Sensitivity analysis in economic evaluation of payments for water and carbon ecosystem services

•Payment for ecosystem services (PES) to improve climate, water and other ecosystem service (ES) outcomes are growing in popularity.•Evaluating PES involves multiple complex ES and market models, interactions, and uncertainties.•Sensitivity analysis can improve confidence in results and identify PES implementation risks and mitigation options.•This article illustrates best practice sensitivity analysis applied to a carbon and water PES assessment.•Results demonstrate evaluation of risks, uncertainties, and risk mitigation options for the PES. Payments for ecosystem services (PES) have become a widely accepted tool for mitigating ecosystem decline with hundreds of applications globally. Despite the extensive use of PES, challenges remain in evaluation of feasibility and impact. A key challenge relates to how the multiple, complex ecosystem and market processes determining outcomes are usually only understood with considerable uncertainty. These uncertainties arise throughout the processes to PES evaluation from the conceptual framing and modelling paradigm through to the input data and scenario assumptions. Understanding implications and risks arising requires rigorous and transparent uncertainty treatment and reporting. This article demonstrates best practice in transparent and rigorous PES evaluation with global sensitivity analysis (GSA). The approach systematically identifies uncertain parameters and applies Monte Carlo simulations with stochastic sampling from distributions of uncertain input parameters that are transformed to provide distributions of possible outcomes. The case study considered involves comparing the costs of forest regeneration with the stacked water and carbon value of ecosystem services derived from the vegetation. The results demonstrate the evaluation of multiple ecosystem service process and market uncertainties, quantifies their influence on the overall economic viability of the scheme and the relative impact of different uncertainties on scheme economic viability risks. The results and discussion outline how wider application of GSA could provide better pragmatic and informative assessment of the inevitable uncertainties within ecosystem service payment scheme evaluation.