1. Seeing the Forest and the Trees: Insights into the Efficient Allocation of Forest Resources Joshua Farley Community Development and Applied Economics Gund Institute of Ecological Economics University of Vermont joshua.farley@uvm.edu

2. What is Economics?  Economics is the allocation of scarce resources among alternative desirable ends  Sequence of questions: What are the desirable ends? What are the desirable ends? What are the scarce resources, and what is their nature? What are the scarce resources, and what is their nature? How do we allocate? How do we allocate?  This presentation will attempt to answer these questions for forests

3. Desirable Ends from Forests

4. Raw Materials  Timber  Non-timber forest products

5. Ecosystem Services

6. Regulation Services  Water regulation  Disturbance reg  Erosion control  Soil creation  Pollination  Climate regulation  Nutrient cycling  Biological control  Waste absorption  etc.

7. Provisioning Services  Production of food, fuel, fiber (regeneration of structure)  History of Vermont Clearing of land (Timber, Farmland) Clearing of land (Timber, Farmland) Erosion, soil loss, economic collapse Erosion, soil loss, economic collapse Depopulation Depopulation Can we do this again? Can we do this again?

8. Information Services  Recreation, tourism Forests: jobs for 2,393 Vermonters Forests: jobs for 2,393 Vermonters Annual payrolls of $33 million annually Annual payrolls of $33 million annually  Unknown benefits: e.g. Taxol  Cultural attachments  Scenery

9. Supporting Services  Habitat  Refugia  Without biodiversity, there are no other services

10. Conversion  Agriculture  Development

11. 3.5 times more phosphorus run-off from developed land than ag land

12. How do we decide which of these benefits is most desirable?

13. Characteristics of Forest Goods and Services

14. Characteristics of Timber and other Ecosystem Goods  Raw materials provided by nature are essential for all economic production Impossible to make something from nothing Impossible to make something from nothing

15. Characteristics of Ecosystem Goods  We can use them up as fast as we like  If I use it, you can't Competition for use Competition for use  Market goods  Ecosystem structure, building blocks of ecosystems

16. Characteristics of Ecosystem Services  Essential to human survival  Provided at a given rate over time  If I use it, you still can (except waste absorption) Cooperative in use Cooperative in use  Can't be owned  Non-market goods—no price signal to indicate scarcity

17. The Laws of Ecology The raw materials converted into economic products are elements of ecosystem structureThe raw materials converted into economic products are elements of ecosystem structure Ecosystem services are provided by a special configuration of ecosystem structureEcosystem services are provided by a special configuration of ecosystem structure

18. Ecosystem Services, uncertainty and Ignorance  We often don't know what services are until they're gone Passenger pigeons and Lyme disease Passenger pigeons and Lyme disease The ozone layer The ozone layer

19. Ecosystem Services, Uncertainty and Ignorance  Ecological thresholds  Irreversibility  Impacts of climate change, extinction, etc.  What risks should we impose on future generations?

20. How do we allocate?

21. The Economic Problem  Macro-allocation: How do we allocate finite ecosystem structure (forests) between: Economic production (conversion, timber) Economic production (conversion, timber) Production of life sustaining ecosystem goods and services Production of life sustaining ecosystem goods and services  How should we distribute resources among individuals? Who is entitled to ownership of ecosystem goods? Who is entitled to ownership of ecosystem goods? Is anyone entitled to ecosystem services? Is anyone entitled to ecosystem services?

22. Relative Values  Both economic production and ecosystem services essential to our survival  Economics looks at marginal value—value of one more unit More we have of something, the less one more unit is worth More we have of something, the less one more unit is worth Value of economic production is decreasing Value of economic production is decreasing Value of ecosystem services is increasing Value of ecosystem services is increasing When do we stop converting? When do we stop converting?  Estimated value of global ecosystem services twice that of economic output

23. The Property Rights Issue  Private property rights Is it fair to prevent landowners from using their land as they wish? Is it fair to prevent landowners from using their land as they wish?  Public property rights Is it fair for landowner to degrade ecosystem services that entire community depends on? Is it fair for landowner to degrade ecosystem services that entire community depends on? How do you feel about Ticonderoga paper mill? How do you feel about Ticonderoga paper mill?

24. The Freedom Issue  Freedom to do as I like with what I own  Freedom not to suffer from what others do.  Second freedom did not use to matter, but has become more pressing.

25. Solving the Problem  Market solutions one dollar, one vote—plutocracy one dollar, one vote—plutocracy Provides incentives that may make us all better off, under certain circumstances Provides incentives that may make us all better off, under certain circumstances  Effective for many types of goods and services Those that can be owned Those that can be owned Those for which use by one person prevents use by another Those for which use by one person prevents use by another

26. Solving the Problem  How do make decisions about resources that can't be owned (non-excludable), and my use does not leave less for you to use (non-rival)? Markets don't exist Markets don't exist No market incentive to provide resources No market incentive to provide resources One citizen one vote? Democracy? One citizen one vote? Democracy? Cooperative provision, cooperative use? Cooperative provision, cooperative use?  Existing property rights give owners the right to ecosystem goods (structure), hence control over ecosystem services

27. Example: Brazil’s Atlantic Rainforest Ecosystem services of rainforest valued at $2006/ha/yearEcosystem services of rainforest valued at $2006/ha/year World’s highest biodiversity humid forest converted to pasture yielding $20/ha/yearWorld’s highest biodiversity humid forest converted to pasture yielding $20/ha/year Causes droughts, floods, erosion, biodiversity loss, microclimate change, etc.Causes droughts, floods, erosion, biodiversity loss, microclimate change, etc. Greedy self interest creates invisible footGreedy self interest creates invisible foot

28. Ecosystem services: CO 2 sequestration, storm buffer, waste absorption, nursery for 80% of commercial seafood speciesEcosystem services: CO 2 sequestration, storm buffer, waste absorption, nursery for 80% of commercial seafood species Shrimp: high profit, short livedShrimp: high profit, short lived Intact mangroves produce more seafood than pondsIntact mangroves produce more seafood than ponds Why convert?Why convert? Benefits of conversion go to individualBenefits of conversion go to individual Benefits of preservation go to local, regional, global communityBenefits of preservation go to local, regional, global community Conversion only occurs with private ownership Conversion only occurs with private ownership Greedy self interest creates invisible footGreedy self interest creates invisible foot Example: Conversion of Mangrove Ecosystems to Shrimp Aquaculture

29. Allocation Options  Let rights to goods trump rights to services Risk another collapse of Vermont's economy Risk another collapse of Vermont's economy Services probably provide more benefits than goods (at least globally). Inefficient. Services probably provide more benefits than goods (at least globally). Inefficient.  Limit rights to degrade services Property rights as a bundle Property rights as a bundle Lake Tahoe example Lake Tahoe example Is this fair? Speculators vs. producers Is this fair? Speculators vs. producers

30. Allocation Options  Penalize activities that destroy ES (limitations on rights) Taxes Taxes Impact fees on development Impact fees on development Make land taxes commensurable with social costs (i.e. much higher taxes on developed land) Make land taxes commensurable with social costs (i.e. much higher taxes on developed land)  Persuasion Convince landowners to provide public benefits Convince landowners to provide public benefits Akin to voluntary taxes Akin to voluntary taxes

31. Allocation Options  Award rights to community Commons trust Commons trust Mandate to provide for future generations Mandate to provide for future generations Limit use (e.g. development rights), auction off or give away Limit use (e.g. development rights), auction off or give away May be best solution when resources unowned, e.g. waste absorption capacity May be best solution when resources unowned, e.g. waste absorption capacity

32. Allocation Options  Purchase rights to ecosystem services Conservation easements Conservation easements Subsidies for uses that provide public benefits (e.g. sustainable forestry vs. development) Subsidies for uses that provide public benefits (e.g. sustainable forestry vs. development) Community purchase of land Community purchase of land Payments for ecosystem services, e.g. NYC Payments for ecosystem services, e.g. NYC

33. The “Tragedy of the Non-Commons”  Occurs when private ownership is ecologically unsustainable, socially unjust, and/or economically inefficient  Any privately owned resource that provides non-rival benefits

34. Solution  Social provision and ownership of non- rival benefits Purchase property rights Purchase property rights Legally change property rights Legally change property rights Commons trust Commons trust  Society determines supply (CO2, SO2, endangered species, parks, fisheries, life support functions of forests, etc.), market determines price

35. Allocation and Ecosystem Goods/Services  Macroallocation socially determined  Prices must adjust to socially determined supply, since ecosystem resilience and fecundity cannot adjust to prices

36. Conclusions  We cannot decide how to allocate until we understand nature of scarce resources  Some resources best allocated through competition, others through cooperation Private ownership appropriate in cases of competition Private ownership appropriate in cases of competition Common ownership more efficient, just and sustainable in cases of cooperation Common ownership more efficient, just and sustainable in cases of cooperation

37. Conclusions  Ideology: socialism vs. capitalism All one answer all the time All one answer all the time Capitalist answer is all markets (competition), all the time Capitalist answer is all markets (competition), all the time  Science: cooperative vs. competitive allocation Determined by physical characteristics of resource in question Determined by physical characteristics of resource in question Macro-allocation should be democratic, not plutocratic Macro-allocation should be democratic, not plutocratic