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A tool commonly used by financial strategists to determine whatshares to purchase to create a diversified stock portfolio was usedto develop a diversified portfolio of another kind - land to be setaside for conservation purposes given the uncertainty about climatechange. Instead of plugging into the formula the data for the history of astock, University of Illinois environmental economist Amy Ando andagricultural economist Mindy Mallory used the historical climatedata of the Prairie Pothole Region of the northern Great Plains todevelop a new application of the financial tool called the ModernPortfolio Theory. "It's a very well-known tool in finance," said agriculturaleconomist Mindy Mallory. "There are many tools that are widelyavailable to solve a portfolio problem. So it was really just a newmarriage of the tool with a different kind of portfolio problem." Mallory and Ando used the Modern Portfolio Theory to develop adiversified land portfolio for conservation in the Prairie PotholeRegion. The region contains thousands of shallow wetlands createdby glaciers and serves as breeding grounds for almost 200 speciesof migratory birds. The region is about 276,000 square miles andincludes portions of Saskatchewan, Manitoba, and Alberta in Canadaand Minnesota, Iowa, North and South Dakota, and Montana in theUnited States. Ando said the U.S. Fish and Wildlife Service has already protectedover 3 million acres in the region and seeks to quadruple thatinvestment. The techniques incorporated in this study could helpthem make decisions based on the cost, risks, and benefits of theland. Mallory explained that in the stock analogy, simple diversificationwould be like someone buying one of every kind of stock in theentire market. Ando seconded that simple land diversification, suchas buying one acre in every county, would be just as farfetched aplan. "For a long time, uncertainty due to climate change wasn't aproblem so conservationists weren't even looking at diversifying,"Ando said. "More recently, people have been thinking like that oldphrase 'don't put all of your eggs in one basket' so simplediversification would be the first natural step to take - and youwouldn't need a mathematical model. But buying some land in eacharea doesn't work very well." The researchers modeled different future regional climate scenariosusing historic conditions, warming of 2 and 4 degrees Celsius and a10 percent increase in precipitation in the Prairie Pothole Region. "What we found was that when we looked at benefits only, the areain the east was best," Mallory said. "But when we considered bothbenefits and costs, the less expensive land in the central areaachieved the highest expected benefit." Ando said there are major cost factors for buying the land orputting land under conservation easement. The eastern portion ofthe region includes Minnesota and Iowa, which are high land-coststates, became a big driver of their results. "Setting aside land in that area for conservation is prettyexpensive," Ando said. "In our study, we didn't include restorationof the land, which would result in additional costs." Ando said their results showed that if climate change wasn'tlikely, "the current Fish and Wildlife holdings were pretty closeto being on the efficient frontier. And while simplediversification schemes may be appealing, they did not performwell. Before we began the research, we didn't realize just howimportant it would be to think carefully about the diversificationand not just divide the investment between the regions." Mallory said that one of the biggest challenges of implementingthis approach in planning is that to truly use this method it'simportant to know the probability distribution of the climatechange outcomes. "It's a really hard question, even for climate scientists who studythe topic," Mallory said. Another challenge is that the results are dependent upon policiesas well as physical processes. "There's uncertainty about whether countries will agree on climatechange policy," Ando said. "If they do agree, you get onetrajectory of carbon emissions with an associated set ofprobabilities of climate change. If they don't agree on policies,you get a different trajectory of carbon emissions with a differentprobability distribution over climate outcomes. So there's thatuncertainty, on top of all of the physical uncertainties," shesaid. Optimal portfolio design to reduce climate-related conservationuncertainty in the Prairie Pothole Region was published in theProceedings of the National Academy of Sciences of the UnitedStates of America and funded by the University of Illinois. I am an expert from multifunction-calibrator.com, while we provides the quality product, such as China Digital Insulation Tester , Humidity Temperature Meter Manufacturer, Digital Earth Resistance Tester,and more.
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