Economic Instruments for Adaptation to Climate Change in Forestry Final Report

Submitted by Climate Risk Institute | published 12th Sep 2022 | last updated 27th Sep 2022
Economic Instruments for Adaptation to Climate Change in Forestry

Executive Summary

This resource was submitted by the Climate Risk Institute for use by the CanAdapt Climate Change Adaptation Community of Practice.

This article is an abridged version of the original text, which can be downloaded from the right-hand column. Please access the original text for more detail, research purposes, full references, or to quote text.

Climate change will have significant impacts on our forests including negative impacts such as increased frequency and severity of wildfire, pest and disease outbreaks and changes in ecosystem dynamics (tree regeneration, growth and mortality) that lead to maladaptation of tree species. These impacts will have economic, environmental and social consequences. Adaptation involves undertaking activities to better prepare for those impacts such as assessing the risks of those impacts, planning for them and identifying and implementing mitigative or preventive measures.

The nature of forest management in Canada, where many management decisions are delegated to the private sector that also carries out most of the operational activities, means that the private sector will play a significant role in adaptation. Moving forward on adaptation requires understanding how to best engage the private sector. Economic instruments offer an alternative to command and control approaches; where properly designed, previous experience has shown that they can provide more efficient and cost-effective ways of meeting environmental objectives (e.g. OECD 2008; Stavins 2001). However, there has been little work done in this area in regards to adaptation (Bräuninger et al. 2011). The goal of this research was to identify economic instruments that could support adaptation of Canadian forests to climate change by drawing on the experiences and efforts taken to date in BC and elsewhere.

We undertook three case studies oriented around specific climate-change related risks: 1) looking at wildfire risk on the landscape; 2) fire and the wildland-urban interface; and 3) the effect of maladaptation and less resilient future forests (as the trees being planted would not be suited for future climate). In each of these case studies we identified potential instruments that came out of interviews with experts and a review of instruments discussed or applied elsewhere. We found that there was widespread recognition by all stakeholders on the need to reduce risk on the landscape and agreement on what those risks were. However, issues of perceived equity and existing policies impede the ability to work collectively. While some resources are required, it was not seen as the main barrier, and case studies identified ways in which both planning efforts and implementation activities could be financed from those enjoying the benefits of risk reduction. However, barriers to moving forward involved establishing a new risk sharing framework; finding ways to work outside of the forestry sector to realize the broader landscape benefits; and overcoming jurisdictional silos within Provincial governments. These issues of equity and integration are also true for the need to work more effectively between different scales of government; there are actions local governments can take to better mitigate risk in the wildland urban interface, but rather than imposing any such requirements, the role of higher levels of government were seen in supporting local government by disseminating information and promoting awareness, rather than imposing mandates. Changing risks over the longer-term emerged as a consistent theme, and highlighted in particular a clear divergence between the objectives of private parties and the Provincial government emerges, due to the split incentives under the current system. Here the need for a re-evaluation of the current risk sharing framework between the two parties was seen as essential, as well as the need to start reassessing policies to recognize where some risks are now becoming endogenous (i.e. due to existing policies and are not all exogenous).

Clear recommendations emerge for the different levels of government. For the Province, while the need for integrated resource management on the Provincial land base has been acknowledged as necessary to reduce conflict and cumulative effects, there has been little progress in this regard, in large part because of the scale and scope of the policy changes required to achieve that kind of management. However, climate change related impacts (such as wildfire) that cut across sectors and the risks that emphasize the importance of identifying the collective benefits to different parties from collaborating to mitigate those risks (and share costs). So while the province may not necessarily move towards integrated land management in the near future, at the same time these growing risks highlight government’s key roles as owner and regulator and the need to provide the institutional and political support and vision within such collaboration can take place. More specifically, the wildfire case study, underpinned by the experience of other jurisdictions dealing with wildfire risk (Western US and Australia), identify fuel management and addressing increasing fuel loads as critical issues that need to be addressed. The Provincial government has to identify these as a priority before action can take place. 

Other levels of government can also contribute. The Federal government, and agencies such as the Canadian Forest Service (CFS), have extensive research experience and capacity, which is required to help support science-based activities such as climate based seed transfer (given the strong scientific component that is necessary to support the use of such an instrument), as well as support for knowledge, not only among Provinces but also with other jurisdictions such as the US). A similar role exists for the CFS in supporting research and policy development for fire risk, given its strong history in researching fire and fire management. There is also an important communication and information dissemination role for the Federal government to play in promoting awareness (for example, drawing form the development permits and wildfire case study on providing information to homeowner and local governments on actions they can take to mitigate those risk).

Finally, there are also benefits from the Economics Working Group of Canada’s Adaptation Platform on identifying possible synergies between some of the instruments identified in the case studies and risks to forest values that could be translated to other sectors and resource settings, such as the use of development permits and sea-level rise, and where it is important to facilitate more proactive investment by private parties on public lands (e.g. roads, energy infrastructure). In addition, there are also benefits from identifying where further development of analytic techniques, such as Cost-Benefit analysis, can be further adopted to better illustrate the issues involved in facilitating and enhancing adaptation (as is revealed through the Climate-Based Seed transfer case study where the principal agent problem is a potential barrier to planned adaptation activities). 

Further resources