Economic Valuation of Carbon Sequestration under Land Use Change: Implications from the Ukai Reservoir Watershed, India

Abstract

Land use and land cover (LULC) dynamics are a major determinant of carbon sequestration, a critical regulating ecosystem service with direct implications for climate mitigation and natural capital accounting. This study quantifies the biophysical and economic impacts of LULC change on carbon storage in the Ukai Reservoir watershed, India, using the Integrated Valuation of Ecosystem Services and Trade-offs (InVEST) model. High-resolution LULC datasets derived from the ESRI Land Cover product for 2017 and 2025 were used to estimate spatially explicit carbon stocks across four carbon pools. The results indicate a decline in total carbon storage from 10.56 million metric tons to 9.81 million metric tons over the study period, corresponding to a net loss of 0.75 million metric tons of carbon, primarily driven by a reduction in tree cover alongside expansion of rangeland and built-up areas. Economic valuation using a discounted cash flow framework reveals a net present value loss of USD 37.38 million, equivalent to an average deficit of USD 121.22 per hectare, highlighting the economic implications of changes in carbon-related ecosystem services. A scenario-based sensitivity analysis was conducted to evaluate potential restoration pathways over medium- to long-term horizons, indicating that moderate restoration interventions can yield carbon gains of approximately 0.25 million metric tons, while more intensive land-use reallocation can generate up to 0.78 million metric tons, with corresponding economic benefits of up to USD 31.45 million. The study is based on satellite-derived land-cover classifications and model-based carbon coefficients; therefore, the estimates represent spatially explicit approximations of carbon dynamics. Overall, the findings demonstrate the utility of integrating spatial modelling, economic valuation, and scenario analysis to support evidence-based land-use planning and climate policy.