Considering the Interface of Climate and Productive Natural Resource Use: Market Approaches to Enable Sustainable Development

This dissertation includes three papers related to climate, resource use, and market applications for sustainable development in developed/developing countries. The first paper describes the development of a game-theoretic economic model investigating the linkages between credit and insurance markets for smallholder farmers, and how a new market tool (weather index insurance) may help to overcome credit constraints in rural financial markets of developing countries. The second paper extends consideration of agricultural climate-risk management to potential skill in predictions of late-season rainfall over monsoonal Indonesia, with the aim of better understanding: (i) forecast skill and risk in this region, and (ii) how forecast information may be better tied with financial market products, such as index insurance, to improve smallholder farmer incentives, decision-making, and livelihoods under climate risk. The third paper, in turn, looks at forest resource management in Canada, and what the application of new carbon constraints and a market for carbon would mean for investment, production decisions, and indicators of sustainable forest management in the Canadian boreal, both in respects to the management of the landscape (i.e. the forest resource), and the development of the forestry sector and forest-based communities

Paleoclimate histories improve access and sustainability in index insurance programs

Proxy-based climate reconstructions can extend instrumental records by hundreds of years, providing a wealth of climate information at high temporal resolution. To date, however, their usefulness for informing climate risk and variability in policy and social applications has been understudied. Here, we apply tree-ring based reconstructions of drought for the last 700 years in a climate index insurance framework to show that additional information from long climate reconstructions significantly improves our understanding of the underlying climate distributions and variability. We further show that this added information can be used to better characterize risk to insurance providers, in many cases providing meaningful reductions in long-term contract costs to farmers in stand-alone policies. The impact of uncertainty on insurance premiums can also be reduced when insurers diversify portfolios, and the availability of long-term climate information from tree rings across a broad geographic range provides an opportunity to characterize spatial correlation in climate risk across geographic regions. Our results are robust to the range of climate variability experienced over the last 400 years and in model simulations of the twenty-first century, even within the context of changing baselines due to low frequency variability and secular climate trends. These results demonstrate the utility of longer-term climate histories in index insurance applications. Furthermore, they make the case from a climate-variability perspective for the continued importance of such approaches to improving the instrumental climate record, even into a non-stationary climate future

Paleoclimate histories improve access and sustainability in index insurance programs

Proxy-based climate reconstructions can extend instrumental records by hundreds of years, providing a wealth of climate information at high temporal resolution. To date, however, their usefulness for informing climate risk and variability in policy and social applications has been understudied. Here, we apply tree-ring based reconstructions of drought for the last 700 years in a climate index insurance framework to show that additional information from long climate reconstructions significantly improves our understanding of the underlying climate distributions and variability. We further show that this added information can be used to better characterize risk to insurance providers, in many cases providing meaningful reductions in long-term contract costs to farmers in stand-alone policies. The impact of uncertainty on insurance premiums can also be reduced when insurers diversify portfolios, and the availability of long-term climate information from tree rings across a broad geographic range provides an opportunity to characterize spatial correlation in climate risk across geographic regions. Our results are robust to the range of climate variability experienced over the last 400 years and in model simulations of the twenty-first century, even within the context of changing baselines due to low frequency variability and secular climate trends. These results demonstrate the utility of longer-term climate histories in index insurance applications. Furthermore, they make the case from a climate-variability perspective for the continued importance of such approaches to improving the instrumental climate record, even into a non-stationary climate future