Demonstration of Trust Impacts from Management Alternatives to Achieve Habitat Conservation Goals on Washington Department of Natural Resources Managed Lands
B. Bruce Bare, Bruce R. Lippke, Weihuan Xu, Chadwick D. Oliver, Jeffrey Moffett, and Thomas R. Waggener
A 1995 review of the economic analysis provided by the Washington State Department of Natural Resources (DNR) for their proposed Habitat Conservation Plan (HCP) noted that their planning process was flawed in that it did not search for the lowest cost combination of alternative forest management treatments to meet conservation objectives nor did it compare the proposed HCP against a minimum regulations baseline in order to develop meaningful measures of incremental costs and benefits to the trust beneficiaries. Hence, the review concluded that the Department's claim that the proposed HCP was in the best economic interests of the trust beneficiaries was not valid. The reviewers, which included several of the authors of this report, proposed an analytical approach that would be sufficient for fiduciary trust management purposes. Since the Department did not respond to the identified inadequacies, this report has been prepared to determine if lower cost forest management treatment alternatives exist to satisfy conservation objectives, and to compare these alternatives with a simulation of the proposed DNR HCP as well as with baselines which are more reflective of minimum regulatory standards. All analyses discussed herein relate to the forested acres in western Washington managed by the DNR.
Simulating the Conditions Produced by the Proposed DNR HCP
The simulated DNR HCP applied to six separate DNR planning regions in western Washington produces a Net Present Value (NPV) of $7.52 billion compared to the $7.41 billion actually reported by DNR for their proposed HCP when adjusted for the same Westside acres and timber prices. Since the Department’s analysis was developed for twenty-seven separate planning units (twenty-one county units representing the Forest Board Transfer Lands and the same six planning regions for the Federal trusts), the nondeclining harvest flow constraints used in the DNR analysis would be expected to lower the simulated DNR HCP by somewhat more. Hence, the difference in NPV between the simulated DNR HCP and the actual DNR HCP analysis for a given set of planning units is small and essentially insignificant.
Comparison with a Low Constraints Baseline
To demonstrate the magnitude of economic impacts embedded in the DNR HCP strategy and the attendant input assumptions, a simulation of a low constraints baseline was developed. This baseline included Washington State Forest Practices Act requirements for green tree retention, green up, and riparian buffers on class 1-3 streams but excluded any requirement for northern spotted owl or murrelet habitat since that is a principal focus of the HCP. It also included the best estimate of input costs, stumpage prices, and inventory assumptions. This low constraints baseline simulation produced a $15.9 billion NPV -- $8.5 billion higher than that reported for the DNR HCP (adjusted). In effect, the demonstrations are able to simulate the impact of the many strategies and assumptions embedded in the DNR HCP while providing estimates of the various causes that contribute to the $8.5 billion economic loss when measured against a low constraints baseline.
The Contribution of Stumpage Price, Inventory Assumptions, and Multiple Planning Units
There are many conservation strategies and procedural assumptions that contribute to these potential losses. Using identical stumpage prices, starting inventories, and inventory-to-harvest volume fall down assumptions on a single planning unit, the simulated DNR HCP NPV is estimated at $8.8 billion -- still $7.1 billion lower than the low constraints baseline. While the volume assumptions and the use of more planning units than necessary may reflect losses that are not in the best interests of trust beneficiaries, stumpage price and inventory assumptions primarily impact the estimated value of trust assets and not percentage loss differences across different conservation strategies.
A Low Cost Alternative with Better Intergenerational Equity
As a lower cost alternative to the DNR HCP, alternative forest management treatments and harvest flow constraints were developed for a single planning unit to produce multi-species upland and riparian habitat more quickly than with DNR set-asides, with habitat constraints set to produce at least as much habitat and more stable intergenerational revenue flow than provided by the simulated DNR HCP. Habitat measures used to assure that these alternatives produced at least as much habitat as the simulated DNR HCP included Forest Practice Board definitions for old, sub-mature and young forest marginal suitable spotted owl habitat, dispersal spotted owl habitat, and marbled murrelet habitat. In addition, the best available multi-species habitat measures from the Washington Forest Landscape Management project were used including six stand structure classes and three multi-species habitat indices. Acreages for each habitat and stand structure classification were developed for each forest management treatment alternative (inclusive of a no-management alternative) for each decade over a 10-decade planning period.
The simulation of alternative treatments (ALTS) produced a $13.3 billion NPV -- $2.6 billion below the low constraints baseline -- but still $5.9 billion or 80% higher than the actual DNR HCP when adjusted for consistent acres and timber prices. ALTS supports an annualized revenue increase (for trust beneficiaries) of $295 million per year, and a 57% lower standard error of decadal revenue deviations from the mean, reflecting substantially better intergenerational equity. ALTS also results in more late seral forest structures, higher measures of habitat indices, and better riparian forest structures over the 100-year planning horizon.
Sensitivity analysis of the individual factors that contributed to ALTS
producing a higher NPV than the simulated DNR HCP for a single planning
unit using identical volume loss and timber price assumptions are shown
(1) under-managed riparian buffers vs. partial cut treatments 6.1%
(2) off base unstable slopes vs. adaptive management 7.8%
(3) off base spotted owl nest sites, murrelet, and NRF zones vs. managed biodiversity pathways instead of zones 9.6%
(4) DNR silvicultural treatments with 60 year minimum rotations vs. a range of commercial and biodiversity pathway options 10.8%
(5) nondeclining harvest flow constraints with one region vs. +10% decade to decade maximum change harvest flow constraints 8.8%
Cumulative NPV increase for single planning unit (exclusive of stumpage price, inventory and inventory to harvest conversion differences) 51.2%
As an additional sensitivity analysis, partial cutting treatments were imposed on unstable slopes to retain larger trees which lead to more stable slopes. The result is a 3.5% lower NPV for ALTS resulting in a cumulative NPV increase for ALTS of 46% over the simulated DNR HCP. Inclusion of DNR’s harvest reduction factors increases the ALTS gain another 12% and including their multiple planning units adds an additional 5% raising the total ALTS gain to 80% over the actual DNR HCP.
Procedural Inadequacies Contributing to NPV Losses
The economic losses embedded in the DNR HCP are so large because they are based on set-asides or minimal management approaches. Set-asides may be sufficient to eventually achieve conservation goals but they are economically less efficient in meeting these goals and they are not the only alternative available. The economic efficiency of the strategies employed in ALTS are shown to produce almost four times as much late seral forest structure (of importance to multi- species habitat) per dollar of cost (or loss) compared to the simulated DNR HCP. The number of acres allocated to commercial treatments are not substantially different between ALTS and the simulated DNR HCP, but the economic losses from the ALTS treatments, designed to improve habitat measures, are much lower than the excessively long rotations or set-asides used in the proposed HCP.
From the perspective of a planning process, this result would appear to be related to DNR's reliance on a science team composed of biologists (heavily weighted to regulators and federal agencies) to set end point conditions without consideration of silvicultural and economic alternatives. A multi-disciplinary team representing both biological/habitat expertise, silvicultural expertise, and fiduciary trust management interests, such as utilized by the private sector for development of an HCP, would have looked for lower cost alternatives like those demonstrated by ALTS.
Demonstrating that an HCP is Better than Managing to Minimum Standards
In order for an HCP to be in the best interests of trust beneficiaries it should provide the lowest possible loss to the beneficiaries while meeting current and expected future regulatory requirements. Since ALTS achieves higher levels of habitat measures than the simulated DNR HCP, it may be excessively conservative. The current minimum regulatory requirement consistent with litigation history in the absence of an HCP would appear to be the 1996 Forest Practices Board regulations. They exceed Federal 4d rule spotted owl conservation proposals for Special Emphasis Areas (SEA's) while including requirements for murrelet habitat. Based on estimates required to protect owl circle acreages within these SEA's as developed for an earlier study, the simulated current (1996) minimum regulatory standards result in a NPV of $13.3 billion. As a consequence, the risk of more restrictive regulatory actions in the future further reducing the NPV can be reduced by developing ALTS strategies as a multi-species HCP.
The No-change baseline used by the DNR for comparison to their proposed HCP shows losses almost as high as their proposed HCP, evidence that it includes unnecessary hidden conservatism’s. It is not appropriate to use a baseline in excess of current and expected minimum standards for determining whether a proposed HCP is in the best interests of the trusts.
Fiduciary Approaches for Individual Trusts
In order to apply fiduciary management principles to individual trusts, it is necessary to show that individual trusts are not harmed by collective management for the benefit of other trusts. This requires a trust-by-trust analysis of minimum standards applied to individual trusts to be used as a baseline to show that collective management procedures do not benefit some trusts at the expense of others. In developing their proposed HCP, the DNR did not provide such an analysis. The most appropriate allocation of economic gains from collective management -- gains offsetting part of the losses from over achieving minimum standards -- is to allocate regained benefits to the individual trusts proportionate to their losses.
Applying nondeclining harvest flow procedures to many small planning units simultaneously with the requirement to meet habitat constraints provides excessive and costly solutions that substantially reduce individual trust benefits. Securitization and less restrictive harvest flow constraints that reflect operational criteria are suggested and demonstrated (under collective management) to provide the potential for substantially improved revenue stability.
Exceeding Comparable Conservation Standards Applied to the Private Sector
While no direct cost comparisons are available to compare results from this study to other private HCP proposals, total costs for environmental regulation have been estimated in other studies. Forest practice regulations for green tree retention, adjacency greenup, and class 1-3 stream buffers as included for all simulations in this report produce losses estimated at 9.5% from a low constraints base. Meeting the minimum spotted owl and murrelet standards under the 1996 Forest Practices Act regulations was estimated to produce a loss of 13% for a cumulative regulatory loss of 21%. For some private owners, these minimum requirements were sufficiently high to motivate their efforts to reduce the cost by developing an HCP. The proposed DNR HCP results in a total loss in excess of 50% before consideration of volume loss assumptions and appears to be substantially more costly than anecdotal evidence available on the cost of private HCP’s. Even ALTS, with an estimated regulatory cost of 20%, appears to be more costly than most, if not all, private HCP’s and may reflect an unnecessarily high standard for biological conservation. Thus, less restrictive habitat constraints might be sufficient and therefore be in the best interests of the trusts.
Consistency of DNR's HCP Analysis
On October 8, 1996, the DNR released sustainable harvest calculations that reduced harvest volume and revenue projections under their proposed HCP by 16 and17%, respectively, with a 30% increase in reported acreage. No explanation was provided for these substantial changes. In addition, acreage allocations to off base management changed and the composition of old growth in the owl set-asides declined while young growth acreages increased. Also, the percentage of acres reserved for the marbled murrelet doubled. In spite of these substantial biological and economic changes, there was no explanation of how this impacted the proposed HCP, or why it was necessary. These changes raise serious doubts about the reproducibility and consistency of DNR's analysis, their process of negotiating for an HCP (that appears to have no stability), and the process of open public review of a plan that substantially impacts trust resources. These changes raise new questions that go well beyond the objectives of this report.
Conclusions Supported by the Demonstration
This demonstration clearly shows that there exist alternative strategies to meet habitat conservation goals that are substantially lower in cost than those used in the proposed DNR HCP. Hence, we conclude that the proposed DNR HCP is not in the best interests of the trusts. The strategies developed in the alternative simulations suggest that an alternative HCP could be developed that would be in the best interests of the trust. The procedures and assumptions used by the DNR are contributing unnecessarily to reduced financial trust performance with indications that some trusts may be harmed, or at least are not equitably benefiting, from the gains that should be possible from collective management.