Voluntary forest set-asides in Sweden : an empirical and theoretical analysis

Abstract: Voluntary forest set-asides have increased in Sweden since 1996 when they were first introduced. The theory of voluntary agreements states that they should be cost minimizing and flexible. The principle with voluntary forest set-asides is that the forest owners in a voluntary way should set forest with a high biological value aside from production. The voluntary forest set aside should be a connecting area of productive forest land (0.5 ha) where no actions that can hurt the biodiversity are allowed. In Sweden the environmental goal, Sustainable Forests, states that until 2010, 730 000 ha forest should be set aside below the mountain border. Profit maximising forest owners set aside forest where the marginal benefits are equal to the marginal cost. An estimated marginal cost curve for Sweden, based on the average assessed value/ha forest as the opportunity cost, shows the supply of set-asides. Two different supply curves are estimated; the first is based on certificated forest and the second are adjusted with the results concerning voluntary forest set-asides from the Forest Agency. The differences between these two curves are considerable, which could have an effect if the government intends to introduce a subsidy. For both curves the lower part show a relative low increase of marginal cost but as hectares of voluntary set-asides increase the marginal cost rises faster. The reason is that in Sweden large amount of forest can be set aside to a low opportunity cost in the north but in the south the opportunity cost rises for the set-asides and less hectares are set aside. The flexibility from forest set-asides can vary for forest companies and small forest owners. In Sweden the small forest owners have the smallest share of forest set-asides which may be caused by their lower benefits as compared to the forest companies. The statistical estimates are based on too few investigations of the voluntary forest set-asides in Sweden to give a proper picture about their cost. The reason is that no investigations have estimated how much forest that is set aside in each county. A robust conclusion is, however, that the area of voluntary set-asides depends on the location in Sweden they are made. There is also a difference in relative area of forest set aside by small and large forest owners.