Part IV. Renewable Resources

1. Part IV. Renewable Resources Fish Forests – temperate Water Biodiversity

2. A. Temperate Forests Chapter 12

3. Forest Ecology • Temperate forests – in North America are found north of the Tropic of Capricorn and south of the Tropic of Cancer. • The forest is more than a collection of trees. • It is a collection of plant, animal, bacterial, and fungal organisms that interact with the physical environment and with one another. • A forest is an example of a climax community.

4. Climax community • Defined – an ecosystem that has arisen out of competition with other communities of organisms. • An area of land may be first populated by grassland, then small woody plants, then fast growing trees, and finally slower growing trees, such as oak and maple. • The process of soil formation and nutrient cycling is a good example of how organisms interact with the physical environment.

5. Nutrient cycling • Process by which the basic life nutrients (P, K, and N) are absorbed from the physical environment by various organisms in the ecosystem, transferred from organism to organism, and eventually returned to the soil. • As Figure 12.1 illustrates, nutrients in soils are absorbed by roots of trees and other plants. • These nutrients return when plants die and decay, when animals eat plants and their waste is returned to soil and when other animals eat these animals and waste is returned to the soil.

7. Carbon sequestering & water absorption • Forests play an essential role in carbon cycling when they remove CO2 from the atmosphere and sequester it in their woody tissue. • Carbon is then available to other organisms who consume the tree. • Forests also play an important part in the hydrological cycle. • Leaves of the forest slow the velocity of the rain, allowing a slow trickle of water to organic matter below. • The result is more water absorbed by the soil, more water reaching underground aquifers and less soil erosion due to run-off.

8. Ecological services • In addition to the forests’ contribution discussed above, forests are important to flood protection, biodiversity, soil formation, and erosion control, carbon sequestration. (lumber argument?) • Forests also provide important aesthetic and recreational benefits and production activities. • Productive activities include harvesting animals, mushrooms, berries, mining and grazing of livestock and the harvesting of wood.

9. The Privately & Socially Optimal Management of Forests • Optimal management of forests is ultimately linked to the type of ownership. • Forest ownership can be divided into 3 primary categories: • Forests owned by households • Forests owned by firms in the forest industry • Publicly owned forests. • Difficult to identify a single management strategy for 1st type, HH owned forests. Strategies vary by owner and can take the form of profit maximization, utility maximization or a combination of both.

10. 2. Forest product industry • These firms, which include Boise-Cascade, Weyerhaeuser, and Georgia-Pacific, seek to maximize the present value of earnings derived from the forest. • In addition to harvesting timber from their own land, these firms also lease harvesting rights on both private and public lands.

11. 3. Publicly owned forests • Include national parks, national forests, and state and local parks and forests, as well as publicly owned tracts of forests, wildlife refuges, game management areas, and nature preserves. • Generally these publicly owned forests are managed for multiple uses and not just the generation of income from timber harvesting.

12. Maximizing the Physical Quantities of Harvested Wood • There are 2 basic methods for maximizing the physical quantity of wood derived from the forest. 1.Peak volume –letting the forest grow until it reaches its peak volume and then cutting it. The forest is then replanted, and the process is allowed to repeat itself. 2. Rotation of forest – chooses the length of the harvest-replant-harvest cycle to maximize the total harvests of wood that can be achieved over time. The length of the rotation cycle is chosen to maximize the flow of wood.

13. Growth • The length of time in the rotation for either of these 2 strategies is critically dependent upon the way in which trees grow. • The growth of trees is dependent on the density of the stand of trees, the soil condition, weather and rainfall, and the incidence of disease and pests. • It is important to consider growth of the stand of trees and not the individual trees. • After replanting, the trees initially grow at a rapid rate, but the mass of wood is relatively small. • As trees mature growth eventually slows. • Growth can become negative as disease and death associated with aging has a greater impact.

14. As illustrated in Table 12.1, Figure 12.2a, and Figure 12.2b, growth of a hypothetical stand of trees can be expressed as a function of the age of the trees in the stand.

16. Optimal time to harvest? • It is not as easy to see when the total amount of wood that is harvested over time is maximized – tradeoffs • One way to increase the flow of wood is to harvest more frequently. • However, the more frequently you harvest, the younger and smaller the trees. • The alternative is to harvest less frequently and have bigger harvests. • The optimal time to harvest is at the age that maximizes the average growth (MAI) of the tree over its lifetime. • If average growth is maximized over a sequence of multiple rotations, then total growth will be maximized as well.

17. Max quantity – an efficient policy? • Inefficient. The costs and benefits associated with different quantity levels have not been incorporated • Must consider costs and benefits of making rotation longer or shorter

18. The Optimal Rotation • The choice of optimal rotation is conceptually very simple. The forest manager must ask “Are the benefits of making a rotation a year longer (or a year shorter) > the costs?” • The complexity is in determining the costs and benefits and evaluating then over time. • Figure 12.3 illustrates the time paths of benefits and costs from timbering.

19. Start with newly planted trees. Revenue is generated at harvest and is referred to as stumpage value. • Then the costs: include planting, maintenance such as disease control, fire prevention, thinning, pruning and removal of deadwood and pest control.

20. The Optimal Rotation • Benefits come at a set of intervals, costs at another • The forest manager's job is to maximize the PV of this stream of costs and benefits by deciding the optimal rotation length.

21. Costs • The costs of letting trees grow for another year include both: • Out-of-pocket costs – Disease prevention, thinning, fire prevention and control of pests • Opportunity costs – Based on foregone income plus 2 other categories: interest income and potential rent • Interest income (rV) is income that would have been earned if trees had been harvested, sold, and the money invested • Potential rent/opp cost of land (OCL) is associated with trees being harvested and the land rented.

22. Costs and benefits • Assume out-of-pocket expenses are 0 (just include opp costs). Implies that periodic cutting efficient. • If out-of-pocket expenses are sufficiently high, then it is possible that the forest should never be cut. • Benefitsof allowing the trees to grow (waiting) come from the possibility of greater quantities of wood to sell – critically dependent on the shape of the marginal growth (annual increment) function of the trees.

23. The Optimal Rotation • The additional revenue associated with increasing the length of rotation is represented by DV/Dt, change in revenue if wait 1 more year. • The stumpage value function reaches its maximum when DV/Dt=0, that is when lengthening the rotation has no impact upon stumpage value. • The opp cost of land: function OCL. This is the interest that could be earned from the sale of land. (= annual rent that could be earned) • The max value for OCL will occur when rotation is at its optimal length. Here the forest will be most valuable.

24. The Optimal Rotation • When rV + OCL (the sum of the two opportunity costs) = marginal benefits of changing rotation length (DV/Dt), the PV of the whole future stream of harvests is maximized. • Any external changes that shift DV/Dt upward will, ceterus paribus, lengthen the optimal rotation. • Likewise, any external changes that shift either rV or OCL upwards will, ceterus paribus, shorten optimal rotation. • An example would be an increase in the price of timber that would increase the stumpage value (V), which would increase DV/Dt and increase rV and OCL.

25. An increase in DV/Dt lengthens the rotation while an increase in rV and OCL shortens the rotation. Which effect dominates depends upon the interest rate.

26. The Optimal Rotation • One shortcoming of the optimal rotation model is the failure to include benefits associated with standing forests, which includes watershed protection, wildlife habitat, and recreation and so on. • Bowes and Krutilla point out in their study that relationships between the length of the harvest rotation and non-harvest benefits are likely to be irregular, illustrated by the multi-peaked function in Figure 12.4. • Figure 12.6 illustrates the optimal rotation when non-harvested benefits are considered.

27. The maximum of the total benefits function is to the right of the maximum of the timber harvested function, implying that considering non-harvested benefits will lengthen optimal rotation. If non-harvest benefits are large enough, the optimal harvest rotation may be to never harvest.

28. The Optimal Rotation • Both harvested and non-harvested benefits from a particular stand of forest are dependent on the quantity and quality of other forest stands. • The price of timber is determined by the quantity and quality of other forest stands. • Elimination of non-harvest benefits by harvesting may have an impact upon non-harvest benefits of other forest stands. • Clear cutting scars the landscape and reduces the recreational value of remaining landscape. • The degree of forest fragmentation caused by harvesting is extremely important to species habitat and biological diversity.

29. Multiple Use Management • The Multiple Use Sustained Yield Act (MUSYA) of 1960 specifically charges the U.S. Forest Service with managing to promote benefits from both timber and non-harvest benefits. • One set of uses of forest specified by the MUSYA includes those that generate revenue for forest service such as timber, grazing, mineral and energy mining, and fee recreation.

30. Multiple Use Management • Grazing is possible because a forest is generally defined as an area in which at least 10% of land area is covered by a canopy of trees. • Approximately 100 million acres of national forest land is currently available for ranchers, of which 50% is suitable of grazing. • Bowes and Krutilla charge that the payment made for use of this land is below market price.

31. Multiple Use Management • An alternative set of uses for the forest resource does not generate revenues and is often called nonmarket use. • These include OA (unpriced) recreation, watershed maintenance, wilderness, and fish and wildlife value. • Not only do market and nonmarket uses conflict but also many nonmarket uses conflict with one another. • Too many recreationists can lead to environmental degradation which leads to a decline in wildlife numbers and diminished watershed attributes. • Hikers conflict with trail bikers or skiers with snowmobiles.

32. Comparative advantage • When applied to forests, the theory of comparative advantage argues that even though some of the best wood in the world can be produced from old growth red wood, spruce, fir and sequoia forests in the Pacific Northwest, the comparative advantage of these forests is in the production of ecological services, aesthetic benefits and recreational opportunities. • Can substitute wood, cannot substitute ecological services.

33. Below-Cost Timber Sales • Many critics of U.S. Forest Service policy feel that management has been slanted towards timber production. • In the late 1970s, the National Resources Defense Council focused on the existence of below cost timber sales (sales of timbering rights on public land, where revenues do not cover the timber related forest management expenses) and the inefficiencies that they create, including depressing the profitability of privately owned forests.

34. Proper use • A general guideline for proper use of public forest land is that a forest should be used for timbering if the PV of the net benefits (net of all management costs) of all multiple uses is > it would be without timbering. • The cost of road building is often not included in this analysis because it is viewed as a benefit to multiple uses.

35. Costs of roads • The problem is that the quantity of roads necessary for harvest of timber may be > that optimal for recreational use, and as a result may cause environmental degradation. • In addition, building these roads precludes the designation of the forest as a wilderness area. • The cost of the roads is viewed as sunk by the Forest Service and is not linked to the acceptance of bids for use of the forest land.

36. Excess harvesting • Figure 12.7 illustrates the excess harvesting which will result when the full costs associated with use of the timber resource are not reflected in the decision to harvest. • M1 represents the square miles harvested when the timbering firm does not recognize the cost of road building or the other opportunity costs. • As additional costs are added to the MPC, the optimal quantity of timber harvested falls. • Timbering companies choose too to harvest TOO MUCH since true costs not included

38. Special case: optimal harvest 0 • Figure 12.8 illustrates a special case where failure to recognize the full costs of harvesting timber can lead to inefficient harvests. • By comparing MR to MPC plus additional external costs it is possible to see that the optimal level of harvest is zero. • Failure to incorporate the other costs would result in a positive level of harvest.

39. Panel A: MSC lies entirely above MR – optimal harvest 0. Panel B: When include foregone benefits from other uses (recreation, wildlife, watershed protection), MSC again lies entirely above MR – optimal harvest 0.

40. Ancient Growth Forests • In the US, the only remaining old growth forests are in the Pacific Northwest and Alaska. • Old growth or ancient forests are forests that have never been logged and therefore, are in their original state. • From an ecological perspective, replanted forests are a poor substitute for an old growth forest.

41. Ancient Growth Forests • Huge trees shape the ecosystem within which they live. • Standing trees serve as homes for many species. • Falling trees clear a swatch through the forest, open up the floor of forest to sunlight, and promote growth of plants. Provide homes for animals. • Deadwood provides nutrients for new generations of trees.

42. Owls or jobs? • Jobs issue often used to justify subsidizing harvesting of forests • Actually, this process involves a net loss for society as a whole, because it costs as much as $3 of gov’t expenditure for every $1 timbering job wage created • In some cases, timbering may even destroy more jobs than it creates – ecological damages (downstream, erosion – affects salmon fishers, etc.) • Additionally, subsidization lowers market price of wood, adversely affecting employment in privately harvested areas.

43. Ancient Growth Forests • In addition to the direct monetary costs of timbering old growth forests, there are also the costs to society of the loss of the ancient forests. • These costs are likely to be high, since the amount of ancient forests has shrunk so drastically in recent years. • See box 12.1 – measuring the value of spotted owls • Benefit of preserving owls represents huge Pareto improvement – appropriate policy may be to compensate those in timber industry who lose from preservation

44. Summary • Since the forest is the only source of economic activity in many remote rural areas, it is often felt that the forest must be harvested to provide jobs to support the region's population. • There are COSTS associated with “saving” jobs in the timber industry. • These include the inefficiency associated with road building, the potential loss of species, for instance the decline in salmon fishing due to destruction of streams. • As fewer and fewer old growth forests remain, the cost associated with clear cutting these forests rise. • The value of the last of any species is very great.