Marian L. WeberAlberta Research Council

Sustainable Forest Management Network, University of Alberta

Assessing Economic and Ecological

Tradeoffs from Tradable Landuse Rights:

Application to Canada’s Boreal Mixedwood

Forest

4th BioEcon Workshop on the Economics of Biodiversity ConservationVenice, Italy

August 28, 2003

Sustainable Forest Management Network

Boreal Ecology and Economics Synthesis Team

Fiona Schmiegelow, Vic Adamowicz, Glen Armstrong, Steve Cumming, Grant Hauer, Lee Foote, Marian Weber

"Research focusing on the development of a suite of models of natural forest dynamics and human

activities that facilitates evaluation of management scenarios in terms of ecological and socioeconomic

outcomes, for use in an adaptive management framework."

Natural Reserve DesignNatural Reserve Design

Article 8 of Rio Convention on Biodiversity 1992

“establish, regulate and manage networks of protected areas to promote the protection of ecosystems, natural habitats and maintenance of viable populations of species in natural surroundings”

• Coarse Filter Approach

• Objectives : Representation and Persistence (dynamic)

Reserve Design ApproachesReserve Design Approaches

A. Maximal Coverage B. Budget Constrained

Max Species Metric

s.t. Reserve Area Constraint

Camm et al.

Biological Conservation (1996)

Min Land Cost

s.t. Biodiversity Constraint

Ando, et al., Science (2001)

Choice of biodiversity metricSpecies WeightsEthical Issues (implicit vs. explicit)

Data IssuesClassification IncompleteSurrogacy not promising (e.g. Jaarsvald et al. 1998)Presence-Absence versus Demographic Data

Conflicting Species Requirements

Implementation ProblemsImplementation Problems

1. Methods for selecting ecological criteria ad hoc1. Methods for selecting ecological criteria ad hoc

Process Based Higher Level Surrogates such as Ecosystems (e.g. Margules and Pressey 2000)

2.2. Political Feasibility Political Feasibility

Institutional Context for Forest Management in Canada

1. Forest Lands are Publicly OwnedOverlapping Tenures and Uncoordinated AccessSkewed and missing price signals on public lands.

2. No Legal Framework for Integrated Land ManagementWhat land uses are of highest value?No mechanism for addressing biodiversity concerns or cumulative effects at disposition stage.

Currently addressed under Canadian Environmental Assessment Act and Alberta’s Environmental Protection and Enhancement Act

* incumbency protects low value land use* unlisted activities can derail plans for CE management

• Parallels between Land Management and Air and Water Quality Management

• Require a mechanism for coordinating the activities of multiple agents on the landscape

• Tradable permit systems organize users of the public good in order to

- Meet environmental objectives- Efficiently allocate resources

Tradable Landuse Rights (TLR) Approach ...Tradable Landuse Rights (TLR) Approach ...

• Government sets a “cap” or threshold on habitat loss. • Rights to develop remaining land are traded.

• Firms self select the best sites for development.

• Minimizes Cost of Landuse Constraint (see paper)

Tradable Landuse Rights (TLR) Approach ...Tradable Landuse Rights (TLR) Approach ...

KEY ASSUMPTIONS

1. Biodiversity can be conserved indirectly by setting aside

representative habitat types (Coarse Filter Approach)

2. Requires homogeneous habitat types

3. Assumes configuration less important than total amount of

habitat.

CASE STUDYCASE STUDYAlberta’s (Canada’s) Mixedwood Boreal Alberta’s (Canada’s) Mixedwood Boreal

ForestForest

Q1: What are the ecological and economic tradeoffs of alternative spatial and temporal arrangements of industrial activities on regional landscapes?

Q2: What are the implications of alternative policy and regulatory structures for achieving specific environmental objectives.

Boreal Mixedwood Region in Alberta

Boreal Mixedwood Forest:Age and species composition driven by a Natural Disturbance Regime

Land Management in Alberta’s Boreal Mixedwood

1. Oil and Gas Sector Surface Leases for oil and gas exploration and development Auctions (bi-weekly)

2. ForestryForest Management Agreements (hardwood)

rights to hardwood fiber over a fixed landbase responsibilities for land management

Quotas (softwood) in Forest Management Units rights to a fixed percentage of the AAC

3. Landuse Conflict FMU and FMA areas overlap Surface and Subsurface Leases Overlap Surface rights protected by Tort (Timber Damage Assessment)

Data and Study Area

1. BIODIVERSITYDetection probabilities for 27 bird species over 1137 Townships in NE Alberta (FAN)

2. LAND VALUESA. Surface Rights(i)Value of timber obtained from 2000-01 Timber Damage Assessment(ii)Crown timber dues.

B. Subsurface Rights(i) Value of oil and gas leases obtained from 1996-2001 bonus sales for oil and gas lease rights.(ii) Expected Royalties for underlying reserves.

LAND VALUES Per TWP Per ha.

Average: $23,218,242 $2322

Minimum: $1,435,152 $142

Maximum: $1,027,664,204 $102,766

Bird Densities over the Study Area

6.675 - 12.21512.215 - 14.35614.356 - 15.99915.999 - 21.005

m / = d li

m

=1li

Land Rents over the Study Area

$1,435,152 - 7,985,750

$8,007,936 - 13,014,814

$13,023,694 - 29,597,078

$29,719,725 - 2,504,729,185

Comparing Cost and Biodiversity Outcomes Comparing Cost and Biodiversity Outcomes Under Alternative ApproachesUnder Alternative Approaches

MC: Max Biodiversity Metric (Z)s.t. Reserve Area Constraint (M)

Z*(M), CMC (M)

BC: Min Land Costs (C)s.t. Z greater than or equal to Z*(M)

CBC (Z*(M))

TLR: Min Land Costs (C)s.t. Reserve Area Constraint (M)

CTLR (M)

Figure 1. Opportunity Costs Under Alternative Reserve Selection Algorithms

$0

$5,000,000,000

$10,000,000,000

$15,000,000,000

$20,000,000,000

$25,000,000,000

$30,000,000,000

1 160 320 480 640 800 960 1120

Number of Townships In Reserve

Cos

ts ($

) Maximal Coverage

Tradable Landuse Rights

Budget Constrained

Cost Savings

243% increase in area protected

Figure 2. Biodiversity Under Alternative Reserve Selection Algorithms

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Number of Townships in Reserve

Bio

dive

rsity

Inde

x

Maximal Coverage Approach

TLR Approach

Z = expected detection over study area

  Table 2. Outcomes Under Alternative Reserve Selection Approaches

 Approach

 Land Constraint

 Cost ($M)

 Biodiversity Index

MCBC*TLRTLR

TLRMC

140 twps (~12%)173 twps (~15%)140 twps (~12%)200 twps (~18%)

480 twps (~42%)380 twps (~34%)

$3,410 $807$555$917

$3,340$9,360

.076

.076

.056

.081

.195

.190

1. Defn of Environmental Objective

- habitat definition is connected to structural forest characteristics (Stelfox 1995)

- separate markets with land use constraints varying by cover type and age class in order to achieve appropriate representation of naturally occurring stand characteristics.

- Young Deciduous, Old Deciduous, White Spruce, Mixedwood (Cumming and Vernier 2002).

Implementation IssuesImplementation Issues

2. Temporal Dimension of Right

Habitat protection in a stochastic environment

Adaptive Management ApproachAllocate Rights to a fixed percentage of allowable disturbance per period

Long Term versus Short Term (spot market) rights

Implementation IssuesImplementation Issues

• Concern that choice of low value sites for reserves will lead to systematic bias against valuable habitat.

• Within a region the type of habitat(s) is constant.

• Within a region habitat quality depends on- total quantity of habitat- spatial configuration of habitat.

• Tradeoff between quantity and configuration of habitat

- Literature suggests that total amount of habitat conserved may be of greater ecological importance than configuration/configuration important when very little habitat left.

3. Spatial Heterogeneity and QUALITY of Reserve network

Implementation IssuesImplementation Issues

Relative Impacts of Configuration versus Habitat Loss on Predicted Abundance

4. Economic Efficiency and Competitiveness

- Transactions costs and complexity of trading system

- Market power and hold-out problems

- Network and spatial spillover costs

- Competitive advantage/disadvantage

Implementation IssuesImplementation Issues

5. Compatibility with Existing Institutions

Resource Rights allocated through spatial repeated auctions/sales.

ConclusionsConclusions

Approach Implementation Issues

Maximal Coverage - Choice of biodiversity metricMax Biodiversity Metric - Lack of relevant species informations.t. Reserve Area Constraint - Conflicting species requirements

- Political Feasibility

Budget ConstrainedMin Opportunity Cost - Requires Land Valuess.t. Biodiversity Metric - Requires Species information

Tradable Landuse Rights - Configuration versus AreaMin Opportunity Cost - Assumptions about habitat qualitys.t. Reserve Area Constraint - Design of trading system

Benefits of TLRs for Biodiversity Protection on Public Lands

-Management to Thresholds Stratified by ecosystem types and habitat characteristics. Eg. Stand age and type.

- Information Revealing. Rights go to highest bidder/Minimize Opportunity Costs. Prices reflect the relative scarcity value of each habitat type.

- FlexibleCan change the threshold in response to natural disturbance or changing preferences.

- Mechanism for Integrated Resource ManagementThe expected values of all resources are capitalized in permit prices.

ConclusionsConclusions