For the complete study,please see the link to the PDF of the paper below:
By Wayne Winegarden, PhD, and Donald Rieck*
With apologies to John Maynard Keynes, all too often policymakers, businesspeople, and consumers are unknowingly captive to some obscure economic trend or study. The need to accurately interpret these trends and studies is growing. However, a gap exists for key media and thought leaders – they lack the resources to quickly assess the practical applications of the academic research or put the various and sometimes conflicting economic data into perspective. The mission of EconoSTATS is to help bridge this widening gap through editorials, short white papers, and technical analyses that are created with a strict focus on the needs of key media and thought leaders.
This technical EconoSTATS paper, on competing forestry certification programs, reflects secondary and primary research (through interviews with timberland owners, managers, and certification auditors and modeling of forest management scenarios). The purpose was to gain a better understanding of the impacts that forest certification programs have on the practical management of forests in the U.S.; as well as potential negative economic consequences resulting from the various certification programs.
Effectively managing global forests, including U.S. forests, is a daunting task. And, the stakes are high. Poorly applied policies could incent excessive forest degradation. Alternatively, they could create problems of unemployment and declining incomes. In the worst of both worlds, poorly applied policies could simultaneously injure the environment and create significant economic harm.
Competitive markets provide consumers more choices of high quality goods and services at lower prices than under a monopoly, and the certification marketplace is no exception. Competitive forestry certification programs are uniquely qualified to balance competing interests and establish optimal regulatory practices. Of course, striking the optimal balance requires reliable information on the alternative costs and benefits created by the different forest certification programs. Such a study needs to account for the varying needs across different forests and different regions.
This paper, authored by Brooks Mendell, PhD, and Amanda Hamsley Lang, makes an important contribution by estimating the costs of the three commonly applied forestry certification programs in the U.S. – a base case corresponding with the American Tree Farm System (ATFS), the Forest Stewardship Council (FSC), and the Sustainable Forestry Initiative (SFI). Mendell and Lang examine the impacts for specific forests in the South (Arkansas/Louisiana) and the Pacific Northwest (Oregon) and then generalize their findings to provide insights specific to Arkansas and Oregon, which represent approximately 14 percent of the private forestlands and 10 percent of forest owners in the South and Pacific Northwest.
All three forestry certification programs “advance responsible forestry management”. However, not all three programs effectively manage the potential economic consequences. In both regions, the FSC standards impose significantly higher costs and lead to significantly lower output (in the South the most significant negative economic impacts were associated with designating certain forests as “plantations”). Higher costs and lower output lead to lower economic activity including lost jobs, incomes, and tax revenues.
The FSC standards also reduce operational flexibility creating additional economic costs that, while difficult to measure, are no less real. The long-term economic consequences are exemplified by the fate of the American automobile manufacturers during the 1970s and 1980s. Reduced operational flexibility makes it more difficult for any industry to adapt to changing global circumstances or consumer demands.
Then there is the problem of FSC’s ambiguity, exemplified by its varying standards across the globe. Policy implementation works best when there is little room for confusion or interpretation. When policies are vague or open to interpretation by either the industry or the regulator/auditor, uncertainty arises. Regulatory uncertainty is the enemy of business growth – whether that business is manufacturing, finance, or forestry. As Mendell and Lang illustrate, the forestry certification programs need improvement with respect to clarity in their practical application, particularly the FSC program.
While not discussed in the paper, the problem of uncertainty is amplified once the scope of the global certification marketplace is considered. FSC implements 38 different standards across the world, many of which are “interim,” or not fully developed. The requirements on businesses and landowners vary greatly across the 38 different standards even though all of these products are FSC certified. This lack of consistency leads to American foresters facing steep benchmarks, while some international landowners in countries like Brazil or Russia are receiving FSC certification more easily.
The U.S. FSC program’s excessive restrictions and higher costs are imposed with the intention of establishing better environmental stewardship. An unintentional consequence arises, however, because suppliers and consumers do not appear willing or able to afford the costs created by the U.S. FSC program. The result is lower U.S. FSC output. Of course, the lost domestic timber output can be fulfilled from other suppliers.
Suppliers can avoid these prohibitive costs by turning to ATFS or SFI as better options for their land and financial situation. But, the added value of ATFS or SFI decreases if timber certified to these programs is not able to access “green” markets – such as LEED projects – or does not get stocked on store shelves, due to pressure from environmental activists who favor FSC. Since FSC is a worldwide program, with 90 percent of its land overseas, ultimately this leaves global FSC supplies to meet the unfilled domestic demand.
Therefore, domestic policies that artificially inflate the demand for FSC timber while depressing its supply of U.S. product results in more imports of forest products from regions that lack the environmental safeguards taken for granted in the U.S. Such a policy not only creates economic losses in the U.S., as described above, many global FSC certified timber is produced in a less environmentally sustainable manner. Thus, the FSC program incents consumers to purchase timber from countries with less, or no, environmental standards. The result is greater environmental degradation from a global perspective. Thus, the FSC program imposes large economic costs and greater global environmental degradation unintentionally creating the worst of both worlds. And, due to the labeling requirements, consumers and businesses have no definitive way of knowing the actual conditions under which their FSC certified forest products were harvested.
Balancing the competing needs of forests owners, consumers of timber products, and environmental concerns is complex. Competitive certification programs create a system where the different interests can consistently interact with one another and adjust to material economic or technological changes helping to ensure that the most efficient outcome results. The Mendell and Lang study makes an important contribution toward establishing the right forestry standards by illustrating the strengths and weaknesses across the three main forestry certification programs, and the potential economic losses of imposing an FSC monopoly in certain areas of the U.S.
By demonstrating the benefits created by maintaining a competitive certification standard program, the Mendell and Lang study has broader applicability as well. Forestry management is not the only industry facing competing interests across diverse groups of constituents. A deeper understanding of how the forestry certification programs balance these risks can help these industries develop a dynamic and responsive regulatory system as well. As such, we also believe that this Mendell and Lang study provides an important case study that illustrates the benefits that can be gained through competitive regulatory structures.
*Donald Rieck is Executive Director of EconoSTATS at George Mason University. Wayne Winegarden, PhD, is a Contributing Editor to EconoSTATS at George Mason University and a Senior Fellow at the Pacific Research Institute.