Published in Report for The California Institute for the Study of Speciality Crops, March 1, 2005, pages 1-46. Copyright © 2005 by The California Institute for the Study of Specialty Crops and the California Polytechnic State University.
The primary purpose of this study is to establish basic and supportable information on the impact of environmental regulations on California’s forest products industry. More specifically, the study focused on the effects of changing forest practice regulations on timber harvest planning and preparation costs. A survey of wood-processing and forestry consulting firms was conducted in the Summer and early Fall, 2004 seeking data on Timber Harvest Plan (THP) preparation costs, a major component of the transactions cost in California’s timber market. Despite the short data collection period, 607 sample observations were obtained.
Analysis of the sample data clearly indicate significant cost increases resulting from ever-intensifying forest practice regulations, especially as a result of rule amendments in the early 1990s. Over the 30-year span, THP costs increased at a compound annual rate of about 4%, above inflation. Around 1993, there was a dramatic increase in these costs as THP costs, increasing nearly 60% within one or two years. As a result, a typical THP costs around $30,000 to prepare today, whereas 30 years ago it cost less than $2,500 (in today’s dollars).
But these increases only reflect harvest planning costs under routine conditions. California’s Forest Practices Act can force considerable alteration of logging operations, increasing logging costs which in turn reduce economic rents (a.k.a. “stumpage”) to timberland owners. Thus, California timberland owners are “squeezed” on both cost and revenue sides. Landowners facing uncompetitive returns from managing their lands for wildland resource values, like timber, are increasingly inclined to sell their land for higher returns. In California this frequently means conversion to housing, a far more environmentally degrading land use. In other words, California’s increasingly strict environmental regulations of forestland are, in many cases, having precisely the opposite effect from that which was intended. Well-publicized urban sprawl and urban migration to historically rural areas is evidence of this effect.