The Price of Preservation: An analysis of timber values in the Carmanah Creek Watershed

Adam White November 23, 1990

Executive Summary and Recommendations

The objective of this study is to determine the cost to society of preserving the Carmanah Creek watershed in its natural state. The cost of preserving the valley is viewed as the cost of forgoing the opportunity to harvest the timber. A complete cost-benefit analysis would compare the economic benefit of logging with the benefit from preserving the timber. Only if the benefits from logging exceed those from preserving should the timber be harvested. But due to the difficulty of measuring intangible non-timber benefits, the cost of the forgone opportunity to harvest the timber is the best measure of the cost of preservation. If the cost of preservation (the benefit of harvesting) is relatively low, then intangible non-timber value are more likely to exceed timber values—the prudent decision would obviously be not to harvest.

The BC government’s current plan is to divide the Carmanah watershed into two: the lower valley would be preserved in a park, while the upper valley would be logged. The study finds that if the timber were harvested over a planned period of 70 years and valued at average log prices of the last ten years (in current dollars), the net benefit to society of harvesting, or the cost of preservation, would be as follows.

Entire Watershed: $635,000 Park:                     $932,000 UpperValley:       -$297,000

The cost of preserving the entire watershed is small. Once the ecological and aesthetic costs associated with clearcut harvesting are counted, the benefits from preserving the valley are very likely to exceed the benefits from harvesting. in the upper valley harvesting will incur a net economic loss. Therefore, the present decision to harvest the timber in the upper valley cannot be justified on an economic basis. Although timber in the lower valley, designated as a park, is not intended for harvest, it remains useful to estimate the benefits from harvesting there as a comparison with the upper valley area, and as a basis from which to evaluate statements from the BC government regarding the revenues it claims to have forgone by establishing the park.

It is commonly known that the BC government’s timber revenue collection policy bears little relation to the net value of the standing timber. In the case of the Carmanah, government revenues from harvesting in the upper valley would be $1.77 million, representing annual revenues of $92,000. As this amount exceeds the net economic value of the timber in the upper valley, it implies that MacMillan Bloedel will incur a loss by harvesting. Indeed, the present value of MacMillan Bloedel’s profit from harvesting the upper valley, $823,000, indicates a return of only 2.4%. As this return is lower than the competitive cost of capital, it represents a lost opportunity to invest at a higher rate with a cost amounting to as much as $2 million, or $100,000 per year.

The present value of the revenues the government would receive if the timber were harvested is:

Park:                 $3.14 million UpperValley:    $1.77 million

The provincial Government has claimed that it will forgo perpetual annual revenues of $600,000 by disallowing logging in the park area. This study demonstrates that this claim is exaggerated. Annual revenues in the watershed would be:

Park:               $162,000 UpperValley:    $92,000

In light of the fact that actual timber values are much lower than the Ministry’s estimates, alternate uses for the valley are likely to yield greater economic and social benefits than would logging. The study therefore recommends that plans for harvesting in the watershed be cancelled. The net benefit to society of harvesting in the upper valley is negative and is therefore exceeded by the benefits of preserving the area in its natural state in any case.

Any justification of harvesting should be based on an evaluation of the benefits of harvesting and its alternatives. A commitment to harvest without such an examination is premature and irresponsible.

The study recommends that the Ministry undertake a comprehensive public review with the intention of incorporating the evaluation of timber and non-timber benefits explicitly into all forest land allocation decisions. In the absence of such a review, the public cannot be assured that the decision to allow logging is in the public’s best interests.

The study also recommends that the Ministry of Forests adopt a more accurate method of estimating timber values and potential revenues; and that the Ministry undertake to make these figures and its calculations public so that public debate may be better informed and land-use decisions made in an open forum. Management decisions cannot be correct if the information upon which management relies is not.

View this entire report in PDF format

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