Applied ecosystem services in working forests: A direct market valuation

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Presented at Southern Forests Economic Workers Conference March 2012

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Applied ecosystem services in working forests: A direct market valuation

  1. 1. D. Stuart HaleUniversity of Tennessee-Knoxville Forestry, Wildlife, and Fisheries
  2. 2. Ecosystem services are “the benefits peopleobtain from ecosystems” (MEA 2005).Examples include: Fiber Recreation Carbon Sequestration Water Quality Biodiversity
  3. 3. Human relationships with ecosystems• Plato (c.400 BC) First noted human impacts on the environment• George Marsh Man and Nature, in 1864, argued that natural resources are finite• Progressive Era conservationists Pinchot and Leopold - Humans are part of ecosystems and must act as proper stewards to ensure their health• Current Academy Daily’s Nature’s Services (1997); Constanza et al. (1997); Salzman and others- Increasing awareness of humans’ dependence on nature and accounting for the services provided
  4. 4.  Ecosystem services markets are emerging driven primarily by:  consumer demand • Voluntary markets • Eco-labeling  government regulation • Mitigation markets (CWA and ESA) New York City watershed protection in 1990s  saved an estimated $4.5 billion Millennium Ecosystem Assessment in 2005  UN sanctioned approximately 1300 scientist worldwide to analyze ecosystem health and human impacts and consequences
  5. 5. Increasing demand for benefits of ecosystem services due to:• Increasing degradation and scarcity of ecosystem functions• Public policy and regulatory shifts – ESA, CWA, CAA• Potential economic benefits to landowners and communities• Dynamic land-use and ownership patterns – TIMOs and REITs (≈13% of private forestlands)
  6. 6. • Identify, map, and quantify areas as traditionally managed for timber and recreation• Identify ecosystem services markets and capture values as reflected through current prices• Identify, map, and quantify areas suitable for ecosystem services management• Compare calculated values of ecosystem services management scheme and to calculated traditional management scheme• Anchor to actual landscape as a case study
  7. 7. • Determine validity of ecosystem services management as part of a comprehensive resource management strategy and compare to traditional management• Provide a demonstrative example of an ecosystem services management scheme• Estimate direct market present value of ecosystem services• Use open-source information as available
  8. 8. •Proposed Project Area isapproximately 3,976 acres•Dumps Creek watershed insouthwest Virginia•Mixed mesophytic forest eco-region of predominately uplandhardwoods with some covehardwood forest types•Current and past land usesincluded timber, coal, and naturalgas extraction, human habitation,and agriculture
  9. 9. Traditional managementscheme:1. Fiber2. Recreation leasesEcosystem managementscheme:1. Fiber2. Recreation leases3. Watershed services4. Carbon sequestration5. Biodiversity
  10. 10.  Identify traditional and ecosystem services markets Examples: • Local fiber markets • Local recreational hunt leasing • Ecosystem Marketplace • The Bay Bank • The Nature Conservancy • Mitigation banks/ ILF programs • “Over the Counter” (OTC) Find comparable prices fromreported transactions or estimates
  11. 11. Landscape features with potential to offer marketable ecosystem services:1. Areas suitable for fiber harvests2. Culturally significant sites3. Retention areas of recent timber harvest4. Areas unlikely for timber harvest5. Perennial streams6. Critical habitat7. Non-forest areas8. Wetlands9. High Conservation Value Forests10. Critical viewsheds11. Areas with public safety concerns
  12. 12. Traditional Management Scheme Service Area (ac)Fiber 2,873 410 3,283 (80% BA (50% BA harvest) harvest)Recreation 3,883 NA*Non-timber 693 693 TOTALS: 3,976 *The area of recreation is considered co-use, in that it provides multiple services, and therefore will only be counted once in total area.
  13. 13. Traditional Management Scheme Service Prices Service Units Price per unit Sources AssumptionsFiber MBF •$100 – pessimistic •Local prices •3000 BF/ac •$125 – most likely •Timber Mart- •Harvest 80% for •$150 – optimistic South suitable areas 2nd Quarter •Harvest 50% for 2010 SMZ buffers •Annual harvest rate of total area/15-year ownership periodRecreation acre •$2.00 – pessimistic •Local prices •All areas suitable are •$2.07 – most likely •VA DOF leased annually •$3.00 – optimistic based on current conditions
  14. 14. Ecosystem Services Management Scheme Service Area (ac) Linear feetFiber 2,264 NA (80% BA harvest)Recreation 3,883* NACarbon 685 NAWatershed 397 94,212Services (No harvest SMZ Buffers)Biodiversity 630 NA (Non-timber) TOTALS: 3,976 *The area of recreation is considered co-use, in that it provides multiple services, and therefore will only be counted once in total area.
  15. 15. Ecosystem Management Scheme Service Prices Service Unit Price per unit Sources AssumptionsFiber MBF •$100 – pessimistic •Local prices •3000 BF/ac •$125 – most likely •Timber Mart- •Harvest 80% for suitable •$150 – optimistic South areas 2nd Quarter 2010 •Harvest 50% for SMZ buffers •Annual harvest rate of total area/15-year ownership periodRecreation acre •$2.00 – pessimistic •Local prices All areas suitable are •$2.07 – most likely •VA DOF leased annually based on •$3.00 – optimistic current conditionsCarbon ton •$0.10 – pessimistic •Ecosystem •127 tons/ac •$1.00 – most likely Marketplace •Annual enrollment rate of •$4.00 - optimistic •Appalachian total area/15-year Carbon ownership period Partnership •Additional area from fiber retention in Year 2
  16. 16. Ecosystem Management Scheme Prices (continued) Service Unit Price per unit Sources AssumptionsWatershed linear •$20 – pessimistic •Approximate ILF •1% of total LFt sold feet •$25 – most likely average – annually for 15-year •$30 – optimistic construction cost ownership period •Approximately 10% •Act as mitigation of ILF prices bank •Demand provided through mitigation markets (CWA)Biodiversity acre •$0.00 for all pricing •Transactions are •Act as conservation scenarios taking place but bank prices are highly •Demand provided by variable and project conservation markets specific (ESA) •No local transactions
  17. 17. Valuate marketable services as available and projected : 5y= Σ (a )(v ) i i i =1Whereas,y = economic benefits to landowneri = landscape featurea = units of marketable ecosystem servicesv = value per unit of marketable ecosystem services
  18. 18. Comparison of Management Schemes by Pricing Scenario 1600000.00 1400000.00 1200000.00 1000000.00Dollars (US) Ecosystem Services 800000.00 Management 600000.00 Traditional Management 400000.00 200000.00 0.00 Pessimistic Most Likely Optimistic
  19. 19. Traditional Management Scheme Service Pessimistic Most likely OptimisticFiber 498,410.42 623,013.02 747,615.63Recreation 40,304.21 83,429.72 120,912.64TOTALS: $538,714.63 $706,442.74 $868,528.27Ecosystem Services Management Scheme Service Pessimistic Most Likely OptimisticFiber 375,992.73 469,990.92 563,989.10Recreation 40,304.21 83,429.72 120,912.64Carbon 9,634.00 96,339.97 385,359.89Watershed 195,577.67 244,472.09 293,366.50Biodiversity 0.00 0.00 0.00TOTALS: $621,508.61 $894,232.69 $1,363,628.13 All prices include a 5% discount rate
  20. 20. Traditional Management Scheme Ecosystem Services Management Scheme Total Values ($) Total Values ($)Year (a l l pri ces wi th a 5% di s count ra te) Year (a l l pri ces wi th a 5% di s count ra te) Pessimistic Most likely Optimistic Pessimistic Most likely Optimistic 1 49,429.52 64,819.34 79,691.43 1 56,694.63 78,733.79 111,854.54 2 47,075.74 61,732.71 75,896.60 2 54,342.62 78,461.84 120,437.27 3 44,834.04 58,793.05 72,282.47 3 51,754.88 74,725.57 114,702.16 4 42,699.08 55,993.39 68,840.45 4 49,290.36 71,167.21 109,240.16 5 40,665.79 53,327.03 65,562.34 5 46,943.20 67,778.29 104,038.24 6 38,729.33 50,787.65 62,440.32 6 44,707.81 64,550.75 99,084.04 7 36,885.07 48,369.19 59,466.97 7 42,578.86 61,476.91 94,365.75 8 35,128.64 46,065.90 56,635.21 8 40,551.30 58,549.44 89,872.15 9 33,455.85 43,872.28 53,938.30 9 38,620.28 55,761.37 85,592.52 10 31,862.71 41,783.13 51,369.81 10 36,781.22 53,106.06 81,516.69 11 30,345.44 39,793.45 48,923.62 11 35,029.74 50,577.20 77,634.94 12 28,900.42 37,898.53 46,593.93 12 33,361.65 48,168.77 73,938.04 13 27,524.21 36,093.84 44,375.17 13 31,773.00 45,875.02 70,417.18 14 26,213.53 34,375.08 42,262.07 14 30,260.00 43,690.49 67,063.98 15 24,965.27 32,738.17 40,249.59 15 28,819.05 41,609.99 63,870.46Total 538,714.63 706,442.74 868,528.27 Total 621,508.61 894,232.69 1,363,628.13
  21. 21. Traditional Management Scheme Ecosystem Management Scheme - Combined Pessimistic Prices - Combined Pessimistic Prices 700,000 600,000 600,000 500,000 500,000 Biodiversity 400,000 Recreation Dollars (US) WatershedDollars (US) 400,000 Fiber Services 300,000 Carbon 300,000 Recreation 200,000 Fiber 200,000 100,000 100,000 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Year Year
  22. 22. Traditional Management Scheme Ecosystem Management Scheme - Combined Most Likely Prices - Combined Most Likely Values 800,000 1,000,000 900,000 700,000 800,000 600,000 700,000 Biodiversity 500,000 Recreation 600,000 Dollars (US)Dollars (US) Fiber Watershed 400,000 500,000 Services 400,000 Carbon 300,000 300,000 Recreation 200,000 200,000 Fiber 100,000 100,000 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Year Year
  23. 23. Traditional Management Scheme Ecosystem Management Scheme - Combined Optimistic Prices - Combined Optimistic Prices 1,000,000 1,600,000 900,000 1,400,000 800,000 1,200,000 700,000 Recreation Biodiversity 1,000,000 600,000 Dollars (US)Dollars (US) Fiber Watershed Services 500,000 800,000 Carbon 400,000 Recreation 600,000 Fiber 300,000 400,000 200,000 200,000 100,000 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Year Year
  24. 24.  Problems • Market approach may not be best for insuring long-term ecosystem health • Highly variable costs and pricing • Negative impacts from perpetual deed restrictions  Future selling price  Restricting future management options
  25. 25.  Positives • Additional revenues and making acres productive that may not have been otherwise • Additional management actions could be incorporated into current practices • Provide opportunity for management of other desirable species without market values • Could provide for significant gains if applied to a larger portfolio • Promote awareness and education of human impacts and dependence on ecosystem health
  26. 26. • Ecosystem markets are emerging but immature• Ecosystem services management and marketing may offer additional revenues to landowners now and in the future• Greater recognition of ecosystem service values could influence management policies• Humans and ecosystem health are dependent upon the services originating on private lands• Improved ecosystem management could result in improved human and ecosystem health
  27. 27. • The University of Tennessee-Knoxville • Department of Forestry, Wildlife, and Fisheries • Dr. Don Hodges, Dr. Dave Ostermeier, Dr. Chris Clark• Craig Kaderavek, The Forestland Group• Bobby Campbell, The Forest Management Company
  28. 28. D. Stuart Hale Copyright © 2012 All rights reserved.

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