Economics of species change under risk of climate change and increasing information : a (Quasi-)Option value analysis

In response to anticipated consequences of global warming on forest ecosystems, some adaptation options are recommended; among them conversion to more adapted timber species. However, large uncertainties remain around the impacts of climate change on current timber species. This paper provides an economic analysis of timber species choice as a tool for adaptation of forests to climate change, taking into account the uncertainty over future mortality rate of current species. We use the framework of cost-benefit analysis, taking uncertainty into account both exogenously, via sensitivity analysis, and endogenously, via (quasi-)option value calculation. We illustrate this approach on the Norway spruce to Douglas-fir example. The main conclusion of this paper is that (quasi-)option value is a relevant economic tool to analyse such a problematic. A case study shows that taking into account the arrival of information over time, within a (quasi-)option value approach, leads to adopt a more flexible management of regeneration (few expenses until more information becomes available) in case of ambiguity on climate change effect. Sequential decision making in case of choice species may allow to avoid some of the sunk costs of immediate choices related to the introduction of a new species or to the immediate clearing for natural regeneration. The case study shows that the adoption of a delay strategy may give substantial benefits, depending on the sunk costs of immediate management options (planting Douglas-Fir, or clearing for natural regeneration of Norway Spruce) and of the subjective probabilities on climate change effects.