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Re-Greening in Action!

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Brent Sohngen, Professor of Environmental and Natural Resource Economics at Ohio State University (sohngen.1@osu.edu).

I was intrigued by a recent story from WRI about forests coming back in Latin America. The authors report on data provided by the University of Maryland which looks at tree losses and gains in the region from 2015 to 2023. Out of 18 countries examined, the authors find that three countries gained tree cover, 10 remained neutral, and five experienced forest losses. The gains occurred in Guatemala, El Salvador, and Uruguay. Losses in Honduras, Belize, Brazil, Bolivia, and Paraguay.

We shouldn’t be surprised anymore to find that deforestation in many places is slowing while reforestation is gaining steam. My colleague Douglas Southgate and I recently wrote a book (Reversing Deforestation) arguing that trends in demography, technology of food and wood production, and local ownership were setting the stage for forest transition across Latin America. When climate policies, efforts to protect habitat, and private carbon markets are added to mix, the signals are strong and forest gains are picking up steam.

I got to see these changes in person in February, when I traveled to northern Guatemala and participated in a series of meetings and field visits hosted by colleagues from The Wildlife Conservation Society (WCS). The main topic of discussion at the meeting was forest restoration and re-greening of grazing lands in key ecosystems of Central America. Because of the location in Flores, Guatemala, much of the conversation centered around activities in the Maya Biosphere Reserve.

For the field trip, we headed up the route to Carmelita (Figure 1), an historic community about 85 km north of Flores in the heart of the Maya Biosphere Reserve (https://maps.app.goo.gl/xCXXNYFWC6iusDNE6). Communities and ranches dot the route. Many people in these communities have been integral to successes and failures of the Reserve since its establishment in the early 2000s. The objectives of the Maya Biosphere Reserve were to protect forests and culture, while at the same time providing for livelihoods. A tall order anywhere in the world.

Figure 1: Google Maps satellite image of the “Route to Carmelita”, seen as the road leading north from San Andres towards Carmelita.

In this part of the Reserve, protection has not always been easy to accomplish. The GIF in Figure 2 illustrates how deforestation has crept up the route to Carmelita since 2000.
There are many explanations for this deforestation. Fortmann et al. (2017) break the concessions in the Reserve into three groups: long-established residential concessions, recently established residential concessions, and non-residential concessions. By far, most deforestation has happened in the recently established residential concessions – the ones along the route to Carmelita.

Figure 2: GIF of deforestation along the Route to Carmelita between 2000 and 2023, obtained from the Global Forest Watch website (https://www.globalforestwatch.org/)


Many of the folks who were recruited to join these recently established concessions were migrants to the region, often with farming backgrounds. The forest concessions along the road to Carmelita had also been harvested for decades prior by industrial timber companies, leaving the areas with comparatively low stocks of valuable timber. As a result, the income generated in this area was lower than elsewhere in the Reserve.

Becoming a concession member provided an opportunity to secure some land. Forestry provided a less certain approach to obtaining the food and income necessary for the survival of their families. And some large ranchers moved in, frequently offering large sums of money to locals, allowing them to take advantage of communities that did not have the resources to fight back.

Yet today, there is hope. Data from the University of Maryland (Figure 3) shows forest cover increasing in many places along this route. Not everywhere, and deforestation still happens, but reforestation is a growing feature of the landscape.

Figure 3: Woody Vegetation Canopy Cover data from Global Land Analysis and Discovery data set (https://zenodo.org/records/14231362). Blue illustrates areas where canopy cover increased from 2015-2023 while red indicates a decrease in canopy cover.

People who know say there are good reasons for this change. Bigger trends in demography and technology help, but the government has also worked to root out the excesses of illegal deforestation and cattle ranching, especially by larger operations. Ownership of forests, current or future, is becoming more secure through the concession model as many have now been renewed for an additional 25 years.

Some land is coming back on its own as cows have been removed and crops eschewed. Some land is being re-greened by human efforts, using funding from international aid agencies (the UK and the EU have been essential as was USAID before it was disbanded), or private donations. This is work WCS, the Association of Forest Communities of Petén (ACOFOP), and their many other local partners are doing.

The problem of regreening, however, is not at all trivial. One option of course is to leave the land alone and see what happens. Trees will come back if the land is left alone and fire abated. But under what conditions will the land be left alone and not converted back to grazing or cropland?

WCS reckons one way to make regreening durable is to address food production and forest productivity. Some land that could be reforested will instead be devoted to food production for some time. Even if 25% of a concessions landscape remains cropped for local subsistence, while the rest returns to forests, estimates suggest that benefits could be large enough to compete with local ranching wages.

On our excursion to the area, we picked up a local fellow who had been working in his field and transported him home. It was his birthday — he said his 100th — but rather than celebrating, he was tending to his crop of maize. It’s humbling to see someone who should be retired and playing with his grandkids working like that. It’s problematic to think that regreening could worsen outcomes for him and his extended family if some land is not available for food production.

For the long term, WCS is trying to elevate two goals. First, their emerging model of re-greening ensures land is available to local inhabitants to generate income and food, improving livelihoods, and competing with wages on nearby ranches. Second, their model attempts to increase forest productivity by speeding the time to mature forests with nursery operations and replanting focused on valuable species like Mahogany and Spanish Cedar. Standing forests in the area have already been high-graded, so it’s going to be a while until mature, high-value forests return, but WCS is doing everything it can to make this happen as quickly as possible over as much landscape as it can.

Already, one can see signs of success. In areas formerly infested with exotic and highly invasive pasture grasses, Mahogany trees 10-15 feet high planted several years ago are emerging at the top of the canopy. Data from bird studies suggest that reforesting areas now attract forest dependent species that have avoided the area for years. Wildlife cameras are capturing animals more comfortable in forests than grazed and cropped lands.

As it has been for the last 25-30 years, the people living and working in the Maya Biosphere Reserve continue to lead by example. Regreening efforts along the “Route to Carmelita” respond to both “failures” from the past and opportunities for the future. Efforts by WCS and its partners to promote livelihoods by supporting some crop production while trying to bring back a productive forest for the future represents a model that can be used in many places.

** Many thanks to Roan McNab for commenting on an earlier version of this document, as well as inviting me to the meeting and excursion in Guatemala, and Gabriela Ponce along with the incredible WCS team in Guatemala for their hospitality and clear explanations of how they are going about their work!

Where will the trees come from? How tariffs and new policies mean big changes on federal forests.

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by Brent Sohngen (sohngen.1@osu.edu)

In this post:

  • An assessment of the President’s recent executive order promoting timber harvests from federal lands to replace the 1.5 to 2 billion ft3 we import from Canada if tariffs reduce those flows.
  • Federal harvests provided 2 billion ft3 per year, 15-20% of U.S. timber, until the early 1990s, but were reduced for environmental reasons. Now they provide 0.3 billion ft3 per year.
  • Stocks have since grown significantly on these left-alone lands, and about 100 billion ft3 is reasonably available for harvest in the next few decades.
  • Harvesting levels of 0.9 to 1.3 billion ft3 per year would equal current growth and fire losses on these hectares and would promote thinned and younger stands that would be more resilient in the future.
  • There are environmental risks to building such a program that should be carefully weighed.

Now we know how the Trump administration plans to combat the effect of higher tariffs on wood prices: Harvesting more timber from federal forestlands, predominately in the western U.S. This approach would reverse thirty years of modest harvests from these forests, which began in the 1990s when the Endangered Species Act was invoked to slow down timber production in old growth forests that housed the Northern Spotted Owl (Strix occidentalis caurina).

Throughout their history, federal forests have been a punching bag, swinging back and forth between periods of protection and intensive logging as environmentalists and loggers duked it out in the court of public opinion and in front of judges. In the early 1900s, it was President Roosevelt who worried that lumberman and fires would destroy the great western forests and deprive future generations of habitat and boards. He set-aside millions of acres from the sawyer’s blade and hired forest rangers who tirelessly stood watch over their nation’s investment.

It turns out, back then, that logging was not much of a problem for federal forests. Sure, logging happened, but federal forests were remote and demand for industrial wood was modest in an era when population and income were far lower. Nature was a bigger “problem,” as 41 million acres per year burned before 1945.

Government set about slowing these conflagrations, hiring hearty soles, including servicemen returning from World War II, to put up a fight. Despite serious setbacks, like the Mann Gulch fire in 1949 that took 13 honorable lives, brave hand crews, hotshots, smokejumpers, and the like cut fires to 3 million acres per year by the 1970s.

What happened to all that wood saved from fires? Much of it made its way into houses and other products when the federal government built up a massive timber harvesting operation in western forests to meet growing demand during the post-World War II economic boom. By the 1970s federal harvests constituted 22% of softwood timber production in the U.S. In communities across the western landscape, forestry became a way of life, with booms and busts regulated by the number of housing starts.

But in 1991, all this came to a stop when Judge Dwyer ruled against the Forest Service, requiring changes in logging practices to save endangered species. Practically overnight, logging ceased on federal lands throughout California, Oregon, and Washington. They have remained low ever since as the Forest Service shifted its perspective.

These changes could not have come at a worse time for the American economy, which grew apace in the 1990s. Timber prices soared to new highs but mill towns in Oregon and Washington saw little benefit as log piles diminished. In 1993, President Bill Clinton chaired a timber summit in Portland, Oregon to make good on an election promise, but his words could not mend the obvious: a deep structural adjustment was underway, driven by a new calculation that favored owl habitat over tree cutting on federal lands.

Fortunately, for aspiring homeowners in the US, lumber poured in from Canada. The Canadians had plenty of trees and were keen to sell them. Lumber prices came back down as imports ramped up to 30% of lumber consumption by the early 2000s. The proportion has fluctuated a bit but remained close to this level ever since.

The question now is, what happens if tariffs reduce wood imports from Canada? Will prices stay high or can the US increase wood harvesting enough to counteract the market effects?
Consider federal timber lands, which have more or less been left alone since the early 1990s. These forests come under direct control of the President, who signed an executive order directing agency heads to increase logging on lands they control.

Can the US go back to the industrial-scale logging in federal forests like the 1950s through 1980s when federal harvests routinely hit 2 billion ft3 per year? Let’s look at the numbers.

The US consumes 12-13 billion ft3 of wood per year. Lumber accounts for about 55% of that, or 6.9 billion ft3. In recent years, we have imported around 1.7 billion ft3 per year. This level is down from the early 2000s when a housing boom drove imports to 2.5 billion ft3. Today, federal harvests stand at about 0.3 billion ft3 per year.

In principle, the US is capable of significantly ramping-up wood production on federal lands. With data downloaded from the US Forest Service Forest Inventory and Analysis database, I estimate that federal lands contain over 300 billion ft3 of softwoods, the key wood type imported from Canada.

We cannot access all that wood, though. About 23% is set-aside in wilderness areas and other protected places. An additional 43% is older than 120 years or in locations with slopes greater than 50 degrees. In both these cases, there are good environmental reasons not to cut. An additional 2.5% of the wood is too young to cut, so perhaps only 102 billion ft3 on 33 million acres is actually available for harvesting in a way that may not cause significant environmental damage.

That is a lot of wood. Can we cut it?

One answer is “yes” because we are already losing lots it each year to fires, which have now expanded to 7.5 million acres burned per year. Between fires and pests, 1.4 billion ft3 (1.4%) are killed annually, due in part to simple neglect. More harvesting would reduce fire and pest losses with thinned and younger forests.

How much can we safely cut? Simply cutting what grows every year would amount to 0.9 billion ft3 of wood for markets. Considering that these forests have not been managed for over 30 years, I hypothesize that we can harvest more than 0.9 billion ft3 per year and the effect on long-term volume growth will be positive. Currently, I’m assessing this with the Global Timber Model, so will have some actual analysis on that in the future.

But the current reality is that a significant amount of wood can, and probably should, be cut on public land. Based on the current inventory, growth, and dieback, I estimate that we can access 0.9 to 1.3 billion ft3 per year sustainably in the next two decades. Harvesting would also reduce forest fires.

That said, there are risks. The Forest Service has laid off lots of workers recently, and it is not clear the organization now has the capacity to manage a large and growing timber sale program. Lots of public and private infrastructure, including roads, machinery, and mill capacity, must be developed. Labor in western woodsheds has been scarce for years, so higher output will increase wages and drive-up costs.

There are also environmental risks. Road building and logging will denigrate habitat and water quality. In the haste to log, I worry that these risks will not be weighed carefully.

The carbon effects are not clear. Moving federal forests to shorter rotation ages with more harvesting could have short-term negative consequence for carbon emissions, but if management reduces fire damage and promotes increased growth rates through thinning and reforestation, the effects could be positive.

There is a way to have positive effects on the atmosphere, but it is not obvious that the Forest Service still has the personnel to ensure this outcome. And it is unlikely that the private sector, which will do the logging, has right incentives to do it well. The idea of using federal lands for more timber carries big risks.

One question folks might ask is why not harvest more on private land? Most forests and timber in the U.S. are on private land. Higher prices from tariffs could induce more harvesting there, but the tariffs must remain in place to have an effect. Landowners have inelastic supply, meaning that private wood supply will change modestly in today’s on-again, off-again policy environment.

The wildcard here is the potential federal timber harvesting program proposed through executive action. If private landowners come to believe the administration can actually pull off sustained increases in federal timber supply, logging on private lands in the east will edge up in anticipation. There is a modest overhang of mature logs in eastern forests that could enter the market in the next few years before the federal program gets up and running.

In conclusion, tariffs on wood imports from Canada would raise prices for lumber in the U.S. in the short term. We have plenty of wood available on federal forestlands, especially in the west, to expand our supplies and make up for any losses from Canada. However, it has been decades since most of these public forests have seen large-scale timber harvesting operations. Increases in harvesting can provide environmental benefits in terms of fire control and even long-term carbon storage, but there are also environmental risks to species, habitat, and the atmosphere.

Why the WRI No Harvest Counterfactual is the wrong approach for carbon accounting in forests.

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By Brent Sohngen (sohngen.1@osu.edu)

Have you ever wondered who owns the trees? Historically, of course, most observers would agree the trees belong to the landowner who can do with them what they wish. However, because 50% of the wood dry matter in trees is composed of carbon, the answer to this question is set to become less clear under some new rules proposed by the World Resources Institute for their Greenhouse Gas Measurement Protocol.

This new protocol will govern how companies and people who own forestland count the carbon in their forests. WRI is proposing to use an approach that only counts carbon when a stand is cut, ignoring any carbon changes that happen in forests owned by people who do not cut some stands, but instead let them grow. This approach uses what is called a stand-by-stand no-harvesting counterfactual to measure the effect of wood harvesting.

Figure 1 illustrates how the approach works. A growing timber stand is accumulating carbon from time-period 1 to 15 and is then cut. There is a harvest emission, shown by the immediate reduction in carbon. The forest begins to regrow either through planting or natural regeneration. At some point down the road, depending on the species, the new stand will have as much carbon as the original stand would have had if left alone.

The idea of the no-harvest counterfactual is to assume the level of carbon in an unharvested forest follows the hatched line and calculate the emissions associated with the difference between harvesting and not harvesting that stand.

Figure 1: Stand-by-stand no-harvest counterfactual

There are many problems with this no-harvest counterfactual approach. Mostly it is wrong because all wood harvesting is done in mature stands, which only become mature because someone left them alone long enough to get older. The WRI GHG protocol ignores any of this growth (what happens before t=15 in the figure). It focuses solely on the harvesting event, failing to account for the observed fact that landowners hold many trees they do not harvest, plant trees on old farms, let trees regenerate naturally on pastures, hold trees instead of growing crops, grazing, or building subdivisions and box stores. There are real opportunity costs with holding trees, but the WRI GHG Protocol assumes all these activities, and the associated costs, are irrelevant.

So why do they propose this scientifically challenged approach? Here’s my take.

First, WRI doesn’t want to provide carbon-based incentives for companies to grow and cut trees, especially in planted stands. This was clear in an article WRI scientists published in Nature in 2023 and the opinion piece by two of the nation’s most esteemed ecologists in the same issue. The general idea of this approach is that any tree harvesting is bad, including the millions of cubic meters harvested every year for fuelwood uses by folks in developing countries.

This approach – sometimes known as Proforestation – misses fundamental economic realities associated not just with supply and demand for wood, but also with emerging carbon markets. Economic studies have shown that wood market incentives increase carbon in forests (Tian et al. 2018). They have also shown that efficient carbon policies would incentivize lots of avoided deforestation, lots of reforestation and afforestation, lots of avoided old growth harvesting, and lots of improved forest management often coming in the form of extended timber rotations (Sohngen and Mendelsohn, 2003; Austin et al, 2020; Favero et al., 2020).

In these studies, more wood harvesting happens with carbon incentives over time because more carbon in forests means there is also more wood to harvest. Increased supply in turn lowers wood prices. Intensive plantations make up only about 10-15% of the new area in forests, even with high carbon prices. The rest of the carbon gains are predicted to happen in natural forests, where compensation levels for carbon would be large enough to support significant efforts to ward off fires.

Second, WRI has an additionality problem. For decades, people in carbon markets have argued for a strong additionality test, whereby tons of carbon sequestered by companies in the timber business cannot be used to offset fossil carbon emissions because the trees were grown for timber not carbon. The additionality problem arises because WRI and others cannot reconcile an accounting standard that would let a company use tons generated on its own forest as an offset against its own emissions with an approach that does not allow those tons to be sold in carbon markets due to additionality.

Concern about additionality is understandable, but plenty of approaches have been developed to handle it, including following the advice of van Kooten et al. (1995).

Third, WRI is worried that more scientifically appropriate approaches – such as the standard of measuring changes in stocks over time like the US Forest Service does for the US as a whole – will confer benefits on landowners for carbon fertilization and climate change, which have elevated the stock of trees (Davis et al., 2023). It is completely accurate that measuring carbon gains with stock changes over the area owned will credit landowners for carbon gains that are partly attributed to carbon fertilization or climate change. This means that people who hold forests could receive carbon benefits 15-25% larger than otherwise because of carbon fertilization and climate change.

Far from being a liability, as WRI claims, this is exactly what we should want because it means landowners are adapting to climate and market incentives.

Paying for the benefits of carbon fertilization, or in the case of the GHG Protocol, including them in insets generated from a land-based inventory, is the correct approach precisely because it encourages efficient behavior with respect to the atmosphere by landowners.

Rather than leading to more emissions, incentives that embody carbon fertilization values would reduce deforestation, increase afforestation, increase reforestation, reduce fire risks, and increase forest rotation ages. A recent US EPA report found that carbon sequestration would be 28% greater under policy incentives when carbon fertilization benefits are part of the incentives rather than ignored (USEPA, 2024).

In conclusion, WRI’s proposed GHG Protocol approach is the wrong policy approach. If the approach were correct, it could be extended to all forests for carbon accounting, but it makes no more sense in aggregate than it does as applied to a specific forest operation. Ultimately, it aims to reduce the value of carbon embedded in forests, constituting a legal “taking” of a resource in the United States that is worth billions.

WRI seems to have concocted this no-harvest counterfactual approach simply to limit how forest-owning companies count the carbon gains they provide. But it doesn’t work. In contrast, the economic literature illustrates that carbon incentives based on IPCC carbon accounting will lead to more of all forests. WRI should use this far more efficient, and environmentally sound, approach.

 

Reversing Deforestation in Latin America: How USAID has helped.

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By Brent Sohngen (sohngen.1@osu.edu)

Watching the current turmoil at USAID is more than sad. Not only is it devastating to hard working people and their families in all corners of the earth, but it will also have long-term implications for the welfare of people in other countries where economic development sorely lags. Yes, we can ignore the plight of others and focus only on ourselves. But the America I know has never been like that. I hope it doesn’t change. I fear it has.

Let me give one example of the type of work of USAID does. You can read more about it and other examples in the book I co-authored with Douglas Southgate Reversing Deforestation: How Market Forces and Local Ownership are Saving Forests in Latin America (Stanford University Press, 2024).

For years, USAID has supported community forestry in the Maya Biosphere Reserve of northern Guatemala. I wrote a bit about this project in an earlier blog post: Is timber harvesting in the tropics sustainable?

Back in the 1990s as Guatemala’s long-running civil war came to a close, there was discussion about what to do with land in the north of the country. The area contained an enormous wealth of Maya history locked up in buildings covered by half a millennium or more of rainforest growth. Lots of people had moved to the area to escape violence and more people were coming in search of a better life. An agricultural frontier was moving north towards the region along the recently paved road, shifting forests to farmland with significant losses of cultural Maya relics to the private black market.

Some people argued the entire northern part of the country should be turned into a giant set-aside, or national park. Fortunately, their arguments didn’t prevail and a more pragmatic approach emerged. This approach included setting some parks aside, while at the same time creating community forestry operations – where forests would be managed for timber and non-timber forest products by local groups.

USAID supported this institutional approach of providing limited ownership of forestland for forest management. The limited ownership occurred in the form of 20-year contracts with local groups. USAID supported efforts to manage these forests scientifically, using forms of selective harvesting in 30- to 40- year rotations which would help maximize value and regeneration of the most important species, Mahogany.

USAID supported entrepreneurship at timber mills that would receive the logs and turn them into boards, sometimes drying them before shipping them to other parts of Guatemala or the world. Famous rock bands have used the wood for their guitars because it’s sustainable. With support from USAID, local business groups would meet periodically to develop marketing strategies.

I haven’t spent an enormous amount of time in northern Guatemala. But the time I have spent has taught me that entrepreneurial spirit is alive and well there. With limited ownership of the land and forest resources through community forestry, full ownership of timber mill capital, and an eager willingness to work, members of the community forestry operations were well off.

As part of my research, we have shown that these efforts slowed deforestation (Fortmann et al., 2017) and increased incomes (Bocci et al., 2018).

Maybe it would have happened without USAID. I don’t know? What I do know is that USAID helped it happen by adapting the time-honored U.S. model of fee simple ownership and encouraging local community ownership because they are philosophically consistent. Back in the 1990s, people in that organization sensed an opportunity to encourage local ownership and help local organizations become better business people.

Who knows what the “new philosophy” at USAID, or whatever some new agency like it is called, will bring? It’s got a tall bar to get over to beat what USAID accomplished in the past.

 

Housing Prices and Tariffs on Canadian Softwood Lumber

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by Brent Sohngen (Sohngen.1@osu.edu)

Click here for roughly 5 minute podcast version of this post [Global Forest Podcast]

Understandably, there has been confusion and concern in the marketplace due to the weekend decision by the Trump Administration to impose tariffs on imports from Canada and Mexico (updated: The tariffs on both Canada and Mexico have been paused for 30 days). While exposure is significant in the automobile manufacturing sector, the housing sector will also be affected. Since the Great Recession earlier this century, the US has not built enough houses to keep up with demand. Due to limited supply of new homes, housing costs have risen disproportionately in the economy.

One factor possibly limiting the supply of new homes may be the high cost of wood, which makes up 15-25% of the cost of building and finishing a home in the U.S. A few years ago, buyers in the US experienced two significant, but short-term run ups in the price of lumber. Although we think more about our next meal than the wood frames supporting our living rooms, these price increases drove home just how important wood is in our daily lives.

What may come as a surprise to many is that the US imports about 30% of our softwood lumber, nearly all of which comes from Canada. It’s not like we don’t have enough trees in the US. We have more than enough actually. According to the US Forest Service, we grow nearly twice what we remove for timber every year. Even for softwoods – the preferred wood for framing a house – we harvest only about half what grows every year. Yes, fires have been increasing, but they are not coming close to putting a dent in the massive supply of wood piling up in US forests.

We import so much wood from Canada for a couple of reasons. First, Canada has an abundance of spruce, pine, fir (SPF) species that are extremely well suited for the US housing market. Since the Canadian market is so much smaller than the US market, much of their wood harvest makes its way through the US border. The dominant softwood type in the US, Southern pine, can be used to build houses too, but is less preferred by builders.

The US has similar types of trees in its northern tier – from Maine to Minnesota and the Pacific Northwest – but not enough is available on private land to compete with the sheer volume available in Canada. Significant quantities of the preferred SPF types are available on federally owned Forest Service lands, but timber harvesting on those lands has been limited since the 1990s. In fact, the US began importing large quantities from Canada in the 1990s precisely because the US shut down timber harvesting on federal forestlands in the west when the Northern Spotted Owl was listed as threatened.

A second reason why we import so much wood from Canada is that they subsidize timber harvesting. Nearly all forest land in Canada is technically owned by the King of England, but it is managed by the provincial governments. Timber harvests happen on land that is leased to the timber sector. When companies pay less than market rates for the timber they harvest, they are gaining a subsidy at the expense of Canadian taxpayers. When this wood makes its way to the US, it lowers prices, and benefits consumers, but it harms woodland owners and timber mill owners.

This issue of subsidies for Canadian softwood has been a long-running dispute between the US and Canada, reaching back into the 1980s at least. Since then, there have been periodic tariffs imposed by the US government and voluntary export limits by the Canadian government. During the first Trump administration, tariffs were imposed on Canadian softwood lumber. The Biden Administration maintained tariffs and increased them from 8% to 14.5% in August 2024. This most recent act seems to increase tariffs to 39.5%.

It is hard to imagine that these subsidies will not cause further increases in prices for lumber in the United States, especially the SPF material that is used so widely in construction. Most of us recall the very high prices for lumber from 2021 and 2022. These price spikes were driven by market factors well beyond the tariffs – including constraints in labor markets, difficulties in shipping goods from country to country, and other factors – but tariffs took their toll. And prices haven’t fallen back to their pre-pandemic levels. The most likely effect of tariffs on lumber prices it that they will increase. Estimates with the Global Timber Model suggest that US lumber prices could increase 2-5% in the coming weeks.

The effect on housing will take some time to play out, but higher prices will not be inconsequential. Framing lumber is 15-20% of the cost of building a new home in the United States. Other wood products are used throughout modern homes, in cabinets and other components. If wood prices increase 2-5%, the cost of a house could increase up to 1%. This does not sound like much, but in a market that is already “behind” in producing enough houses to keep up with American demand, it can have an important impact.

 

 

 

Reversing Deforestation: How Market Forces and Local Ownership are Saving Forests in Latin America

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My colleague Doug Southgate and I released our book titled Reversing Deforestation: How Market Forces and Local Ownership are Saving Forests in Latin America through Stanford University Press in late 2024. We of course invite all of you to have a look. It can be obtained through Stanford University Press, or Amazon. Additionally, Doug and I will be presenting a webinar on January 22, 2025.

We argue that forests in Latin America (and elsewhere) are at an inflection point because of trends in population, technology, and local ownership. All are bending in the right direction. For instance, growth in demand for food is slowing at the same time food production per hectare is hitting all-time highs. A key reason that food production has risen so much in Latin America is local ownership of farmland, which encourages investments in new technologies and higher yields. Local ownership – which includes individual ownership as well as community and Indigenous ownership – has also been expanding across the region’s forests, providing new opportunities for protection, planting, and natural regeneration.

In the book, we describe how we got to the point of converting 350 million treed hectares in Latin America (0.9 billion acres) to food production over the last 170 years. Population growth was the key driver. Human numbers increased from around 30 million in Latin America in 1850 to over 650 million today. Most of this increase happened because death rates fell as nutrition improved, medical advances occurred (including vaccines and antibiotics) and sanitation got better, among other things.

Today, population growth is slowing rapidly, not because calamity is upon us, as the authors of The Limits to Growth predicted in the early 1970s, but instead because people are controlling themselves. Just as birth rates fell years ago in Europe, North America, and other wealthy countries, they are now down across Latin America. As a result, the total fertility rate – the average number of children per woman – has fallen to 1.9, lower than the replacement rate. Population will continue to grow for a while in the region but is expected fall back nearly to today’s levels of 650 million by the end of the century.

Other factors contribute to deforestation, including government policies like open access, road building, and subsidies meant to expand agriculture and increase population in the hinterlands. Mining and logging play a role, but modestly in comparison.

As Nobel Prize winner Norman Borlaug showed us, adding land is not the only way to enhance food production. Increasing yields also works. Fittingly, the roots of the Green Revolution, which raised crop yields in developing countries last century, lie in Latin America.

Yes, nearly half of all tropical deforestation last century happened in Latin America, however, intensification reduced it. Since 1961, Brazil added 48 million hectares to corn and soybean production, an area bigger than the U.S. state of California. Yet if corn yields had not risen 268% and soybean yields 191%, Brazil would have needed 2.5 times that much land to produce the same quantity.

Because of intensification, real commodity prices for corn, soybeans, wheat, and rice have fallen since the 1960s. They are likely to fall further as slowing population growth meets new technology for food production.

As helpful as these trends are for slowing deforestation, they may not reverse it for the simple fact that government owns most of the forests in Latin America. In North America and Europe, governments do a great job of controlling access to public forests, although their management leaves substantial room for improvement. Through large swaths of government owned forests in Latin America, government agencies have trouble discouraging conversion to agriculture.

A well-recognized solution to de facto open access like this is ownership. Places like Chile and Costa Rica have developed land registries and encouraged individual land ownership, so deforestation has already reversed there. But thanks to Nobel Prize winner Elinor Ostrom, we have come to recognize that ownership can happen in lots of different ways, not just the fee simple ownership that many in North America and Europe are used to. When local ownership is considered broadly, it turns out that it is expanding across Latin America.

Early last century, land redistribution in Mexico created community forests called ejidos, which are well managed and resistant to deforestation. As a result, Mexico’s deforestation rate is low. Guatemala established several types of community forests in the Maya Biosphere Reserve in the late 1990s, which have become models for people all over the world. Deforestation rates within the community forests are slower than deforestation rates outside of them, and they are far slower than deforestation rates in some national parks in Guatemala. Brazil has been designating land in the Amazon for Indigenous communities as well, increasing local ownership and with it, opportunities for forest protection.

Ownership provides numerous benefits for forests. Although people do a better job maintaining forests when they have an ownership stake, carbon emissions and biodiversity losses are externalities, so even on locally owned land there will still be too much deforestation and too little afforestation. But private transactions – Payments for Environmental Services (PES) – can be deployed more effectively on private land. Nowadays, lots of companies are seeking opportunities to prevent forest loss or regenerate forests, and they prefer working with private owners than governments.

The evidence is pretty clear that forest planting is far more widespread on private land than public land. Natural regeneration is a perfectly valid way for forest renewal to proceed, but planting results in more stock more quickly. So from a carbon perspective, planting is beneficial.

When we look at the data and trends on people, technology, and ownership, Doug and I are incredibly optimistic about the future of forests in Latin America, and the entire world. Population and technology are heading in the right direction. In many places, the institutions of ownership are also heading in the right direction too, but now is a good time refocus our attention on local ownership, strengthening it where necessary.

Short-Term Carbon Storage

by

Brent Sohngen, Department of Agricultural, Environmental and Development Economics, Ohio State University (sohngen.1@osu.edu)

For too many years, scientists and environmentalists have owned the discussion of short-term carbon storage, sowing confusion on an otherwise ordinary economic principle. The economic principle at play is renting versus owning.  Just about any asset, carbon included, can be rented or owned.

Consider this, when you fly to a vacation destination, you don’t have to buy a house because it is quite easy these days to rent one for the week. If you are an aspiring farmer who can’t afford the high price of buying farmland in the United States, you can join other farmers who annually rent about 40% of US farmland to produce crops. Chances are good that the last time you flew commercially, you did so on a leased aircraft just like the rich and famous do on small private jets. Short-term leases are ubiquitous, helping markets allocate goods and services throughout the economy.

Renting stuff works really well for other assets, why shouldn’t it work for the carbon asset stored in forests and agricultural soils?

The concept of renting carbon has been used to evaluate forest and agricultural carbon sequestration since the early 2000s. The economics of renting is straightforward. The price of any asset is determined as the present value of the stream of revenues associated with owning that asset, where the stream of revenues is the rent. In the case of carbon, the market price of carbon is the asset price. The rental value can be determined directly by using the discount rate.

If the price of carbon at time t is PC(t), and the annual rent is R(t), the economic relationship between the two is

R(t) = PC(t) – PC(t)*exp(-r)

Where r is the discount rate. When the carbon price is $50 and the discount rate is 5%, then the rent on that carbon is $2.44 per year.

Renting carbon is like buying it this year and selling it next year. If you buy a ton of carbon today on a market for $50, and sell it in one year (assuming no depreciation) for the same $50, and your discount rate is 5%, your economic costs of buying and selling that ton are exactly the same as the rental rate:

Costs of buying carbon and selling it a year later = $50  – $50*exp(-r) = $50 – $47.56 = $2.44

A recent paper a few colleagues and I wrote shows how storing carbon for one year like this has value, and how carbon stored for only a year can be used by companies to help them become carbon neutral (see Parisa et al., 2022: https://doi.org/10.1016/j.forpol.2022.102840).

In some cases, if a company wants to become carbon neutral, they may be able to purchase an offset credit from another company, based perhaps on renewable energy, nuclear energy, landfill methane capture, or some other method. However, a big source of relatively low-cost offset credits lies in forests and agricultural soils, both of which provide mainly temporary storage. Forests are temporary because they are susceptible to natural disturbance and future harvest, while agricultural soils are temporary because farmers frequently change their land use or management practices.

But now, with the study by Parisa et al. (2022), there is a clear pathway to treat short-term carbon storage on an equal basis with carbon emissions. To make sure that short-term storage and carbon emissions have equal value, Parisa et al. show that the straightforward answer is to hold multiple tons of short-term storage to equal 1 ton of carbon emission.

Parisa et al.’s paper works out the exact number of tons that need to be held for 1 year at a given discount rate to equal the value of 1 ton of C emissions from energy combustion. If the interest rate is 5%, then someone has to hold 20.5 tons for one year to have equivalent value as one ton emitted.

This means that a farmer who does conservation tillage this year and stores 41 tons for the year offsets the damages caused by 2 tons of CO2 emitted (20.5 tons for 1 year = 1 ton emitted and 41 tons for 1 year = 2 tons emitted). If the price of carbon is $50 per ton, then the farmer could be paid $100, or $2.44 per ton ($100/41 tons =$2.44 per ton), for their year of storage.

The math would work the same for trees, wetlands, or any other ecosystem warehouse of carbon storage. Under different discount rates, the annual rent for carbon would change, as would the number of tons that have to be held to equal a ton of emissions (see table below)

Table: Number of tons that need to be stored for 1 year to equal the value of 1 ton of CO2 emitted under alternative discount rates.

Discount rate

 Tons stored 1 year

1%

 100.5

2%

50.5

3%

 33.8

4%

 25.5

5%

 20.5
6%

17.2
7%

14.8
8%

13.0
9%

11.6
10%

10.5

 

By these calculations, if you have a farm or forest and you defer a timber harvest, reduce your tillage, or plant a cover crop, you now know exactly how much benefit your action provides society. Specifically, if your discount rate is 5%, and you hold 20.5 tons out of the atmosphere for just one year, you have offset the damages caused by 1 ton of your own or someone else’s emissions. With ecosystem storage (in forests, soils, grasslands, or wetlands) you only have to store the carbon for one year to have that benefit.

With short-term carbon storage, you can choose to adopt the new practice as long as you want, providing benefits the whole time. If you choose to store carbon tons for more than one year, you increase the carbon benefit you provide. Storing the carbon for 2 years provides the same benefit the second year as the first, meaning storing 20.5 tons for a second-year offsets the damages caused by 1 additional ton of your or someone else’s emissions. As a result, you can be paid the second year for the same tons. Similarly, storing it for 5 years means you can be paid the carbon price in each of the 5 years.

Moving towards efficient mechanisms to mitigate climate change with short-term storage like this is critical for solving the climate problem. Studies like Austin et al. (2020: https://www.nature.com/articles/s41467-020-19578-z) have estimated the costs of forest carbon storage assuming that markets properly price short-term storage in forests and agricultural soils. This and other similar studies show that there is quite a bit of potential to ramp up carbon sequestration on the landscape at low prices.

Unfortunately, the main crediting agencies, like Verra, American Carbon Registry (ACR), and the California Air Resources Board, have ignored the rental and short-term carbon storage approach in Austin et al. (2020) and Parisa et al. (2022). Instead, they have implemented approaches that rely on models of carbon rather than actual measured carbon, and approaches that rely on long-term contracts.

Environmental groups often bolster their arguments about the importance of fighting climate change using new estimates of the costs of forest carbon abatement in studies like Austin et al. (2020), and recent compilations of the earlier literature on costs such as in Griscom et al (2017) and Fargione et al. (2018). These studies make climate mitigation look cheap after all, suggesting that society should just get to it. However, many environmental groups then argue for crediting rules in the land-based sector that make land-based options hundreds of times more costly than estimated.

The results in Parisa et al. (2022) provide landowners and carbon markets with the assurance that their efforts to provide atmospheric benefits through short-term storage both work, and have atmospheric value. By providing a clear trade-off between short-term tons stored and carbon emissions, and basing the tradeoff on tons that are readily observed in ecosystems, offset markets can flourish. Ultimately, they can grow in scale to create the level of atmospheric benefits estimated in the many studies that have shown them to be low-cost options for climate mitigation.