Financing
Sustainability: PDF Downloads
*Update: Monday, 1/29/2007
Much of the current debate surrounding Pacific Lumber Company (PL) and Scotia Pacific’s (Scopac) recent bankruptcy filing is focused on the funds extracted from the company and environmental considerations in elements of its Headwaters deal. This debate is a losing strategy for Humboldt County.
Both sides in the current debate express a commitment to long-term financial and environmental sustainability. Neither side articulates an economically and ecologically viable strategy to create a profitable and sustainable financial structure for PL properties.
It’s time for efforts to resolve this dispute to focus on creating the financial mechanisms, policy instruments and ownership structures that will enable new owners and investors, committed to conservation values as well as long-term productivity, to make the necessary financial commitments.
Financing
Sustainability -- A Case in Point
New
Study Shows Long-Term Financial Advantages of Community
Forestry: Despite up-front costs, ecologically-responsible
management returns higher economic rewards than industrial
forestry model over 60 year period.
A new study released by the non-profit Institute
for Sustainable Forestry (ISF) demonstrates the long-term
financial advantages of an ecologically-responsible “Community
Forest” management model. The study found that this
balanced, environmentally-sensitive approach to forestry
would generate $1.1 billion more income than traditional
industrial timber management over a 60-year period.
The study team used the forestlands of the troubled Scotia-Pacific
Company (ScoPac) as a case study due to the copious amount
of publicly-available data regarding the company’s
finances and the condition of the company’s lands.
The team also had input from other foresters, forest economists,
investors, and environmentalists.
The ScoPac case study is stark, but is by no means unique.
Throughout the North Coast forest fragmentation is a real
and increasing concern driven by high debt loads, increasing
operational costs, static prices for sawlogs, and high
real estate values. Under these conditions timberland
owners and managers have significant incentives to forfeit
future harvests, keep inventories low and to subsidize
current operational costs with land sales to private investors
and speculators.
ISF’s
Limited Valuation makes three things clear:
• First, SCOPAC lands are currently saddled
with debt payments approximately $300 million in excess
of what can be retrieved from sale of timber over the
first 30 years of industrial (the “traditional
timber model”) management.
• Second, ecologically responsible management
will produce $1.46 billion more income than traditional
industrial timber management over the second 30 years.
• Third, ecologically responsible management (the
“community forest” model”) of the
SCOPAC timber resource would produce $365 million less
revenue than traditional industrial management over
the first 30 years.
Figure 1: The difference in harvest revenues
over time between traditional industrial forestry and
the ecologically-responsible ‘community forestry’
model.
ISF’s Scopac valuation offers an example of the
pressures facing timberland owners and managers throughout
the north coast. Industrial and non-industrial owners
alike are caught between increasing costs – both
operational and regulatory – and log and lumber
prices projected to remain relatively flat for the foreseeable
future.
ScoPac’s current debt structure presents a significant
economic challenge for management and staff committed
to sustaining ScoPac properties as a working industrial
forest. In addition real estate values that exceed values
justified by timber and ranching income require many non-industrial
landowners to face a difficult choice between maintaining
rural ranches intact for the next generation and augmenting
declining timber income through subdivision and sale of
portions of their properties to real estate developers
– particularly when ownerships change hands.
Forest fragmentation not only threatens environmental
quality and the conservation potential of working forests
it also threatens to curtail active management of local
timberland and the future supply of sawlogs available
to support local timber mills. In short fragmentation
will change the character of Humboldt’s rural economy,
forested landscape and quality of life.
Significantly, the ISF valuation found that the current
financial structure of ScoPac is unsustainable under any
forest management plan without a significant infusion
of capital to reduce outstanding debt. Publicly traded
corporations require managers to maximize returns for
shareholders. The disparity between short-term returns
and discounted long-term investments indicate that long-term
fiscal and ecological stability and sustainability may
be best supported by alternative ownership models.
New signs of cooperation between conservation groups
and practitioners of sustainable forestry indicate that
“community forest” management scenarios may
be possible for ownerships committed to meeting conservation
objectives in working forests. The perception that sustainable
forestry can be a tool for conservation is driving this
overall movement.
If our community’s intention is to keep large blocks
of forestland intact and under management that will sustain
our economic and ecological future, then it is imperative
to develop financial instruments and resources that will
enable managers committed to conservation objectives to
avoid unsustainable levels of debt.
For more information on financing sustainability:
