Incentivizing biodiversity restoration in European forests: Should we pay forest owners for implementing actions or for delivering results?

Figure 1: Action-based indicators and their result-based counterparts analyzed in the study

As a means to promote forest restoration, the EU Forest Strategy for 2030 explicitly encourages EU member states to implement payment schemes to support private forest owners and managers in the provision of ecosystem services such as biodiversity. While some examples of such schemes already exist in the forest sector, they are more frequently found in the agricultural context, where they have been subject to scrutiny in the past years. Often suffering from low participation rates and limited ecological outcomes, many of them have been ineffective in addressing the biodiversity decline. To ensure higher biodiversity outcomes, one solution proposes to realign the schemes’ incentive structures by making payments to landowners conditional on the achievement of desired biodiversity targets, rather than the implementation of prescribed actions.

While such result-based schemes would be riskier for forest owners and likely more costly to implement, the scientific literature suggests that they could nonetheless be more cost-effective than their action-based counterparts. In the SUPERB finance work package, we are interested in finding out whether this is indeed the case in a European forest context. We therefore administered a choice experiment to large samples of Danish and Finnish forest owners, in which we asked respondents to make choices between different hypothetical action- and result-based biodiversity contracts.

Figure 2: In around 60% of the cases in which respondents indicated their willingness to sign up for a proposed biodiversity contract, they would enroll all of their land

First results of this ongoing study were presented to a group of key stakeholders as part of a SUPERB seminar on July 4th. Our preliminary results suggest that forest owners require around 40-70% more compensation (on average) to enter result-based schemes, depending on the specific biodiversity objective. We also find that design considerations such as including multiple payment thresholds or paying forest owners in instalments rather than lump sum payments would allow policymakers to reduce compensation levels without affecting participation rates. Forest owners’ decisions on what share of their land to enroll in the schemes seems to be governed by their perceived ability to achieve the contract objectives, as well as forest owner characteristics, but less so by the scheme design. In particular, we find that owners with larger properties, more coniferous forest, larger shares of land used for timber production, and lower education levels tend to be willing to enroll less of their land. We plan to use these findings in an optimization model which will hopefully provide some insights on how to design forest biodiversity schemes most cost-effectively. Stay tuned!