Forest Incentives - Financial Incentives/Subsidies

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Contents

Forest Incentives - Financial Incentives/Subsidies

Lloyd C. Irland, Lecturer and Senior Scientist, Yale School of Forestry and Environmental Studies

and The Irland Group, Wayne, Maine



Across the Americas, governments have used incentives and subsidies in different ways to affect how private land owners manage their forests. In this article, we consider only direct financial grants and similar incentives, and not tax provisions, land grants, or property rights rules. Incentives were traditionally justified on the basis of the long production period in forestry, and they originated in northern regions where this is true. Yet, they are often used for short-rotation stands in the tropics where that argument does not apply. Economic development may be more relevant in these regions, and indeed forestry subsidies have been used to build entire forest-based manufacturing sectors.


Incentive grants can take the form of free or low cost seedlings, cash payments per acre, or payments of a given percentage of establishment cost (cost-share programs). In one program, the US Conservation Reserve, annual payments are made to owners who maintain lands in cover crops or trees. Much of the forest based industry in Latin America started subsidies for tree planting, icluding in Brazil, Chile, Argentina, and Uruguay.


Changing Objectives


Objectives of incentive programs vary, and have shifted over time. In many countries, erosion control, water quality, or other environmental goals were prominent. In the US and Canada, strains on commercial agriculture have led to the cessation of cropping on large areas, especially during the crisis of the Great Depression. As part of efforts to ease social conditions in rural areas, and to seek alternate productive uses for unneeded farmland, US and Canadian governments funded extensive tree planting programs. Generating rural employment was one objective of these programs. Future wood production was often of secondary importance. In many areas, these plantations later served as wood supply to growing industries, and after cutting, new plantations are often re- established. In some areas, such as the US South, planting is now profitable even without incentives. In North, Central, and South America, according to the Global Forest Resource Assessment (FAO 2005), 30 million hectares of plantations had been established by the year 2005. Government incentives were involved in a significant part of this total acreage.


In certain South American countries, planting incentives were designed to offset most of the cost of planting exotic conifers, specifically to serve as a basis for future wood production. Economic goals were to develop local supplies of products in order to displace imports, or even to support an export oriented industry. In local instances, most famously the Brazilian plantations supplying charcoal for steelmaking, supplying fuel was a goal.


In Chile, Brazil, and other countries, major subsidy programs have been associated with the creation of large areas of industrial plantations over several decades. Yet, experts debate whether it was the subsidies, or other concurrent events such as improved policy stability, privatization, and elimination of log export barriers that were more important.


In recent years, incentive programs have been designed to foster a wider array of forest values. Most prominent have been various efforts to pay landowners for storing carbon in their forests. Several Central American countries have participated in such programs. From Canada to Argentina, research is underway to measure the carbon content of forests, and pilot projects to test payment for carbon sequestration services have been conducted. This is one example of a broad area, termed “payments for environmental services”, in which forest owners are compensated for forest values that are generated by the existence of the forest itself. These are service flows from the forest; frequently they cease or diminish when a forest is harvested for wood products. Many believe that conserving forests, especially those of the tropics and mountainous areas, will not be possible unless incentives for their conservation and management are devised, largely through PES. In the future, the broadest role for government funded incentives for forestry may be in the areas of forest restoration and management for nontimber values.


Designing Incentive Programs


Design of incentive program in the past has concentrated on planting trees. Planting is easily verified and follow through can be determined. Costs are well understood, and yields are roughly predictable. For managing natural forests, designing incentives for improved management practices are much more difficult to design and administer. Experience in managing incentive programs in the Americas indicates that attention must be paid to many complex issues.


Programs need to be designed for simplicity so that landowners can deal with them, and so that they can be readily administered. They need to avoid perverse incentives. An example would be incentives that cause owners to cut down ecologically valuable primary forest to plant trees. A key issue is provision for longterm monitoring and follow-through of activities by the grant beneficiaries. Agencies are often so burdened with managing the current year’s program that they are unable to see if the stands planted a decade ago even continue to exist. There is always a concern that if grants are made as a percentage of cost, it can undermine incentives for efficiency.


Managing incentive programs to help the smallest landowners becomes very costly. Many governments attempt to enlist nongovernment organizations (NGOs) or existing local agencies who have staff in place to work with large numbers of individual owners. Also, when incentive programs are driven exclusively by acreage targets, they may end by aiding only the largest and wealthiest owners, generating resentment from others. Finally, unless existing rights of local communities are respected, rapid establishment of plantations, or conversion of cropped lands back to forests, can result in loss of incomes and traditional uses, and even loss of employment to local people.


Summary


Few smallholders in rural areas have the capital to undertake forest management, whether by planting, or by managing natural stands. Even less can they fund efforts to restore watersheds or natural ecosystems. So, for sustaining local material and fuel needs as well as ecological services, and providing local fuel and building materials as well as industrial raw materials, some program of government incentives will likely be needed in most areas. More detailed information about incentive programs in individual countries can be found by visiting websites of national forestry agencies and university forestry programs.


References


Committee on prospects and opportunities for sustainable management of America’s nonfederal forests.1998. Forested Landscapes in Perspective. Board on Agriculture, National Research Council. Washington, DC: National Academy Press. 249 pp.


Enters, T, et al. 2004. What does it take? The role of incentives in forest plantation development in Asia and the Pacific. RAP Publ. 2004/28. 49 pp.


FAO, 2005. The State of the World’s Forests 2005. Available at: http://www.fao.org/forestry/index.jsp.


Haltia, O. and K. Keipi. 1997. Financing forest investments in Latin America: the issue of incentives. Washington: Inter American Development Bank. Pub no. ENV-113. 22 pp.


Irland, L. C. 1984. "Forestry cost-sharing: lessons for evaluating public conservation programs."


Ren. Res. J., 5(2), Summer, pp. 18-22.

Sampson, R. N. and L. A. DeCoster. 1997. Public pgograms for private forestry. A reader on programs and options. Washington DC: American Forests. 100 pp.


Wunder, Sven. 2005. Payments for environmental services: some nuts and bolts. CIFOR Occ Pap. 42. 24 p.


Version #3


Updated 22 April 2007

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