A marginal cost analysis of trade-offs in old-growth preservation in Ontario

The paper examines the economic impacts of sustainable forest management (SFM) policies in Canada. Specifically, the marginal costs (MC) of old-growth preservation in an even-aged boreal forest in northeastern Ontario are examined under the condition that forest managers need to achieve multiple objectives for SFM. Furthermore, the trade-offs of old-growth preservation are estimated, allowing the levels of three specific SFM objectives to vary, namely, providing a consistent supply of timber in each period, meeting terminal volume targets at the end of the planning horizon, and maintaining a desired age structure of the forest. MCs are higher for harvesting regimes constrained by SFM objectives compared with that in which only profit maximization is considered. We observed that MCs for these three scenarios varied more when the area allotted for old-growth preservation is small. When the area of protected old-growth forest reaches about 66% of the maximum possible, the MCs are almost the same. All MCs are iso-elastic. The even-flow volume per period has the highest marginal cost among the three cases. If managers choose to provide terminal volume that is greater than or equal to the initial volume, instead of a lesser terminal volume, then old-growth forest can be preserved at no extra cost. The study emphasizes the need for integrated and simultaneous achievement of complementary goals of SFM for better economic return and minimization of the negative economic impact of SFM on the forestry sector.