Metla Project 3415

Impacts of forest conservation on the Finnish forest sector in the changing business environment

Duration: 2005-2009 Keywords: forest conservation , forest industry, forest industry product markets, roundwood markets
Research Programme: Safeguarding forest biodiversity - policy instruments and socio-economic impacts

Objectives

The Finnish forest sector (the forest industry and forestry) is facing several simultaneous changes, such as a need to increase forest conservation in Southern Finland, decisions concerning climate policy, the ongoing increase of rivaling production e.g., in Russia and Baltic countries, the changes in wood imports, and the increasing demand of wood for bioenergy. These issues have typically been studied separated from each other.

This project aims to analyze the economic impacts of biodiversity conservation on the Finnish forest sector and the distribution of these impacts between the different interest groups in the economy. In the analysis we aim to account for the other simultaneous changes faced by the forest sector in the holistic manner. The variables considered include, e.g., forest industry production, foreign trade, wood prices, harvested quantities, the stumpage income of the forest owners, the sectoral employment, and the regional trade flows. The project also provides information about the linkages of the forest conservation with the other forest and environmental policy goals.

The project develops and applies new models and methods to the forest conservation analysis and to the question of cost minimizing choice of forest conservation measures. The numerical and empirical models developed in the project are flexible and so they can be used to address also some other research needs in Metla after the project completion. The results benefit forest and environmental policy-making and formation of the national forest program. The project provides the forest sector interest groups information on the impacts of forest conservation given the other changes faced by the sector.

Results

Imposing restrictions on the management of forest land typically means that the resources forming base to timber supply decline in the short or longer run. This leads to decreased timber supply, unless the roundwood prices are increased. Hänninen et al. (2006) estimate the regional long-run elasticities of roundwood supply with respect to price to be below or close to one, which suggest that at least one percent increase in price could be required to offset one percent decrease in timber supply. Consequently, the forest conservation actions make the forest industry confront with higher timber prices or lower timber supply . The option to use imported wood decelerates this cost pressure, but does not eliminate it. Hence, it is expected that the forest industry adapts its production downwards at least slightly. Whether and how much the market prices of the forest industry products increase due to this depend on the competition in the markets. Kallio et al. (2006) indicate that the forest industry product prices would not change considerably even if the whole Western Europe implement ed a moderate forest conservation programme.

To anticipate the magnitude of the above changes, information on the de sign of the conservation policy is important: when, how much, where, and which type of forests will be protected. Several policy designs were analysed using the Fin nish forest sector model, some of the analyses supporting policy processes METSO, METSO II and National Forest Programme 2015. Hänninen & Kallio (2007) consider setting aside 0.5 – 5% of forest land in Southern Finland, having the forests of the most immedi ate market value, mature forests. Given steady flow of timber imports, the sawlog prices would increase 0.1 –3.5 % and sawnwood output decrease by roughly 0.5–5%, respectively. Pulpwood prices would increase to compensate for the decreased supply of its subs titute, sawmill chips. The aggregate stumpage income would not change, as the economic value of the non-protected forests would increase. However, it is to be expected that as timber imported from abroad becomes more cost competitive, its demand will increase. If the foreign imports increased to compensate one third of the conservation-born decrease in the use of domestic wood, also the forest owners ' income would decline , but the forest industry would be less hurt than in the previous case. Kallio et al. (2006) suggest that the European harvest restrictions would lead to increased harvests in Russia , the main exporter of the wood to Finland .

In fact, wood imports have important influence on the forest conservation impacts. In 2005, 24 % of the roundwood processed by the Finnish forest industry was of foreign origin. Since then, Russia implemented a tariff programme for its wood exports, which has already had tangible impacts on the Finnish forest sector (Honkatukia et al. 2008). Should Russia implement its highest tariffs planned, the Finnish imports of roundwood from Russia would cease (Solberg et al. 2010). Kallio et al. (2008) consider the conservation impacts in this setting. They also look for the location of forest sites with potential ecological interest using the habitat quality models. The results strengthen the insight that the land valuable from the ecological perspective may be currently less valuable to the forest industry than the more intensively managed forests of the same age. The forest sector model is used to find the regional allocation of the conservation sites most advantageous to the forest sector. If the conservation sites do not need to be widely scattered in order to mitigate the local economic burden, it seems that accumulating conservation areas to certain regions, like in the forests close to capital area might cause the lowest economic burden on the forest sector at the aggregate level. The ecological criteria also limit the choice though. If some 300 000 ha of mature forests with average regional characters were conserved, the difference between the economically least and most favourable spatial allocation would be below 30 millions euros per year.

Kallio (2010) provides the first comprehensive uncertainty analysis in a forest sector model and also applies it to analyse the impacts of the hypothetical forest conservation programme. The market prices for forest industry products are found to have the most important effect on the roundwood market and the forest industry development. Regardless the price scenario, the relative magnitude of conservation impacts suggested by the forest sector model were rather robust, as also suggested by the less extensive sensitivity analysis in Kallio et al. (2006).

Ahtikoski et al. ( 2006 ) f ind policies, which would simultaneously increase carbon sequestration and enrich biodiversity in the forests. Paying the forest owners a rather moderate compensation for devi a t ion from standard management practices in order to increase the carbon accumulated in certain spruce and pine forest types in Southern Finland would also lead to inc rease in the amount of dead wood in these forests, and th us provide subsistence for many threatened forest species.Kallio et al. (2006) suggest that forest conservation as such may lead to accumulated forest (carbon) stocks because of the decreased harvests. Some of such harvest savings would leak to other regions though .

Policy relevance

During the project, the researchers brought their expertise and applied the methods developed to support the following processes of forest and environmental policies:

Follow - up and evaluation of the METSO programme for forest conservation in Southern Finland (e.g., Kurttila et al. 2007)
Preparation of the National Forest Programm e 2015 (Kallio 2008)
Preparation of the METSO II conservation programme

Project leader: Kallio, Maarit
The Finnish Forest Research Institute, Vantaa Unit, PO Box 18 (Jokiniemenkuja 1), FI-01301 VANTAA, FINLAND
Phone: +358 29 532 5434
E-mail: maarit.kallio@metla.fi

Other researchers: Ahtikoski, Anssi, RO (2005), Englert, Daisy (2005), Horne, Paula (2005-06), Hänninen, Riitta, VA (2005-09), Mutanen, Antti, JO (2005), Pohjola, Johanna (2007), Salminen, Olli, VA (2009), Vainikainen, Nina, VA (2006)

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Updated 31.12.2012
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