Marian L. Weber Alberta Research Council

1. Assessing Economic and Ecological Tradeoffs from Tradable Landuse Rights: Application to Canada’s Boreal Mixedwood Forest Marian L. Weber Alberta Research Council Sustainable Forest Management Network, University of Alberta 4th BioEcon Workshop on the Economics of Biodiversity Conservation Venice, Italy August 28, 2003

2. Sustainable Forest Management Network Boreal Ecology and Economics Synthesis Team Fiona Schmiegelow, Vic Adamowicz, Glen Armstrong, Steve Cumming, Grant Hauer, Lee Foote, Marian Weber "Research focusing on the development of a suite of models of natural forest dynamics and human activities that facilitates evaluation of management scenarios in terms of ecological and socioeconomic outcomes, for use in an adaptive management framework."

3. Natural Reserve Design • Article 8 of Rio Convention on Biodiversity 1992 • “establish, regulate and manage networks of protected areas to promote the protection of ecosystems, natural habitats and maintenance of viable populations of species in natural surroundings” • Coarse Filter Approach • Objectives : Representation and Persistence (dynamic)

4. A. Maximal Coverage B. Budget Constrained Reserve Design Approaches Min Land Cost s.t. Biodiversity Constraint Ando, et al., Science (2001) Max Species Metric s.t. Reserve Area Constraint Camm et al. Biological Conservation (1996)

5. Implementation Problems 1. Methods for selecting ecological criteria ad hoc • Choice of biodiversity metric • Species Weights • Ethical Issues (implicit vs. explicit) • Data Issues • Classification Incomplete • Surrogacy not promising (e.g. Jaarsvald et al. 1998) • Presence-Absence versus Demographic Data • Conflicting Species Requirements Process Based Higher Level Surrogates such as Ecosystems (e.g. Margules and Pressey 2000)

6. Political Feasibility • Institutional Context for Forest Management in Canada • 1. Forest Lands are Publicly Owned • Overlapping Tenures and Uncoordinated Access • Skewed and missing price signals on public lands. • 2. No Legal Framework for Integrated Land Management • What land uses are of highest value? • No mechanism for addressing biodiversity concerns or cumulative effects at disposition stage. • Currently addressed under Canadian Environmental Assessment Act and Alberta’s Environmental Protection and Enhancement Act • * incumbency protects low value land use • * unlisted activities can derail plans for CE management

7. Tradable Landuse Rights (TLR) Approach ... • Parallels between Land Management and Air and Water Quality Management • Require a mechanism for coordinating the activities of multiple agents on the landscape • Tradable permit systems organize users of the public good in order to • - Meet environmental objectives • - Efficiently allocate resources

8. Tradable Landuse Rights (TLR) Approach ... • Government sets a “cap” or threshold on habitat loss. • Rights to develop remaining land are traded. • Firms self select the best sites for development. • Minimizes Cost of Landuse Constraint (see paper)

9. KEY ASSUMPTIONS • Biodiversity can be conserved indirectly by setting aside representative habitat types (Coarse Filter Approach) • Requires homogeneous habitat types • Assumes configuration less important than total amount of habitat.

10. CASE STUDY Alberta’s (Canada’s) Mixedwood Boreal Forest • Q1: • What are the ecological and economic tradeoffs of alternative spatial and temporal arrangements of industrial activities on regional landscapes? • Q2: • What are the implications of alternative policy and regulatory structures for achieving specific environmental objectives.

11. Boreal Mixedwood Region in Alberta Boreal Mixedwood Forest: Age and species composition driven by a Natural Disturbance Regime

12. Land Management in Alberta’s Boreal Mixedwood • 1. Oil and Gas Sector • Surface Leases for oil and gas exploration and development • Auctions (bi-weekly) • Forestry • Forest Management Agreements (hardwood) • rights to hardwood fiber over a fixed landbase • responsibilities for land management • Quotas (softwood) in Forest Management Units • rights to a fixed percentage of the AAC • 3. Landuse Conflict • FMU and FMA areas overlap • Surface and Subsurface Leases Overlap • Surface rights protected by Tort (Timber Damage Assessment)

13. Data and Study Area • 1. BIODIVERSITY • Detection probabilities for 27 bird species over 1137 Townships in NE Alberta (FAN) • 2. LAND VALUES • A. Surface Rights • (i)Value of timber obtained from 2000-01 Timber Damage Assessment • (ii)Crown timber dues. • B. Subsurface Rights • (i) Value of oil and gas leases obtained from 1996-2001 bonus sales for oil and gas lease rights. • (ii) Expected Royalties for underlying reserves. LAND VALUES Per TWP Per ha. Average: $23,218,242 $2322 Minimum: $1,435,152 $142 Maximum: $1,027,664,204 $102,766

14. B i r d D e n s i t i e s o v e r t h e S t u d y A r e a 6 . 6 7 5 - 1 2 . 2 1 5 1 2 . 2 1 5 - 1 4 . 3 5 6 1 4 . 3 5 6 - 1 5 . 9 9 9 1 5 . 9 9 9 - 2 1 . 0 0 5

15. Land Rents over the Study Area $1,435,152 - 7,985,750 $8,007,936 - 13,014,814 $13,023,694 - 29,597,078 $29,719,725 - 2,504,729,185

16. MC: Max Biodiversity Metric (Z) s.t. Reserve Area Constraint (M) Z*(M), CMC (M) BC: Min Land Costs (C) s.t. Z greater than or equal to Z*(M) CBC (Z*(M)) TLR: Min Land Costs (C) s.t. Reserve Area Constraint (M) CTLR (M) Comparing Cost and Biodiversity Outcomes Under Alternative Approaches

17. 243% increase in area protected

18. Z = expected detection over study area

19. Table 2. Outcomes Under Alternative Reserve Selection Approaches Approach Land Constraint Cost ($M) Biodiversity Index MC BC* TLR TLR TLR MC 140 twps (~12%) 173 twps (~15%) 140 twps (~12%) 200 twps (~18%) 480 twps (~42%) 380 twps (~34%) $3,410 $807 $555 $917 $3,340 $9,360 .076 .076 .056 .081 .195 .190

20. Implementation Issues 1. Defn of Environmental Objective - habitat definition is connected to structural forest characteristics (Stelfox 1995) - separate markets with land use constraints varying by cover type and age class in order to achieve appropriate representation of naturally occurring stand characteristics. - Young Deciduous, Old Deciduous, White Spruce, Mixedwood (Cumming and Vernier 2002).

21. Implementation Issues • 2. Temporal Dimension of Right • Habitat protection in a stochastic environment • Adaptive Management Approach Allocate Rights to a fixed percentage of allowable disturbance per period Long Term versus Short Term (spot market) rights

22. Implementation Issues 3. Spatial Heterogeneity and QUALITY of Reserve network • Concern that choice of low value sites for reserves will lead to systematic bias against valuable habitat. • Within a region the type of habitat(s) is constant. • Within a region habitat quality depends on • - total quantity of habitat • - spatial configuration of habitat. • Tradeoff between quantity and configuration of habitat • - Literature suggests that total amount of habitat conserved may be of greater ecological importance than configuration/configuration important when very little habitat left.

23. Relative Impacts of Configuration versus Habitat Loss on Predicted Abundance

24. Implementation Issues 4. Economic Efficiency and Competitiveness - Transactions costs and complexity of trading system - Market power and hold-out problems - Network and spatial spillover costs - Competitive advantage/disadvantage 5. Compatibility with Existing Institutions Resource Rights allocated through spatial repeated auctions/sales.

25. ApproachImplementation Issues Maximal Coverage - Choice of biodiversity metric Max Biodiversity Metric - Lack of relevant species information s.t. Reserve Area Constraint - Conflicting species requirements - Political Feasibility Budget Constrained Min Opportunity Cost - Requires Land Values s.t. Biodiversity Metric - Requires Species information Tradable Landuse Rights - Configuration versus Area Min Opportunity Cost - Assumptions about habitat quality s.t. Reserve Area Constraint - Design of trading system Conclusions

26. Conclusions • Benefits of TLRs for Biodiversity Protection on Public Lands • Management to Thresholds • Stratified by ecosystem types and habitat characteristics. • Eg. Stand age and type. • - Information Revealing. • Rights go to highest bidder/Minimize Opportunity Costs. • Prices reflect the relative scarcity value of each habitat type. • - Flexible • Can change the threshold in response to natural disturbance or changing preferences. • - Mechanism for Integrated Resource Management • The expected values of all resources are capitalized in permit prices.