Search

Consequences of Discount Rate Selection for Financial and Ecological Expectation and Risk in Forest Management

From Source to Sink: Past Changes and Model Projections of Carbon Sequestration in the Global Forest Sector

The objective of this study was to determine if the establishment of a monetary union in European countries had affected the international trade of forest products between the euro-using countries. A differential gravity model of bilateral trade flows was developed and estimated with panel data for the bilateral trade between 12 euro countries from 1988 to 2013, for commodity groups HS44 (wood and articles of wood), HS47 (pulp of wood, fibrous cellulosic material, waste, etc.), HS48 (paper and paperboard), and their sum. The parameters were estimated by ordinary least squares and fixed-effects methods. The results showed a positive or neutral effect of the euro on trade, for all products and countries, with both estimation methods. According to the most general result, the introduction of the euro had increased the average annual rate of growth of the bilateral trade of forest products by 6.5 ± 1.3% from 2002 to 2013.

Long-term effects of policies to induce carbon storage in forests were projected with the Global Forest Products Model. Offset payments for carbon sequestered in forest biomass of $15–$50/t CO 2 e applied in all countries increased CO 2 sequestration in world forests by 5–14 billion tons from 2009 to 2030. Limiting implementation to developed countries exported environmental damage from North to South, as developing countries harvested more, decreasing their stored CO 2 e. Substantially more CO 2 e was sequestered by allocating a given budget to all countries rather than to developed countries only. As offset payments increased wood prices relatively more than they decreased production, timber revenues generally increased. In the few countries with timber revenues losses they were more than compensated by the offset payments.

Markov decision process (MDP) models generalize Faustmann's formula by recognizing that future stand states, prices, and interest rates, are not known exactly. Buongiorno (Forest Science 47(4) 2001) presents a dynamic programming and a linear programming formulation of the MDP model with a fixed interest rate. Both formulations are generalized here to account for a stochastic interest rate. The objective function is the expected present value of returns over an infinite horizon. It gives, like Faustmann's formula, the value of the land and the eventual standing trees. The changes between stand states, prices, and interest rate, are represented by Markov chains. Faustmann's formula is a special case where the change from one state to another has 0 or 1 probability, and the interest rate is constant. The MDP model applies to any stand state, even- or uneven-aged, and the best decisions are tied uniquely to the current system state. An example shows the effects of recognizing variations in interest rate on the land expectation value, and the cost of ignoring them.

The Global Forest Products Model (GFPM) was applied to project the consequences for the global forest sector of doubling the rate of growth of bioenergy demand relative to a base scenario, other drivers being maintained constant. The results showed that this would lead to the convergence of the price of fuelwood and industrial roundwood, raising the price of industrial roundwood by nearly 30% in 2030. The price of sawnwood and panels would be 15% higher. The price of paper would be 3% higher. Concurrently, the demand for all manufactured wood products would be lower in all countries, but the production would rise in countries with competitive advantage. The global value added in wood processing industries would be 1% lower in 2030. The forest stock would be 2% lower for the world and 4% lower for Asia. These effects varied substantially by country.

Ecological integrity is important to fully describe the development of an economy. We calculated an aggregate index that quantifies the closeness of a forested region to a natural state. This naturalness index was based on the diversity of native tree species and sizes for ecological subregions in a seral condition. The index used the spatial–temporal array of sample plots from the Forest Inventory and Analysis (FIA) database of the USDA Forest Service. In the 70 survey units of the southern US between 1961 and 2005 the naturalness of forests generally improved with per capita personal income and population. The increase with income was consistent with the hypothesis of an environmental Kuznets curve for forested landscapes.

Impacts of exchange rates on international forest products trade are widely debated, but the empirical evidence regarding this issue is still inconclusive. Here, we report findings of the impacts of the exchange rates on the main forest product imports and exports of the US, from January 1989 to November 2004. Export data consisted of monthly series of the main products exported by the US to different countries. For imports we used monthly series of the principal products imported by the US from Canada, the major source of imports. The strongest evidence was obtained by pooling the data across countries and products. In the short run, exports were very elastic with respect to the exchange rate (−2.6), while imports were moderately elastic (1.2). In the long run, the elasticity decreased but remained significant (0.5 for both exports and imports). Appreciation of the US dollar tended to matter more than depreciation, but the hypothesis that the effect of exchange rate was symmetric could not be rejected.

The theory of demand and supply implies a positive relationship, or “price transmission” between the prices of products at different stages of manufacturing. This relationship was investigated with quarterly prices of softwood stumpage in the US South, and national prices of forest products, from 1977 to 2002. All prices, net of inflation, were found to be nonstationary and there was no evidence of co-integration between prices. Vector autogressive models, augmented by Granger causality tests and multiplier analysis showed that there was a one-to-one permanent positive response of the southern sawtimber stumpage price to a permanent change in the national lumber price. There was also a one-third permanent positive response of the national paper price to a permanent change in the national pulp price. There was no relation between regional pulpwood prices and national pulp or paper prices. When price transmission was significant, the full adjustment took about 2 years.

The growth of pulp and paper mills in the US from 1970 to 2000 depended mostly on size and age. Mills grew according to Gibrat's law, and post-1970 mills grew faster than pre-1971 mills. Mills stopped growing at approximately 22 years of age. But most mills survived beyond that, thus growth was not necessary for survival, but characteristic of the early phase of the mill life cycle. Less integrated mills grew slower. So did more specialized mills and more so if they produced mostly paper. Mill location was uncorrelated with growth, but location mattered indirectly by facilitating or hindering mills with growth-conducive characteristics.