Taxes, bans, bonds, and behaviour


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You have probably heard it all before…

We should make logging companies pay more for their timber, so they will remove less. That will help save the forests.

No. Policies should help logging become more profitable. That way companies will have an incentive to keep farmers from entering their forests and to invest in reduced impact logging, silvicultural practices, reforestation, and better quality roads.

Log export bans help avoid the depletion of over-exploited timber species.

No. They simply make wood cheap on local markets, which encourages companies to use more of it.

Still confused?

If you are looking for someone to clarify these issues for you, without the ideological diatribes of the free trade crusaders or the extreme conservationists, a good place to start is Alain Karsenty’s ’Environmental Taxation and Economic Instruments for Forest Management in the Congo Basin’. Karsenty is an economist a CIRAD-Foret in France. His paper uses economic theory and practical examples from Central and West Africa and South-east Asia to analyze the effects of different types of taxes, policies aimed at promoting forest industries, timber certification, and performance bonds. For each potential policy alternative it offers a balanced view of the advantages and disadvantages, and has many useful insights regarding the practical aspects of implementation.

The paper provides a particularly refreshing view regarding policies designed to promote value-added in forest industries. Karsenty explains that manufacturing finished products, such as furniture and handicrafts, almost always adds values to timber, but producing sawn wood and plywood often does not. Finished products are sold directly to retailers and can develop their own market niches. Sawn wood and plywood, however, are traded in international markets as bulk commodities. Unless developing countries can produce them as efficiently as developed countries, they are often better off exporting logs.

Still some government policies to support forest industries are appropriate. Karsenty proposes:

* Lower taxes for activities that generate high value-added. Government officials should use economic criteria, and not simply the level of processing, to determine how much value has been added.

* Regulating the percentage of logs which can be exported, while always allowing some log exports.

* Using auctions to allocate export permits for logs, so that total exports will remain below permitted levels, while still allowing each company to determine what portion of their logs to export or process.

* Developing special funds for providing training, technology development, and market information for forest industries.


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Further reading

If you would like to send comments about the topic of this message to the author or request a copy of his paper in English or in French, you can write Alain Karsenty at: