Environment and Natural Resource Economics Course

1. Environment and Natural Resource Economics Course Nanjing Agriculture University September 4 to September 30, 2006 Lecturers: Volker Beckmann, Humboldt University Max Spoor, ISS, The Hague Justus Wesseler, Wageningen University

2. Example on forest rotation Tutorial Lecturer: Dr. Justus Wesseler Tassone, Valentina, Justus Wesseler, and Francesco S. Nesci (2004): Diverging incentives for afforestation from carbon sequestration – an economic analysis of the EU afforestation programme in the south of Italy. Forest Policy and Economics 6(6):567-578.

3. An economic analysis of the EU afforestation program in the south of Italy: background information • Optimal rotation rate of new plantations set up under Regulation (EEC) 2080/92 of June 30, 1992,considering not only timber benefits but also the subsidies provided by Regulation 2080/92 and the social benefits represented by C uptake • Social loss may occur when the cutting age is set according to private interests • A numerical analysis using data from Calabria, a south Italian region, for three representative species are chosen for the study • How would you analyse if the subsidies provide social benefits?

4. Private and social optimal rotation rate considering subsidies and C-uptake • Optimal rotation rate without subsidies and C-uptake • Optimal rotation rate with subsidies and without C-uptake • Optimal rotation rate without subsidies and with C-uptake

5. Regulation (EEC) 2080/92 and implications for C sequestration • Regulation (EEC) 2080/92 provides subsidies to encourage the afforestation of agricultural land and improvement of woodlands • Regulation 2080/92 is intended to sustain the Community’s policy for • controlling agricultural production, • to contribute to improving forest resources in order to reduce the shortage of forestry products within the EU, • to combat greenhouse effects by sequestering C, and • to achieve other environmental benefits (e.g. soil erosion control, water control)

6. Regulation (EEC) 2080/92 and implications for C sequestration • In Regulation 2080/92 the European Council provides general guidelines to Member States with an invitation to each state to administer funds and adjust these general guidelines according to their own needs, by means of national or regional multi-annual programs • In Regulation 2080/92 the European Council provides general guidelines to Member States with an invitation to each state to administer funds and adjust these general guidelines according to their own needs, by means of national or regional multi-annual programs

7. Regulation (EEC) 2080/92 and implications for C sequestration • During the period 1994-1997, the afforested area in Calabria covered approximately 1860 hectares (Marcianò and Nesci, 1999) • Regulation 2080/92 allows for the afforestation of three types of agricultural land: arable land, pasture and non-cultivated land • Non-cultivated land refers to land that was cultivated until 1992, but not after(afforestation of non-cultivated land was allowed only in the period 1999-2000) • According to the Calabrian Regional Councillorship of Agriculture, during 1994-2000 about 74% of the afforested land was arable land, 24% was pasture land (including a small percentage of meadows) and some 2% was non-cultivated land

8. Optimal rotation age: private versus social • An infinite rotation model is considered. It is assumed that plantation forests are pure (single stands); that prices, costs, discount rate and stand productivity are constant; and that the payment of subsidies does not change between rotations. All calculations refer to one hectare of land • In this study, a discount rate of 5,2% is used; it corresponds to the medium yield of long-term (30 years) treasury bond in Italy (year 2000)

9. Optimal rotation age. Scenario A

10. Optimal rotation age. Scenario B

11. Optimal rotation age. Scenario C

12. Optimal rotation age. Scenario D

13. Representative species and wood volume data Three types of plantation forest occurring in Calabria are considered: • conifer plantations (include fir, cypress and pine, excluding Christmas trees, financial assistance is not given to the latter) • walnut and/or cherry plantations • and other broadleaf plantations (oak, elm, alder, maple, beech and chestnut)

14. Representative species and wood volume data A representative species is chosen for each type of plantation based on use and data availability: • silver fir(Abies alba)is the coniferchosen • walnut(Juglans regia)is selected from the walnut and cherry group • beech(Fagus sylvatica)is chosen from other broadleaves.

15. Representative species and wood volume data

16. Private Costs • Afforestation costs • Maintenance costs • Opportunity costs of land

17. Afforestation costs • Site preparation • Purchasing • Transportation & installation of bedding plants • Fertilisation • Fencing • Wheel track set up

18. Maintenance costs • Purchasing • Transportation & installation of new bedding plants to replace dead plants • Cultivation care • Irrigation • Form pruning Maintenance costs are considered only for the first five years. After 5 years: expenses incurred for the management of woodland equal revenue obtained from the sale of trees (thinning operations)

19. Opportunity costs of land • Represented by farmer revenue loss due to the afforestation of agricultural land • Are given according to the type of agricultural land afforested (arable land, pasture, non-cultivated land) • For both arable land and pasture, a distinction is made according to three fertility classes in the soil • Data for arable land refers to grain production • In our case study: the afforested non-cultivated land was mainly land abandoned because of recent fire, abandoned land was on the way of becoming public rubbish tip -> therefore we assumed zero opportunity costs

20. Carbon sequestration benefits • The social benefits considered in this analysis are represented by net C-uptake benefits • To obtain a value representing net C sequestration, C flux needs to be calculated for three different accounts: • C stored in the biomass • C stored in the soil • C released at harvest

21. C stored in biomass(Cb) To calculate the Cb it is necessary to estimate: • total above ground biomass • dead biomass • root biomass

22. Total above ground biomass

23. Dead biomass

24. Root biomass

25. Net total annual growth in biomass

26. C stored in the soil(Cs) Changes in soil C are estimated for all the three types of agricultural land (arable land, pasture and non-cultivated land) being afforested: • forest soils of 0,75 t C/ha/yr • pasture land store an annual average of about 0,60 t C/ha/yr • arable land (production of grain) stores an annual average of about 0,40 t C/ha/yr Changes in soil C stock for non-cultivated land converted to plantation forest are set equal to the change recorded for the afforestation of pasture land (Cs = 0,15 t C/ha/yr) Considering that 74% of afforested land was arable land, 24% was pasture and 2% non-cultivated land, the mean value (weighted average) of the annual growth in soil C (Cs) is 0,30 t C/ha/yr

27. C released at harvesting (Cr) After harvesting, wood can either be used for wood products or be burned: • About 80% of conifer timber harvested goes to wood commodities whereas the remaining 20% is burned • For broadleaves, 40% is intended for wood products and 60% for fuel • As for walnut and/or cherry plantations, we assume that 80% of harvested timber is used for wood commodities and 20% is burned

28. C released at harvesting (Cr)

29. Net Present value of C sequestration

30. Private Costs

31. Private Benefits

33. Mitigation costs of subsidies provided under Regulation 2080/92 for typology of species beech walnut silver fir