Presented at Southern Forests Economic Workers Conference March 2012

1. D. Stuart Hale
University of Tennessee-Knoxville
Forestry, Wildlife, and Fisheries

2. Ecosystem services are “the benefits people
obtain from ecosystems” (MEA 2005).
Examples include:
Fiber
Recreation
Carbon Sequestration
Water Quality
Biodiversity

3. Human relationships with ecosystems
• Plato (c.400 BC)
First noted human impacts on the
environment
• George Marsh
Man and Nature, in 1864, argued that natural
resources are finite
• Progressive Era conservationists
Pinchot and Leopold - Humans are part of ecosystems and must act
as proper stewards to ensure their health
• Current Academy
Daily’s Nature’s Services (1997); Constanza et al. (1997); Salzman
and others-
 Increasing awareness of humans’ dependence on nature and accounting for
the services provided

4.  Ecosystem services markets are emerging
driven primarily by:
 consumer demand
• Voluntary markets
• Eco-labeling
 government regulation
• Mitigation markets (CWA and ESA)
 New York City watershed protection in 1990s
 saved an estimated $4.5 billion
 Millennium Ecosystem Assessment in 2005
 UN sanctioned approximately 1300 scientist worldwide to
analyze ecosystem health and human impacts and consequences

5. Increasing demand for benefits of ecosystem
services due to:
• Increasing degradation and scarcity
of ecosystem functions
• Public policy and regulatory
shifts – ESA, CWA, CAA
• Potential economic benefits to
landowners and communities
• Dynamic land-use and
ownership patterns – TIMOs and
REITs (≈13% of private forestlands)

6. • Identify, map, and quantify areas as traditionally
managed for timber and recreation
• Identify ecosystem services markets and capture values
as reflected through current prices
• Identify, map, and quantify areas suitable for ecosystem
services management
• Compare calculated values of ecosystem services
management scheme and to calculated traditional
management scheme
• Anchor to actual landscape as a case study

7. • Determine validity of ecosystem services management as part
of a comprehensive resource management strategy and
compare to traditional management
• Provide a demonstrative example of an ecosystem services
management scheme
• Estimate direct market present value of ecosystem services
• Use open-source information as available

8. •Proposed Project Area is
approximately 3,976 acres
•Dumps Creek watershed in
southwest Virginia
•Mixed mesophytic forest eco-
region of predominately upland
hardwoods with some cove
hardwood forest types
•Current and past land uses
included timber, coal, and natural
gas extraction, human habitation,
and agriculture

9. Traditional management
scheme:
1. Fiber
2. Recreation leases
Ecosystem management
scheme:
1. Fiber
2. Recreation leases
3. Watershed services
4. Carbon sequestration
5. Biodiversity

10.  Identify traditional and ecosystem services markets
Examples:
• Local fiber markets
• Local recreational hunt leasing
• Ecosystem Marketplace
• The Bay Bank
• The Nature Conservancy
• Mitigation banks/ ILF programs
• “Over the Counter” (OTC)
 Find comparable prices from
reported transactions or estimates

11. Landscape features with potential to offer
marketable ecosystem services:
1. Areas suitable for fiber harvests
2. Culturally significant sites
3. Retention areas of recent timber harvest
4. Areas unlikely for timber harvest
5. Perennial streams
6. Critical habitat
7. Non-forest areas
8. Wetlands
9. High Conservation Value Forests
10. Critical viewsheds
11. Areas with public safety concerns

12. Traditional Management Scheme
Service Area (ac)
Fiber 2,873 410 3,283
(80% BA (50% BA
harvest) harvest)
Recreation 3,883 NA*
Non-timber 693 693
TOTALS: 3,976
*The area of recreation is considered co-use,
in that it provides multiple services, and
therefore will only be counted once in total
area.

13. Traditional Management Scheme Service Prices
Service Units Price per unit Sources Assumptions
Fiber MBF •$100 – pessimistic •Local prices •3000 BF/ac
•$125 – most likely •Timber Mart- •Harvest 80% for
•$150 – optimistic South suitable areas
2nd Quarter •Harvest 50% for
2010 SMZ buffers
•Annual harvest rate
of total area/15-year
ownership period
Recreation acre •$2.00 – pessimistic •Local prices •All areas suitable are
•$2.07 – most likely •VA DOF leased annually
•$3.00 – optimistic based on current
conditions

14. Ecosystem Services Management Scheme
Service Area (ac) Linear feet
Fiber 2,264 NA
(80% BA
harvest)
Recreation 3,883* NA
Carbon 685 NA
Watershed 397 94,212
Services (No harvest
SMZ Buffers)
Biodiversity 630 NA
(Non-timber)
TOTALS: 3,976
*The area of recreation is considered co-use, in
that it provides multiple services, and therefore
will only be counted once in total area.

15. Ecosystem Management Scheme Service Prices
Service Unit Price per unit Sources Assumptions
Fiber MBF •$100 – pessimistic •Local prices •3000 BF/ac
•$125 – most likely •Timber Mart- •Harvest 80% for suitable
•$150 – optimistic South areas
2nd Quarter 2010 •Harvest 50% for SMZ
buffers
•Annual harvest rate of
total area/15-year
ownership period
Recreation acre •$2.00 – pessimistic •Local prices All areas suitable are
•$2.07 – most likely •VA DOF leased annually based on
•$3.00 – optimistic current conditions
Carbon ton •$0.10 – pessimistic •Ecosystem •127 tons/ac
•$1.00 – most likely Marketplace •Annual enrollment rate of
•$4.00 - optimistic •Appalachian total area/15-year
Carbon ownership period
Partnership •Additional area from fiber
retention in Year 2

16. Ecosystem Management Scheme Prices (continued)
Service Unit Price per unit Sources Assumptions
Watershed linear •$20 – pessimistic •Approximate ILF •1% of total LFt sold
feet •$25 – most likely average – annually for 15-year
•$30 – optimistic construction cost ownership period
•Approximately 10% •Act as mitigation
of ILF prices bank
•Demand provided
through mitigation
markets (CWA)
Biodiversity acre •$0.00 for all pricing •Transactions are •Act as conservation
scenarios taking place but bank
prices are highly •Demand provided by
variable and project conservation markets
specific (ESA)
•No local transactions

17. Valuate marketable services as available and
projected :
5
y= Σ (a )(v )
i i
i =1
Whereas,
y = economic benefits to landowner
i = landscape feature
a = units of marketable ecosystem services
v = value per unit of marketable ecosystem
services

18. Comparison of Management Schemes by Pricing Scenario
1600000.00
1400000.00
1200000.00
1000000.00
Dollars (US)
Ecosystem
Services
800000.00 Management
600000.00 Traditional
Management
400000.00
200000.00
0.00
Pessimistic Most Likely Optimistic

19. Traditional Management Scheme
Service Pessimistic Most likely Optimistic
Fiber 498,410.42 623,013.02 747,615.63
Recreation 40,304.21 83,429.72 120,912.64
TOTALS: $538,714.63 $706,442.74 $868,528.27
Ecosystem Services Management Scheme
Service Pessimistic Most Likely Optimistic
Fiber 375,992.73 469,990.92 563,989.10
Recreation 40,304.21 83,429.72 120,912.64
Carbon 9,634.00 96,339.97 385,359.89
Watershed 195,577.67 244,472.09 293,366.50
Biodiversity 0.00 0.00 0.00
TOTALS: $621,508.61 $894,232.69 $1,363,628.13
All prices include a 5% discount rate

20. Traditional Management Scheme Ecosystem Services Management Scheme
Total Values ($) Total Values ($)
Year (a l l pri ces wi th a 5% di s count ra te) Year (a l l pri ces wi th a 5% di s count ra te)
Pessimistic Most likely Optimistic Pessimistic Most likely Optimistic
1 49,429.52 64,819.34 79,691.43 1 56,694.63 78,733.79 111,854.54
2 47,075.74 61,732.71 75,896.60 2 54,342.62 78,461.84 120,437.27
3 44,834.04 58,793.05 72,282.47 3 51,754.88 74,725.57 114,702.16
4 42,699.08 55,993.39 68,840.45 4 49,290.36 71,167.21 109,240.16
5 40,665.79 53,327.03 65,562.34 5 46,943.20 67,778.29 104,038.24
6 38,729.33 50,787.65 62,440.32 6 44,707.81 64,550.75 99,084.04
7 36,885.07 48,369.19 59,466.97 7 42,578.86 61,476.91 94,365.75
8 35,128.64 46,065.90 56,635.21 8 40,551.30 58,549.44 89,872.15
9 33,455.85 43,872.28 53,938.30 9 38,620.28 55,761.37 85,592.52
10 31,862.71 41,783.13 51,369.81 10 36,781.22 53,106.06 81,516.69
11 30,345.44 39,793.45 48,923.62 11 35,029.74 50,577.20 77,634.94
12 28,900.42 37,898.53 46,593.93 12 33,361.65 48,168.77 73,938.04
13 27,524.21 36,093.84 44,375.17 13 31,773.00 45,875.02 70,417.18
14 26,213.53 34,375.08 42,262.07 14 30,260.00 43,690.49 67,063.98
15 24,965.27 32,738.17 40,249.59 15 28,819.05 41,609.99 63,870.46
Total 538,714.63 706,442.74 868,528.27 Total 621,508.61 894,232.69 1,363,628.13

21. Traditional Management Scheme Ecosystem Management Scheme
- Combined Pessimistic Prices - Combined Pessimistic Prices
700,000
600,000
600,000
500,000
500,000
Biodiversity
400,000 Recreation
Dollars (US)
Watershed
Dollars (US)
400,000
Fiber Services
300,000 Carbon
300,000
Recreation
200,000 Fiber
200,000
100,000 100,000
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Year Year

22. Traditional Management Scheme Ecosystem Management Scheme
- Combined Most Likely Prices - Combined Most Likely Values
800,000 1,000,000
900,000
700,000
800,000
600,000
700,000
Biodiversity
500,000 Recreation
600,000
Dollars (US)
Dollars (US)
Fiber Watershed
400,000 500,000 Services
400,000 Carbon
300,000
300,000
Recreation
200,000
200,000
Fiber
100,000
100,000
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Year Year

23. Traditional Management Scheme Ecosystem Management Scheme
- Combined Optimistic Prices - Combined Optimistic Prices
1,000,000 1,600,000
900,000
1,400,000
800,000
1,200,000
700,000
Recreation Biodiversity
1,000,000
600,000
Dollars (US)
Dollars (US)
Fiber Watershed
Services
500,000 800,000 Carbon
400,000 Recreation
600,000
Fiber
300,000
400,000
200,000
200,000
100,000
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Year Year

24.  Problems
• Market approach may not be best for
insuring long-term ecosystem health
• Highly variable costs and pricing
• Negative impacts from perpetual deed
restrictions
 Future selling price
 Restricting future management options

25.  Positives
• Additional revenues and making acres productive that
may not have been otherwise
• Additional management actions could be incorporated
into current practices
• Provide opportunity for management of other desirable
species without market values
• Could provide for significant gains if applied to a larger
portfolio
• Promote awareness and education of human impacts
and dependence on ecosystem health

26. • Ecosystem markets are emerging but immature
• Ecosystem services management and marketing
may offer additional revenues to landowners now
and in the future
• Greater recognition of ecosystem service values
could influence management policies
• Humans and ecosystem health are dependent
upon the services originating on private lands
• Improved ecosystem management could result in
improved human and ecosystem health

27. • The University of Tennessee-Knoxville
• Department of Forestry, Wildlife, and Fisheries
• Dr. Don Hodges, Dr. Dave Ostermeier, Dr. Chris Clark
• Craig Kaderavek, The Forestland Group
• Bobby Campbell, The Forest Management Company

28. D. Stuart Hale Copyright © 2012 All rights reserved.