Decision-making under Uncertainty for Natural Capital Resources

Abstract

Natural capital resources provide valuable goods and services to humans that help tackle global environmental challenges such as climate change and the loss of biodiversity. However, if actions towards managing these resources neglect the wide range of possible future outcomes under uncertainty, it could fail to provide the benefits to humanity necessary to mitigate these challenges. In this thesis, I discover how different ways of incorporating risk into decisions for natural capital resources will lead to different results. First, I present a systematic comparison of the different methods that can be used to make natural capital decisions under uncertainty and show that methodological choices on how risks are measured in the objective functions used for decision-making have a major effect on the quality of guidance that analysts can recover. Second, I draw on these methods to an exemplar in the United Kingdom of identifying low-risk tree-planting strategies to remove carbon dioxide from the atmosphere and reach ``net-zero" carbon emissions by 2050, a problem encountered by every major industrialised nation with a commitment to the Paris Agreement. Using state-of-the-art natural capital valuation models, I quantify the risks associated with selecting a portfolio of tree planting activities that ignore the vast array of climate and economic uncertainties. Subsequently, I illustrate that risk mitigation is possible through the application of portfolio optimisation using methods that explicitly reduce downside risks, but substantial cost risks still exist even when sophisticated approaches are used. Third, I present another study in the context of creating protected areas to conserve the habitats of the threatened koala (Phascolarctos cinereus) in New South Wales, Australia. In this study, I extended the problem so that decision-makers can make decisions over time in a dynamic and uncertain environment, where uncertainties in the precise effects of climate change are resolved over time. I show that flexible strategies that adapt based on new information about climate change can deliver significant cost savings to achieve conservation objectives while minimising risks. This illustrates that decision-makers who exploit the temporal nature of their decisions can realise substantial improvements in benefits without increasing risk. Overall, this thesis provides an in-depth discussion of how decision problems used to protect and restore natural capital can be extended to account for risk and uncertainty and illustrates its generality across case studies in terms of minimising risks.