence on land usetial approach, we quantied the economic potential for land use changeonocultures and environmental plantings. We assessed 1875 scenariosve incentive price levels for four services (food and ber, fresh water,itat), and three cost settings. Incentive interactions had complex effectstensions, non-linearity, dependencies, and thresholds. Tensions occurred</p><p>evier.com/locate/ecoser</p><p>Servicestiple interacting nancial incentives on land use change and theoi.org/10.1016/j.ecoser.2013.03.004i</p></li><li><p>divergent or antagonistic, creating tensions. Zhang and Pagiola(2011) found potential for synergies between a watershed con-servation payment scheme and a forest conservation paymentscheme for achieving watershed, biodiversity, and developmentobjectives in Costa Rica. In South Australia, Crossman et al. (2011b)found that a biodiversity payment could be used to augment acarbon price to enhance biodiversity conservation. Examples oftensions between nancial incentives were evident in the US asthe federal Conservation Reserve Program paid people to retireenvironmentally-sensitive land from agriculture whilst other fed-eral farm subsidies encouraged continued agricultural production(Lubowski et al., 2008). Similarly, accounting for the costs of thewater used by reforested areas was found to reduce the effective-ness of a carbon price incentive in motivating reforestation inSouth Africa (Chisholm, 2010).</p><p>The inuence of nancial incentives on land use, and in turn,the inuence of land use on ecosystem services, involve complexmany-to-many relationships (Bryan, 2013). Each nancial incentivecan inuence multiple land uses, and each land use can affectmultiple ecosystem services. These inuences can be positive ornegative. Hence, the aggregate impact of multiple incentivesacross multiple ecosystem services through their inuence onland use is difcult to predict (Bryan, 2013). Although seldomexplored, understanding these interaction effects is necessary toensure the efciency of nancial incentives for ecosystem services</p><p>informing policy decisions (Antle and Stoorvogel, 2006; Antle andValdivia, 2006). Similar approaches have been widely used toassess the impact of nancial incentives on the supply of servicesfrom agro-ecosystems for land uses such as bioenergy feedstock(Bryan et al., 2008, 2010a, 2010b) and reforestation (Dymond et al.,2012; Flugge and Abadi, 2006; Harper et al., 2007; Hunt, 2008;Paterson and Bryan, 2012; Townsend et al., 2012).</p><p>Focussing on the 15 million ha agricultural region of SouthAustralia, we quantied the supply of four ecosystem services(food and ber production, carbon sequestration, fresh waterprovision, habitat for local native species) from three land uses(existing agriculture, carbon monocultures (single species Euca-lyptus plantations), environmental plantings (ecological restora-tion of mixed native species)) using a range of biophysical processmodels. We calculated the net economic returns from each landuse over 40 years from 2010 to 2050 in net present value (NPV)terms, given the presence of exogenously-determined incentiveprices for the supply of these services. We assessed 1875 scenariosincluding all combinations of the ve prices for each of the fourservices, and assessed model sensitivity using three economic costparameter settings (high, median and low). For each scenario, weidentied areas with land use change potential based on neteconomic returns and quantied the impact of these changes onthe four ecosystem services. We quantied the effect of incentivesusing Spearman's rank correlation analysis and visualized the</p><p>grazing systems, interspersed with patches of remnant natural</p><p>B.A. Bryan, N.D. Crossman / Ecosystem Services () e2in agro-ecosystems including capturing synergies and avoidingtensions (White et al., 2012). Here, we present the rst quantita-tive, integrated exploration of the interaction of multiple nancialincentives and their impacts across multiple ecosystem services.</p><p>We assessed the impact of nancial incentives on ecosystemservices through their effect on land use protabilitya key driverof land use change (Irwin and Geoghegan, 2001; Lubowski et al.,2008). We took a spatial approach in identifying areas with landuse change potential (areas where an economic opportunity existsfor land use change) under a range of nancial incentive (price)scenarios. We then assessed the impact of this potential change onmultiple ecosystem services. This type of approach has beencompared to more sophisticated land use change forecasts andshown to provide timely insight at a level of detail sufcient forFig. 1. Location map and major land uses in the stu</p><p>Please cite this article as: Bryan, B.A., Crossman, N.D., Impact of mulsupply of ecosystem services. Ecosystem Services (2013), http://dx.dland (Fig. 1). Climate is Mediterranean in the south grading tosemi-arid in the north, and soils are nutrient-decient. The regionis responsible for around 18% of Australia's cereal production andinteractions between inuential incentives on each ecosystemservice. The implications of incentive interactions on policyefciency in agro-ecosystems are discussed.</p><p>2. Methods</p><p>2.1. Study area</p><p>Land use in the study area is dominated by mixed cropping/dy areaSouth Australia's agricultural regions.</p><p>tiple interacting nancial incentives on land use change and theoi.org/10.1016/j.ecoser.2013.03.004i</p></li><li><p>13% of its' sheep production. In addition to established agriculturalcommodity markets, several nancial incentives for the supply ofecosystem services are existing or planned in the region includinga water market (cap and trade) implemented through bothnational and state-based legislation (Young and McColl, 2009),biodiversity payments under a range of programs (Connor et al.,2008; DCCEE, 2011), and a national carbon trading scheme (DCCEE,2011).</p><p>2.2. Modeling and mapping ecosystem services</p><p>We employed a range of spatial biophysical models to estimatethe production of food and ber, carbon sequestration, fresh water,and habitat services. All spatial analysis was raster-based at 1 hagrid cell resolution. Each spatial layer consisted of 6715rows8561 columns and 9,190,508 valid grid cells. A GeographicInformation Systemwas used to assemble and map the data layers.</p><p>For food and ber, we used a crop growth and agriculturalsystems model (the Agricultural Production Systems sIMulator orAPSIM) (Keating et al., 2003) to estimate mean annual production</p><p>(thereby reducing fragmentation and enhancing connectivity)such that at least 30% of the area (with a minimum area of1000 ha) of each of 12 major pre-European vegetation commu-nities, 15 climate zones, 18 soil types, and 26 biogeographicsubregions was covered by vegetation (restored and remnant)(supporting information text)).</p><p>2.3. Incentive price and cost scenarios</p><p>anal</p><p>antin</p><p>B.A. Bryan, N.D. Crossman / Ecosystem Services () e3of wheat and legumes (eld peas) for 80 unique soil-climate zonesunder historical mean climate (supporting information text). Wederived livestock production data from the 2006 agriculturalcensus (supporting information text).</p><p>For carbon sequestration, we used a forest growth model(3-PG) (Landsberg and Waring, 1997) to estimate sequestrationrates from reforestation from 2010 to 2050 under historical meanclimate (supporting information text). For carbon monocultureswe stratied the study area into high, medium, and low rainfallzones and simulated growth of a climatically-adapted, fast-growing Eucalyptus species in each. Environmental plantings weresimulated as a suite of mixed local native tree and understoreyspecies.</p><p>For fresh water, a landscape hydrology model (the AustralianWater Resources AssessmentLandscape model or AWRA-L) (vanDijk and Renzullo, 2011) was used to quantify marginal changes inwater resource availability induced by reforestation (ML/ha/yr) ata 0.051 grid cell resolution. We specied that reforestationimpacted fresh water services in water supply catchments only(supporting information text).</p><p>For habitat, we used a systematic landscape restoration modelto identify agricultural areas of high priority for ecological restora-tion (Bryan and Crossman, 2008; Crossman et al., 2007, 2011b).High priority areas were those closer to remnant vegetation</p><p>Table 1Incentive prices analyzed in this study.</p><p>Incentives Units Price levels</p><p>Agricultural commodities multiplier 0.5 1.0 1.5 2.0 2.5Carbon $/tCO2e 10 20 30 40 50Water $/ML 0 500 1000 1500 2000Biodiversity $/ha/yr 0 50 100 150 200</p><p>Table 2Economic parameters comprising the three economic scenarios used in sensitivity</p><p>Economic cost setting(S)</p><p>Discount rate(r)</p><p>Establishment costs ($/ha)</p><p>Carbon monocultures(ECf)</p><p>Environmental pl(ECf)</p><p>High cost 0.11 4000 5000Median cost 0.07 3000 3750Low cost 0.03 2000 2500Please cite this article as: Bryan, B.A., Crossman, N.D., Impact of mulsupply of ecosystem services. Ecosystem Services (2013), http://dx.dFor each service, ve constant, exogenously-determined incen-tive price levels were specied which covered the range ofplausible values given recent trends and future projections(Table 1). Commodity prices were taken as the average over theperiod 20022007 (Australia Bureau of Agricultural and ResourceEconomics, 2010) and price multipliers selected to cover agricul-tural commodity price movements over this period and morerecently, including the 2008 and 2011 food price spikes. Carbonprices were selected to center around the 23 $/tCO2e startingprice for Australia's carbon market but also include a price rangerepresentative of price variation experienced within local volun-tary markets and the European market, and price trajectoriesmodeled by the Australian Government (Australian Government,2011b; Lawson et al., 2008). Water prices were specied based onprice movements of high security, high reliability water entitle-ments, and prescribed water resources in the South Australian partof the southern Murray basin (Australian Government, 2011a).Biodiversity prices were specied based on prices paid for on-ground works in auctions for conservation contracts in southernAustralia (Bryan and Kandulu, 2009; Connor et al., 2008; Crossmanet al., 2011a).</p><p>Economic parameters such as discount rate, establishmentcosts, and ongoing costs such as maintenance and transactionscosts are uncertain and strongly inue...</p></li></ul>

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