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Beyond the Basic Forest Resource Model

Explore the future value of land, changes in planting and harvest costs, timber prices, and other values of forests beyond timber products.

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Beyond the Basic Forest Resource Model

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  1. Beyond the Basic Forest Resource Model Monday, April 10

  2. Extending the Basic Model • Future value of land, in trees or some other use, will affect opportunity cost of harvesting trees • Changes in planting and harvest costs affect future value of land • Timber prices have been rising over time. • What about other values of forests beyond the timber products?

  3. Using Field’s Notation: • V0: value of the wood that would result if harvested this year (p x q0). • V1: value of the wood that would result if harvest is delayed one year (p x q1). • ΔV: V1- V0 or the change in value between the two years (what you lose if you cut in year 0) • C: cost of harvest (c x q) • r: discount rate • S: PV of all future net benefits (all future timber harvests with efficient management or other known uses)

  4. (MC = MB) Proceeds if harvested this year (Marginal benefit of harvesting now) Proceeds if harvested next year (Marginal cost of harvesting now)

  5. ΔV: V1- V0 or the change in value between the two years what you lose if you cut in year 0 Δ V = marginal cost of harvest (opportunity cost) (V0-C)r +Sr = marginal benefit of harvest (V0-C)r +Sr: what you receive if you cut in year 0

  6. Graphically: $ (V0-C)r +Sr=MB ΔV=MC t Time (years)

  7. Inefficiencies in Forest Management • External costs of harvest • External benefits of standing trees • Planning horizons (public land)

  8. External costs associated with timber harvest: some C is external, MSB is less than MPB $ (V0-C)r+Sr=MB ΔV=MC t Time (years)

  9. Policy option: limit road construction and enforce rules to limit erosion (increase C – internalize externalities) $ (V0-C)r+Sr=MB ΔV=MC t Time (years)

  10. ΔV + H External benefits of standing timber, e.g. habitat, means you give up more when you harvest $ (V0-C)r +Sr ΔV=MC t Time (years)

  11. Policy Option: Charge severance tax in the interest of habitat conservation – increase C to decrease MPB $ (V0-C)r +Sr ΔV + H ΔV t t Time (years)

  12. Trees as source of carbon sequestration Policy option: what if the owner of trees can sell carbon sequestration “credits”?

  13. ΔV+cs t Market for carbon sequestration – owner of trees sells carbon sequestration services (and gives up those sales if the trees are cut) $ (V0-C)r +Sr ΔV=MC t Time (years)

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