Greg Latta and Darius Adams Department of Forest Resources Oregon State University

1. PNWPrivate: A Nested System of Regional Private Timber Supply Models for Oregon and Washington with Extensive Mill and Resource Detail Greg Latta and Darius Adams Department of Forest Resources Oregon State University

2. Outline • Overview of OSU Forest Sector Models • Regional Models • Model Components • Applying the Models • Lessons Learned • Work in Progress

3. PNW REGIONAL MODEL WITH ENDOGENOUS LOG FLOWS ½ STATE MODELS WITH EXOGENOUS PNW LOG FLOWS NATIONAL MODELS STUMP TO MILL LEVEL INCLUDE CANADA DYNAMIC INTERTEMPORAL, MYOPIC MARKET & EVEN-FLOW MODELS DYNAMIC INTERTEMPORAL & EVEN-FLOW MODELS Price and capacity (feedbacks) Harvest, inventory, capacity, management investment Forest Sector Modeling System at OSU:Linking Subregional to International Markets

4. Linking Regional Timber Supply Developments to National and International Markets MANAGEMENT INVESTMENT TIMBER INVENTORIES WESTERN OREGON MODEL WESTERN WASHINGTON MODEL NORTH AMERICA AND OFF-SHORE MARKET MODEL LOG FLOWS EASTERN OREGON MODEL EASTERN WASHINGTON MODEL PRODUCT PRICES PRODUCT OUTPUT HARVEST LOG PRICES MANAGEMENT INVESTMENT INVENTORY & GROWTH PRODUCT CONSUMPTION TRADE PRODUCT PRICES INTER-REGIONAL SUBSTITUTION

5. Regional ModelsElements of Harvest Projection Process INVENTORY YIELDS MANAGEMENT REGIMES HARVEST SIMULATOR LAND BASE TRENDS

6. Elements Of Harvest Projection Process Use USFS FIA inventories 1997 WOR / 1999 EOR Updated 1990 WWA/EWA Build model at Condition Class level INVENTORY YIELDS MANAGEMENT REGIMES HARVEST SIMULATOR LAND BASE TRENDS

7. Elements Of Harvest Projection Process Identify 7-8 regimes for WOR and WWA 6 regimes for EOR and EWA MANAGEMENT REGIMES INVENTORY YIELDS HARVEST SIMULATOR LAND BASE TRENDS

8. Elements Of Harvest Projection Process Project tree lists of each existing condition class under regimes Develop projected tree lists for regenerated stands under regimes FVS / ORGANON YIELDS INVENTORY MANAGEMENT REGIMES HARVEST SIMULATOR LAND BASE TRENDS

9. INVENTORY YIELDS MANAGEMENT REGIMES HARVEST SIMULATOR LAND BASE TRENDS Project loss of timberland acres to non-forest uses Elements Of Harvest Projection Process

10. YIELDS INVENTORY MANAGEMENT REGIMES LAND BASE TRENDS Elements Of Harvest Projection Process HARVEST SIMULATOR 1) Even-flow 2) Market model: > demand for logs at milling centers > supply of logs from timberland locations

11. SHIFTS WITH PRODUCT PRICE, CAPACITY, TECHNOLOGY AND NON-WOOD COSTS DEMAND FOR LOGS AT MILLING CENTER x PRICE SUPPLY OF LOGS FROM TIMBERLAND LOCATIONS HARVEST SHIFTS WITH COSTS OF MANAGEMENT, LOGGING, HAULING, INTEREST RATE Model of Log Market at Milling Center x

12. MILLING CENTER Y TIMBERLAND A TIMBERLAND B MILLING CENTER X Model of Regional Log Market MARKET BALANCE MUST BE FOUND ACROSS ALL MILLING CENTERS AND LOG SOURCES LOG BUYERS TRADE-OFF SOURCES TO MINIMIZE COSTS LOG SELLERS TRADE-OFF DESTINATIONS TO MAXIMIZE NET RETURNS

13. Original Regional ModelsFixed Model Structure With Preset Options

14. Applying the Models • New Riparian Rules • Eastside Mill Closures • USFS Restoration Thinning • Older Forest Structure • Carbon Markets • Public Forestlands and Carbon • Future Harvest and Inventory by Log Quality

15. New Riparian Rules What: Oregon Department of Forestry wanted to analyze the market impacts of two potential riparian policy changes • Increasing the leave tree basal area requirements • Changing some stream designations from non-fish to fish bearing INVENTORY More detail on riparian plots YIELDS Rerun the yield tables with more detail in riparian How: Original Plots More Detailed Riparian Plots

16. New Riparian Rules

17. LOG PRICE LOG PRICE SHUT DOWN CAPACITY LOG QUANTITY LOG QUANTITY Eastside Mill Closures What Initial eastern Oregon log market runs showed up to 50% reduction in harvest volumes which caused log prices to rise too high HARVEST SIMULATOR Endogenous mill capacity via a binary capacity utilization scheme with shutdown point How Original Linear Demand Curve New Demand Curve

18. USFS Restoration Thinning What Eastern Oregon public forests contain over a million acres of forestland in need of fuel reduction / forest health thinning INVENTORY Public forestlands added to model YIELDS Volumes calculated for potential thinning HARVEST SIMULATOR Harvest, haul, disposal and subsidy How

19. Eastside Mill Closures with USFS Restoration Thinning Number of Mills in Operation Year

20. Creating Older Forest Structure What Incentives and opportunity cost of producing older forest structure (OFS) on private forestland MANAGEMENT REGIMES Heuristic optimization of NPV and OFS silvicultural regimes HARVEST SIMULATOR Management incentives added as well as targets for OFS creation How Reserve Older Forest Structure (NPV) generation Net Present Value (NPV) maximization

21. <=60% <=40% <=20% Time limit, to meet OFS target Creating Older Forest Structure <= 20%, <=40%, and <=60% requires more than 20%, 40% and 60%, respectively, of the private timberland base to have older forest characteristics by the time limit Net Surplus Reduction (Cost)

22. Carbon Markets What Estimate impacts of carbon tax/subsidy system on private timber harvest and management in western Oregon Add forest carbon accounting to market model How Effects of Carbon Price / Subsidy on Carbon and Harvest Levels Carbon Price/Subsidy

23. Changes in Federal Timber Harvest What Options for offsetting forest carbon flux reductions due to increments in timber harvest from federal lands INVENTORY Add Federal forest land plots to model YIELDS Generate yields under alternative silvicultural regimes HARVEST SCHEDULER Find market solutions with alternative federal harvest levels subject to regional carbon flux constraints How Coordinated Management To Limit Carbon Flux Impacts Federal Land Only Rising Carbon Targets INDEPENDENT MANAGEMENT All Owners

24. Future Harvest and Inventory by Log Quality What How Project future private timber harvest by log size and species YIELDS Store and retrieve individual tree projection detail for post-solution processing

25. Future Harvest and Inventory by Log Quality Individual Milling Center Detail

26. Lessons Learned • Fixed structure models with preset options always lag current “hot” policy topics—policy analysts seldom revisit a topic, or if they do it’s with a different focus • Develop a set of market and harvest scheduling model components that can be readily modified and grouped to meet changing analytical needs • Maintain inventory database at most disaggregated level to allow maximum flexibility in aggregation • Develop modules to automate aggregation of plots and generation of yields under alternative silviculture regimes

27. Future Work • Satellite imagery to reduce effective plot size through “nearest neighbor” methods—analysis below the county level • Explicit links to land-use models with sensitivity to returns to forestry (log prices) so land base is endogenous • Expansion to regions beyond the PNW

28. LONG-RANGE POTENTIAL TIMBER SUPPLY IN OREGON BY REGION

29. NORTH WEST WEST CENTRAL EASTERN OREGON SOUTH WEST

30. WESTERN OREGON PRIVATE HARVEST BY OWNER FOREST INDUSTRY OTHER PRIVATE

31. WESTERN OREGON TOTAL PRIVATE HARVEST AND INVENTORY HARVEST HARVEST INVENTORY INVENTORY

32. NORTH WEST OREGON PRIVATE HARVEST AND INVENTORY HARVEST ADJUSTMENT TO DECLINING INVENTORY, RISING COSTS AND SHIFTING CAPACITY INVENTORY

33. WEST CENTRAL OREGON PRIVATE HARVEST AND INVENTORY HARVEST INVENTORY

34. SOUTH WEST OREGON PRIVATE HARVEST AND INVENTORY HARVEST INVENTORY

35. HARVEST EASTERN OREGON HARVEST AND INVENTORY BY OWNER INDUSTRY OTHER PRIVATE OTHER PRIVATE INDUSTRY INVENTORY

36. SUMMARY OF LONG-TERM TRENDS • Clear demographic basis for resurgence of US housing activity • PNW will continue to play a major role in US softwood lumber supply • Aggregate private harvest in western Oregon may drop slightly over next 15 years but rise thereafter—much regional variation • Aggregate WOR inventory roughly stable • NW Oregon source of near-term harvest decline—inventory and capacity shifts • Eastern Oregon faces declining inventory and declining harvest on private lands

38. For More Information Visit our website at: http://www.cof.orst.edu/cof/fr/research/tamm/MainFrame.htm Email us at: Forest.Sector@Oregonstate.edu Publications: Adams, D.M. and G.S Latta. Future Prospects for Private Timber Harvest in Eastern Oregon. Western Journal of Applied Forestry 22(3): 197-203.. Im, E., D.M. Adams and G.S. Latta.  2007. Potential impacts of carbon taxes on carbon flux in western Oregon private forests.Forest Policy and Economics 9(8): 1006-1017.  Busby, G.M., C.A. Montgomery and G. Latta. 2007. The opportunity cost of forest certification on private land in western Oregon.Western Journal of Applied Forestry 22(1): 55-60.  Adams, D.M. and G.S Latta.  2007. Timber Trends on Private Lands in Western Oregon and Washington: a New Look. Western Journal of Applied Forestry 22(1): 8-14.  Montgomery, C.A., G.S. Latta and D.M. Adams. 2006. The cost of achieving old-growth forest structure.Land Economics 82(2):240-256.  Adams, D.M. and G.S Latta. 2005. Costs and regional impacts of restoration thinning programs on the national forests in eastern Oregon.Canadian Journal of Forest Research 35(6):1319-1430. Adams, D.M. and G.S Latta. 2005. Timber harvest potential from private lands in the Pacific Northwest: biological, investment, and policy issues.P.  4-12 inUnderstanding key issues of sustainable wood production in the Pacific Northwest, Deal, Robert L.; White, Seth M (eds).USDA For. Serv. Gen. Tech. Rep. PNW-GTR-626.  Latta, G., and Adams, D. 2005. Analysis of an extensive thinning program on eastern Oregon national forests using a dynamic spatial equilibrium market model with endogenous industry capacity.  In Systems Analysis in Forest Resources: Proceedings of the 2003 Symposium, 7–9 October 2003, Stevenson, Wash. Compiled by M. Bevers and T. Barrett. USDA For. Serv. Gen. Tech. Rep. PNW-GTR-656. Adams, D.M. and G.S Latta. 2004. Effects of a Forest Health Thinning Program on Land and Timber Values in Eastern Oregon. Journal of Forestry 102(8):9-13.  Latta, G. and C.A. Montgomery. 2004. Minimizing the cost of stand level management for older forest structure in western Oregon.Western Journal of Applied Forestry 19(4): 221-231.  Adams, D.M. and G. Latta. 2003. Private Timber Harvest Potential in Eastern Oregon. Research Contribution 42, Forest Research Laboratory, Oregon State University. Corvallis. 42p. Schillinger, R. R., D. M. Adams, G. S. Latta, and A. K. Van Nalts. 2003. An Analysis of Future Private Timber Supply Potential in Western Oregon.Western Journal of Applied Forestry 18(3):1-9. Adams, D.M., R.R. Schillinger, G. Latta, and A. Van Nalts. 2002. Timber Harvest Projections for Private Land in Western Oregon. Research Contribution 37, Forest Research Laboratory, Oregon State University, Corvallis. 44p.