C.  Forests

1.  Economics of forest management

• Forests can be privately owned

• Excludable and rival => private good

• Biomass accumulates over time, is available if undisturbed

• Other functions of forests - carbon storage, water retention, maintenance of biological diversity

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a.  Forest growth over time

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b.  Harvest decision

(1)  Sustainable management

• Limit annual harvest to no more than annual growth

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(2)  Harvest decision and the interest rate

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(3)  Impact of replanting and regrowth

• Mean annual increment (MAI) - average growth rate of a forest

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• Maximizing MAI leads to maximum volume over time

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(4)  Profit maximization

• Need to factor in cost of harvesting

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• Impact of discounting

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• Commercial forest management may conflict with ecological goals

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2.  Forest loss

• Natural forests cut down, replaced with planted forests

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a.  Forest loss by type and geography

Net Change in Total Forest Area, by Region, 2000–2010

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• Boreal forests (coniferous trees in cold regions) and temperate forests (in regions with mild winters and moderate rainfall) generally stable or increasing

• Tropical forests declining in most areas

• Tropical forests have more biodiversity - many different interrelated species in an ecological community

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b.  Reasons for forest loss

• Most forest loss is due to conversion to agriculture, ranching, or pasture as opposed to harvesting

Drivers of deforestation by region

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c.  Impact on biodiversity

• Planted forests tend to have less biodiversity

• Monocultures - single species selected for maximum economic return

• Less habitat for different species of plants and animals

• Less resilience - capacity of an ecosystem to recover from adverse impacts

• Tropical forests particularly important - have 80 percent of documented species

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4.  Policies for sustainable forest management

• Economic pressures and population growth lead to forest loss

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a.  Global objectives

• By United Nations Forum for Forests (UNFF)

(1)  Reverse the loss of forests through sustainable forest management

(2)  Enhance the economic, social, and environmental benefits of forests, and improve the lives of people that depend on forests

(3)  Significantly increase the area of protected forests

(4)  Increase financial resources, including international development aid, devoted toward sustainable forest management

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b.  Supply side policies

(1)  Need secure property rights - clearly defined and legally binding rights of property ownership

• Owners would have incentives to achieve a flow of income from forests and to maintain forests for positive externalities

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(2)  Global agreements

• Some positive externalities are global in nature - removal and storage of atmospheric carbon

• Climate change agreements could give compensation for preserving forests

• REDD+ ("reducing emissions from deforestation and forest degradation")

- Effective forest management gives credit toward climate mitigation targets

- Incentives to developing countries for reducing forest emissions - cutting tree release stored carbon

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(3)  Full pricing of forests on public lands

• Current prices paid much less than the total economic value - both use and nonuse values

• Besides value of wood, should include water services and maintenance of water quality, carbon sequestration value, biodiversity value, recreation, tourism, and cultural values

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(4)  Internalizing positive externalities

• Use Pigouvian subsidies

• Payments for ecosystem services (PES) - payments to natural resource owners in exchange for sustainable management practices

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(5)  Command and control

• Limit clear cutting

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c.  Demand side policies

(1)  Uses

(a)  Fuel

• 80 percent of wood used in developing countries

• Expected to decline in future

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(b) Industrial roundwood

• Logs, veneers, wood pulp, plywood, furniture, construction lumber, paper products

• 80 percent of wood used in developed countries

• Expected to grow in developing countries

• Demand for paper has increased rapidly

World Wood Production, 1965 - 2015

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(2)  Policies

(a)  Expanded recycling of paper and other products

• Low prices hurting recycling of paper

(b)  Internalize environmental externalities

• Would raise price of wood products

(c)  Reduce "embodied" deforestation

• Results from the demand for non-wood products, especially crops and livestock

i)  Consumer awareness programs

ii)  Certification of products grown using sustainable forestry practices

• Ex. - Coffee

iii)  Reducing consumption of meat

• Large amounts of land needed for grazing livestock, particularly cattle for beef

iv)  Internalizing external costs

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