Ideas and Concepts underlying Forest Economics – 6 January
Economics involves a set of concepts and ideas that are used to analyze problems and issues around how we, as a society, organize the production, distribution, and allocation of goods and resources. In particular it offers an analytic structure that allows us to examine the choices individuals, firms, policy-makers and other decision-makers face, why they may make certain decisions, and the consequences of those decisions.
In the first class we discuss the key concepts and learning objectives for the course. We show how economics measures social well-being, what role markets play in the production, distribution, and allocation of resources, and why markets (under strict sets of assumptions) can yield socially efficient outcomes. We also discuss under what conditions markets can maximize social well-being. Several of these conditions are often violated in the real world, especially in the area of forestry, and we will identify those underlying causes and their consequences, which we will subsequently address throughout the remainder of the course.
In the lab we will review concepts of marginal analysis; how firms determine optimal production levels, how market equilibrium is reached, and how a change in demand or supply results in a new market equilibrium.
- Understand the conditions required for markets to maximize social well-being
- Identify which conditions are likely to be violated in the case of forestry
- Solve for optimal production levels for a firm
- Solve for market equilibrium
- Assess changes in social welfare
- Identifying the main property right attributes
- Chapters 1 and 2
Property Rights – 8 January
Property rights describe the rights around the ownership, usage, and responsibilities around natural resources. These rights affect how resources are managed and can have a powerful effect no outcomes and whether or not they are managed sustainably. In this section we will review the basic property rights framework and how it applies to private and public forestland in Canada and elsewhere.
- Identifying the main property right attributes
- Understanding the incentives different arrangements create
- Understanding how public forestlands are managed in Canada
- Chapter 9
- Dietz, Ostrom and Stern (2003) The Struggle to Govern the Commons
- Thomas Hardin (1998) Extensions of “The Tragedy of the Commons”
The Economic Value of Wood in the Forest – 13, 22, 27 January
Forest product markets are an important part of the Canadian economy. These can consist of final markets for goods bought directly by consumers (tissue paper) or for intermediate products that are used as inputs (newsprint to be utilized for newspaper; log markets). In this section we will examine the linkages between these final and intermediate markets; those markets are important to the Canadian economy and forest sector;
- Understand derived demand
- Identify which forest product markets are important in the Canadian forest sector and why
- Examine current condition and trends in those markets and implications
- Distinguish between short-run and long-run decision making and what factors influence firm decisions to maintain production
- Chapter 3
Guest Lecture: Jan. 22, 27 – Mark Boyland, Chief, Acting Director, Industry and Trade Economics, Canadian Forest Service
Timber Pricing, Resource Rent, and Market Power – 15, 20 January
The value of this timber is also influenced by the amount of resource rent available-and we will discuss how resource rent arises and why it matters, especially when we are dealing with publicly-owned resources. In an earlier section we reviewed how resource rent arises and why we would want to capture it when it is associated with publicly-owned resources. In this class we will review different methods to collect that resource rent and the implications for economic efficiency. We will also look at how market power arises and why it can lead to market failures.
- Understand how rent and value are influenced by changes in demand and costs
- Understand basic timber pricing concepts and their impact on timber values
- Understand market power and how it can lead to market failure
- Understand the concepts of monopoly, monopsony, oligopoly, and oligopsony
- Chapter 10
- Luckert (2007) Property rights, forest rents, and trade: The case of US countervailing duties on Canadian softwood lumber
- Grafton, Lynch and Nelson (1998) BC’s Stumpage System Economic and Trade Policy Implications
Guest Lecture: January 20 – Bill Markvoort, Probyn Log
Making Investment Decisions – 29 January, 3 February
It is important to take time into account when evaluating choices and decisions as we typically place a higher value on the present than the future. We discuss the economic rationale as to why this exists, and the implications. This is especially important in terms of forestry where it can take a long time for a tree to grow, and we have to take into account the effects of time not only in valuing the forest but also in how we manage that forest. This section also investigates different methods of evaluating investments, including ranking different kinds of projects and capital budgeting.
- To calculate the present and future values of a wide variety of investment streams
- To calculate net present value and use it to measure an investor’s willingness to pay for an asset
- To understand how inflation affects interest rates used for investment decisions
- To understand the impact of risk
- To calculate commonly used capital budgeting measures for a capital project: net present value (NPV), internal rate of return (IRR), payback period and cost benefit ratio
- Chapter 6
*Quiz One January 29 in class
Market Failures in Forestry: Externalities and Incomplete Property Rights – 5 February
Many of the outputs from forestry are non-priced. These include recreation, existence value, biodiversity, scenic beauty, and many others. This leads to market failure. In this section we will discuss two of the most common sources of market failure-externalities and incomplete property rights-and discuss ways in which these problems can be addressed. We will also introduce methods for valuing non-timber forest products and benefits.
- Understand methods and difficulties in determining the value of non-priced forest outputs
- Understand externalities and why they lead to market failures
- Understand why incomplete property rights can lead to a market failures
- Examine approaches to addressing market failures
- Chapter 4
Determining the Optimal Rotation Age and Harvest Level – 10, 12 February
Forests can act both as an economic asset (the wealth embodied in the standing timber) as well as in the income they can provide (the revenues realized from harvesting and other forest-based activities). This section applies economic theory to stand level decisions. The section starts with even-aged management, and we will learn to calculate the net present value of bare land based on a stream of expected costs and benefits. Next we learn to determine the optimal stand rotation age using marginal analysis as the point where the holding costs just equal the liquidation costs. We then examine different harvest rules and their economic implications.
- To calculate the net present value of an even aged stand of timber at different rotation ages
- To determine the optimal rotation age using marginal analysis
- To explain the effect of different discount rates on rotation ages and to discuss the selection of those rates for public and private forestry
- Chapter 7 and 8
*Quiz Two February 10 in class
Midterm Break – 16 to 20 February
MIDTERM EXAMINATION – Tuesday February 24
Determining Optimal Rotation Age delayed to 26 February
Valuing Forest Carbon – 3 March
An important service that timber provides which is in the process of being recognized is their role in regulating the climate. Carbon sequestration has emerged as a potential non-timber use that also has economic value, and in this section we will investigate how to incorporate the economics of forest carbon into our economic analysis. We will also explore the importance of institutional arrangements (markets and standards) in influencing that value and look at recent developments in BC and other Carbon markets.
- Examine the economic consequences of including carbon as a forest output an dhow it is used as an offset
- Understand how the importance of different rules and standards in influencing the value of forest carbon
van Kooten, G.C. et al. 2004. How costly are carbon offsets? A meta-analysis of carbon forest sinks. Environmental Science and Policy 2004.
Greig, M and G. Bull. 2011. Carbon management in British Columbia’s forests: An update on opportunities and challenges. BC Journal of Ecosystems and Management
Lemprier, W.A. et al. 2013 – http://nrcresearchpress.com/doi/abs/10.1139/er-2013-0039#.VO9R-zpsoTA
Optional: Testing Methodologies for REDD+
Bioenergy – 5 March
Forests have historically served as an important source of energy (and continue to do so in many places around the world). Interest in this use has been renewed driven by concerns over climate change and energy security. In this class we will explore different bioenergy options utilizing forest biomass, and assess bioenergy from a business case perspective (does it make commercial sense?) and from a social perspective (is it better for the environment than fossil fuels)?
- Evaluating the economic benefits and costs of bioenergy
- Incorporating the environmental impacts of bioenergy
- Exploring issues affecting its utilization
- International Bioenergy Trade Chapter 1: A General Introduction to International Bioenergy Trade; Chapter 3: Global Woody Biomass Trade for Energy; or Chapter 6: The Role of Sustainability Requirements in International Bioenergy markets
- Bioenergy options for woody feed stock: are trees killed by mountain pine beetle in British Columbia a viable bioenergy resource
First Nations and Forestry – 10, 12 March
Aboriginals have a long-standing and complex relationship with forests that are at the root of their identities in many communities. Forest policy in Canada has historically marginalized those Aboriginal communities, and in this section, we will explore how this is changing both through judicial rulings and new policies that offer these communities a greater role in the management of those forest resources, sometimes directly through ownership of land or securing tenure agreements, and other times through collaborative arrangements.
- Describe the unique and evolving role of Aboriginals in Canada
- Describe recent legislation and policy developments
- Examine different types of collaborative arrangements and FN approaches to forest management
- True Partners (2007) – http://www.bctreaty.net/files/pdf_documents/bc_truepartners.pdf
- Overall Review (2008) – http://metisportals.ca/MetisRights/wp/wp-admin/images/First%20Nations,%20Forest%20Lands%20and%20Aboriginal%20Forestry.pdf
- FN Forestry Program Success Stories (2009) – http://nsfc.ca/files/First%20Nation%20Success%20Stories.pdf
- New Brunswick FN bid to stop forestry deal (OCT 2014) – http://www.cbc.ca/news/canada/new-brunswick/first-nations-bid-to-stop-forestry-deal-rejected-by-court-1.2799017
Guest Lecturer: March 3 – Teresa Ryan, TerreWeb Teaching Fellow
Ecosystem Services – 17, 19 and 24
In the first part of the course we discussed why many forest outputs are not valued and why markets may not yield optimal outcomes. In these classes we investigate the idea of ecosystem services, and how it is being linked to economic values to improve decision-making through different mechanisms such as Payment for Ecosystem Services (PES). We will also explore how markets could be used to address those issues through the development of payments for ecosystem services that would take into account externalities and public goods.
- Describe the evolution behind the idea of ecosystem services
- Understand the theory behind PES
- Describe different types of PES
- Examine conditions that would enhance or limit the use of PES
- Erik Gómez-Baggethun and Manuel Ruiz-Pérez. Economic valuation and the commodification of ecosystem services. Progress in Physical Geography 2011 35: 613
- Arriadaga and Perring, Making Payments for Ecosystem Services Work
- Wunder, Payment for Ecosystem Services: some nuts and bolts
Guest Lecturer: Dirk Brinkman, Brinkman and Associates, March 19
Hosny El-Lakny, FAO (retired) – March 24
*Quiz Three in Lab week of March 16
Land Use – 26 March
One of the most important policy questions is how we allocate land among different uses. This is especially important in forestry as the intensity of forest management depends in part upon land characteristics, including not only its productivity, location, but also the opportunity cost of that land. In this section we examine how land is allocated within a market system and implications for forestry. We will then examine the idea of forest land use planning and specialization.
- Describe how land would be allocated under a market system
- Determine the optimal allocation of land between alternative uses
- Understand the idea of specialization and intensification
- Chapter 5
Deforestation and Degradation – 31 March
One of the most pressing environmental issues facing the global community is the deforestation and degradation of forest ecosystems. In this lecture we will examine what drives deforestation and degradation and different approaches to slowing or stopping it.
- Describe the difference between deforestation and degradation
- Examine the underlying economic drivers
- Explore approaches to halting deforestation
- Lambin, E.F. and P. Meyfroid. 2010. Land use transitions: Socio-ecological feedback versus socio-economic change. Land Use Policy 27 108–118
- Lambin, E.F. and P. Meyfroid 2011. Global land use change, economic globalization, and the looming land scarcity. Proceedings of the National Academy of Sciences of the United States of America,Vol. 108, No. 9 (March 1,), pp. 3465-3472 “The economics of deforestation: the example of Ecuador” Chapter 2: the wealth of theories
- “World Ecological Degradation 3000BC – AD 2000” Chapter 12: Wood, environmental imperatives and developmental strategies
*Quiz Four March 31
Forest Product Markets and International Trade – 2 April
Canada’s rich forest endowment combined with increasing global demand for forest products for much of the past century had enabled it to become the world’s largest exporter. However, there have been structural shifts both in global demand, as well as timber supply within Canada and from other countries, and Canada is now no longer the world’s leading exporter although it is still the largest exporter for many important products. In addition to these shifts, trade restrictions also influence the flow of forest products. In this section, we will explore the theory underlying free trade, the impact of different trade restrictions, and Canada’s changing competitive condition.
- Understand the idea of comparative advantage
- Explore the effect of log export restrictions such as the softwood lumber dispute
- Chapter 2
- Frank/Bernanke Principles of Microeconomics
Forest Management and Adaptation to Climate Change – 7 April
In this concluding section we examine how climate change might affect our forests and what are the economic implications of those impacts. We will look at the impact of natural disturbances (wildfires, pests) and also explore different ways in which we might adapt to climate change, including proposed changes in planting strategies, timber harvesting, and strategic planning.
- Understand the basic impacts and threats posed by climate change and the economic consequence of those changes
- Explore different approaches to adapting to climate change
- Evaluate options under uncertainty
- Chapter 6, p. 121-123
- Keenan, R. 2014. Climate change impacts and adaptation in forest management: a review. Annals of Forest Science.
- Williamson, T et al. 2009. Climate change and Canada’s forests: from impacts to adaptation. 2009.
Recreation – 9 April
Changing social preferences have increased the value of recreation activities on public land. In this section, we explore the issues around recreation on public lands, including public an commercial activities and examine one aspect of commercial tourism-eco-tourism-as an alternative business activity.
- Describe issues around managing recreation and the differences between public and commercial recreation
- Identify the tradeoffs between different types of recreation activity and industrial activities on the public landbase
- Situate ecotourism and the relative merits and drawbacks how it might fit within the suite of economic options under forest management
McCool, S. 2007. Outdoor Recreation in the New Century: Frameworks for Working Through the Challenges
Kux, S. and W. Haider. 2014. Non-Motorized Outdoor Recreation in British Columbia in 2012: Participation and Economic Contributions. http://mountainclubs.org/wp-content/uploads/2014/04/SFU_FMCBC_Recreation_Report_2014.pdf
Gössling, S. (1999) Ecotourism: a means to safeguard biodiversity and ecosystem functions? Ecological Economics 29: 303-320.
Koens, J.F., Dieperink, C. and M. Miranda (2009) Ecotourism as a development strategy: experiences from Costa Rica. Environment, Development and Sustainability 11:1225-1237.
*Quiz Five April 9