«SUBMITTED TO: DR. G.C. VAN KOOTEN Dr. A. Carrol Dr. B. Stennes Dr. K. Niquidet Tim Bogle, BScF, MF, PhD candidate DEPARTMENT OF GEOGRAPHY UNIVERSITY ...»
PROTECTING TIMBER SUPPLY ON PUBLIC LAND DURING CATASTROPHIC NATURAL
Public desires and private response
SUBMITTED TO: DR. G.C. VAN KOOTEN
Dr. A. Carrol
Dr. B. Stennes
Dr. K. Niquidet
Tim Bogle, BScF, MF, PhD candidate
DEPARTMENT OF GEOGRAPHY
UNIVERSITY OF VICTORIABogle PhD Thesis Proposal v2 1 of 28
TABLE OF CONTENTS
1. RESEARCH CONTEXT
2. MPB AND ECONOMIC TIMBER SUPPLY
3. PRINCIPAL-AGENT APPROACH IN FOREST MANAGEMENT
3.1 Principal-Agent theory
3.2 Forestry examples of the use of the principal-agent approach
3.3 Bilevel programming formulation
4. DISSERTATION OUTLINE
Chapter 1 Research context
Chapter 2 Principal-agent theory in forest management
Chapter 3 Bilevel programming
Chapter 4 What makes the mountain pine beetle such a tricky pest?
Chapter 5 Tenures and their influence on outcome
Chapter 6 Williams Lake case study
Chapter 7 Conclusion
Bogle PhD Thesis Proposal v2 2 of 28
1. RESEARCH CONTEXT Rarely, if ever, do forest jurisdictions take the full impact of natural disturbance into account when making decisions on timber supply. In forest planning, natural disturbances are considered to be too small to affect decisions regarding current and future timber supply, so deterministic planning readily accommodates such disturbances by permitting a small degree of flexibility in harvesting decisions. Where forestland within a jurisdiction is primarily privately held, forest holdings are generally small relative to the jurisdiction’s entire timber base, so individual landowners will adapt quickly to threats of fire or disease, either by immediate fire suppression or harvest of the site before the disease strikes. In some cases, the landowner may lose his or her entire timber investment, but that is not something that concerns forest planning. Thus, if forestlands are privately held, it is likely that a massive disturbance, such as the mountain pine beetle (MPB) infestation in the interior of British Columbia, can be avoided, as timber is harvested before it can be attacked.
The risk in this case is a potentially huge uplift in timber harvest as private holders liquidate their timber assets before the timber is struck by the outbreak. The cost is lower prices and a potentially large reduction in future timber supply.
The situation is different when a massive natural disturbance affects public timberlands and there is little in the way of privately held timber. In this case, political realities prevent the authority from harvesting ‘ahead of the curve’ because the public landowner must take into account environmental amenities, community stability and the even-flow of timber to mills, future timber availability for economic stability, revenues and timber prices (as public harvest decisions, unlike private ones, can affect prices), alternative mitigation strategies, et cetera. In other words, the public owner is less likely to increase harvests to avoid the spread of a pest like the MPB than if the same lands were privately held. The public owner is more likely to face the consequences of natural disturbance ex post rather than ex ante.
This is the situation with respect to the mountain pine beetle in British Columbia. The government did not increase harvest in anticipation of the MPB’s spread, despite past experience with MPB, but must now deal with the ex post consequences. The current research focuses on this aspect of natural disturbance – the policies that the public authority undertakes to deal with massive disturbance after it has occurred.
Bogle PhD Thesis Proposal v2 3 of 28 British Columbia has the most productive forestland in Canada. With almost all of this forest under public ownership, the provincial government has a fiduciary responsibility to steward the multiple values in the forest through harvest policy, environmental standards, tenure provisions and timber pricing on behalf of the people of BC. The government relies on timber sales developed by government staff, and area-based tenures (or concessions) that tie a single company to an exclusive geographic area. However, 60% of the timber volume is managed through volume-based tenures, which are timber quotas entitling the holders to harvest an annual volume within a broad geographic area, referred to as a timber supply area (TSA). A TSA is shared among tenure holders, with each proposing an area to harvest (within government regulations) to obtain their allotted volume and paying the requisite stumpage fee. The company must regenerate the site with funds assigned via an allowance or credit against the stumpage fees paid to the government. While the government sets out the broad policy under which a tenure holder operates, it is the tenure holder that ultimately determines the location, type of harvesting action and silvicultural strategy. The tenure holder is operating to maximize an economic objective in a competitive business environment, and its objectives may not coincide with those of government.
As the resource owner, the government of BC has initiated a number of policies to address the MPB infestation and its consequences. However, it now appears that the outcomes are not the same as what the government expected. The reason is that the government does not chose the stands to harvest but has delegated management of the forest resource to private companies in exchange for stumpage royalties and a smaller government workforce, among other things. A forest company harvests stands of timber at company discretion to fulfill the legal requirements of their respective tenure, either a replaceable or non-replaceable forest licenses. The latter licenses are used primarily to salvage damaged timber and therefore carry some minimum expectation to deal with dead timber.
If the forest were fully homogenous, with stands of equal value, the future state of the forest would not be adversely impacted by the profit-maximizing behaviour of the tenure holder. But how efficient is the volume-based tenure system when the forest resource contains mixed species and major natural disturbance is causing selective damage, as is happening in the interior of BC with the mountain pine beetle (MPB) epidemic?
1) What influence does the sporadic progressive pine beetle attack have on government’s first best solution?
A mathematical programming model will be developed to create a representative first-best solution from the perspective of the public or government regulator. This assumes that, if the government were to have complete information and undertake action (say, harvesting in a mixed species forest characterized by a progressive irregular MPB-like disturbance), the outcomes would be ideal from the public perspective. This then constitutes a benchmark for comparing further outcomes.
2) What is the ‘tenure effect’ attributable to the tenure instruments government currently uses and what is the impact to the first best solution?
Our concern is the divergence between government desires and private actions – the public wants certain outcomes with respect to the MPB but lacks the information about how to achieve these outcomes, which is available only to the private forest companies. While the required information available to the private companies may not be complete, the companies have more information than the government regulator – information is asymmetrical. As a result, the model used to answer Question 1, which represents the outcomes if the government has full information and control, will need to be augmented by a second constrained optimization model to account for the actions of the private companies. The augmented model isolates the government’s control variables from those of the forest company. Further, because there are two different types of tenure holders, replaceable and non-replaceable, there is the possibility that each tenure type introduces a different set of outcomes, termed the ‘tenure effect.’ This model will be used to explore the tenure effect and the government’s best response to the asymmetry of information.
3) Does the theoretical model mirror reality or do other influences play a role?
Models are powerful tools to explore a range of possibilities, but their predictive ‘power’ requires that one is careful to calibrate a model before comparing it to the real world. Comparison can help identify other influences or possible variables not used within the model but important to explaining
2. MPB AND ECONOMIC TIMBER SUPPLYThe most common approach used by government to estimate the impacts of the beetle has been simulation modeling using inventory projection tools. The provincial mountain pine beetle projection model is a spatial stochastic simulation model that uses the forest health aerial overview estimates of dead pine occurrence to project beetle population growth and pine destruction (Walton 2009). The outcomes from this model provide estimates to other timber supply models to assess biophysical timber supply impacts and, by extension, economic impacts by timber supply area (British Columbia Ministry of Forests and Range 2003a, British Columbia Ministry of Forests and Range 2007, British Columbia Ministry of Forests and Range 2006, Timberline Forest Inventory Consultants Ltd 2006). The timber supply models project alternate timber supply trajectories depending on the timber types harvested and the length of time beetle damaged timber can be successfully logged.
Stennes and McBeath (Stennes and McBeath 2006) examined one aspect of the economic issues – that related to the use of damaged pine for bio-energy. They used case studies and economic values derived elsewhere to predict possible hurdles to the use of MPB-damaged pine as bio-energy. They explored pricing, durability of supply, and facility pay back period. Other researchers have extended this knowledge using linear programming techniques. Niquidet et. al. (2008) examined the cost of bio-energy feedstocks as a result of the geographical distribution of damaged pine.
Examining only the harvesting and transportation costs, outside of startup and capital development costs, feedstock prices would be projected to double over a 20 year period in a case study in the Quesnel TSA in the interior of BC. They highlight that the viability of bio-energy as an outlet for damaged pine will be linked to what BC Hydro, the main purchaser of electrical power in BC, is willing to pay for energy purported to have green origins. Moreira-Munoz (2008) examined the implications of different timber salvage strategies in an area-based tenure, Tree Farm License 48, located in northeastern BC. His research highlights that AAC uplifts alone do not ensure efficient pine salvage and that the provincial landowner needs to have effective non-pine harvesting policies in conjunction with AAC uplifts, as the harvest of damaged pine affects forest company revenue, in order to reduce mid-term timber supply impacts.