With growing competition between the forestry and nature conservation sectors, the forest industry is facing new challenges not only in Latvia but across Europe and the entire world.

This was stated in an interview with Dienas Bizness by Dagnis Dubrovskis, a professor at the Department of Forest Utilization at the Latvia University of Life Sciences and Technologies. He points out that a shift in the existing approach to and understanding of forest management is currently taking place at a global level, which may significantly influence traditional economic models of forest management in the future.

What do the European Parliament's recently declared climate emergency and the new European Commission's "Green Deal" mean for foresters?

It is another step towards an economy of a different, more regulated formation, because prior to the European Parliament’s announcement on the climate emergency and the European Commission’s declared "Green Deal," there were already the UN Framework Convention on Climate Change and the UN Convention on Biological Diversity, as well as many other agreements and arrangements.

As a result of UN climate change policy, an EU CO2 emissions trading system was introduced many years ago, where trades are conducted for the right to emit CO2. Thus, oxygen and carbon dioxide have become market commodities, which some buy and others sell. The Latvian state has earned several million euros in this market and plans to continue doing so in the future. The green bond market has also begun to develop relatively recently. Since 2015, Latvenergo has issued green bonds worth 135 million euros, which are being used for the improvement of the Daugava HPP cascade, financing the fish fund, and for the protection and monitoring of the white stork. This is a rapidly growing global investment market whose source of profit is providing funding for projects related to nature and environmental protection. It is self-evident that the UN Convention on Biological Diversity, the EU Habitats Directive, the EU Birds Directive, and the EU Water Directive serve as the regulatory basis for the development of this market, while protected natural areas, as well as species protection plans, are becoming the commodities of this market. The value of these commodities is the value of ecosystem services. Ecosystem products and services are the many and varied benefits provided by ecosystems. By ecosystem products, we generally mean goods: timber, game, berries, mushrooms, and other products that have market value, while by services we mean the regulating functions of climate, precipitation, water, etc., as well as the functions of preserving species habitats, nutrient cycling, recreation, landscape, etc. Although the value of ecosystem services may seem abstract or virtual, it can be calculated and can serve as the basis for determining resource management conditions and the development of a securities market. The "Green Deal" policy may affect a forest owner's freedom of choice in land management. Specifically, until now, timber resources were a product owned by the forest owner, but their management respected the interests of society, while society respected the owner's right to earn income from the timber resource market. The new paradigm may impose requirements on forest owners to respect public interests and compensate for the impact on the forest ecosystem resulting from economic activity, by introducing the "greening" of taxes principle – the polluter pays, by evaluating the impact of activities performed on the value of natural capital. The need to create such a system was already described in the relatively distant year of 2010 in the Sustainable Development Strategy of Latvia approved by the Saeima, which set the task of carrying out a green budget reform by 2030.

Does this mean that management costs for forest owners will increase?

Time will tell! That may happen! The mentioned principles provide for the need to create a mechanism to compensate for the loss of the value of ecosystem services, which will provide funding for the restoration or maintenance of the lost values. Various mechanisms related to financing nature conservation have been created globally. For example, in the USA, there is the concept of a conservation easement, where it is possible to derive a benefit from property owned by another person without being the owner or possessor of that property, while a third party gains rights, say, to preserve biodiversity. In this context, forest owners have the right to voluntarily waive or sell certain rights related to property management, while a third party may take them over. This means that these rights can be taken over by a trust fund and ecosystem service securities can be offered on the market. If restrictions are set by the state, the owner's consent for the implementation of a nature conservation plan may not be required. A nature conservation plan is offered on the market, but the beneficiaries are the implementers of the plan – state or private organizations. The buyers of the securities are companies whose economic activities destroy or significantly affect the ecosystem. By investing in the offered ecosystem preservation or nature conservation projects, the impact caused by economic activity is compensated, and companies transform from "polluters and destroyers" into nature-friendly companies. To develop such a market, its creators need to significantly increase the proportion of protected natural areas and develop species protection plans that limit the freedom of landowners to manage their land. To ensure this market develops and is accepted by society, information campaigns are being conducted about the "poor state" of the environment and the need for society to become actively involved. For forest owners, this will also mean a different, new approach to forest management planning, where forest ecosystem services are not only recorded but also taken into account in the planning process, and an integrated approach is used in planning. This is by no means the distant future; it is the present! For example, at the request of the Ministry of Finance, a project titled "Socio-economic assessment of measures for the restoration of favorable status of habitats and species" has been developed, which includes a methodology for comparing benefits between habitat restoration and water management investments based on an ecosystem services valuation approach.

Are such transactions possible in Latvia in the future?

Transactions in the global ecosystem services market are taking place in Latvia today! The "Forest Trends" Ecosystem Marketplace map shows two transactions for our country – one government transaction for the protection of water ecosystems and another for the nature conservation plan for forests in the Freimaņi area. Information has emerged regarding compensation for the impact of the construction of the Rail Baltica railway line and its associated infrastructure, as well as the necessary compensation for Jelgava’s plans to build a bridge across the Natura 2000 territory on Pils Island. In the global ecosystem services market, economic value losses do not necessarily have to be compensated within the respective country; thus, situations may arise where, for example, the loss of economic value of ecosystem services in Germany is compensated by financing nature conservation plans elsewhere in the world, for instance, in Latvia or elsewhere. A striking example is the World Wide Fund for Nature, which is a recipient of funding for nature conservation in northern Russia, specifically in the Dvinsko-Pinezhsky Forest Reserve established recently in the Arkhangelsk region on an area of 50,000 hectares. In turn, it is unknown how much of the money from the actual transactions will truly reach the people who will work in this reserve. Undeniably, such a mechanism can also threaten the forestry industry in Latvia, as wealthy polluters from developed countries can purchase the commodity – nature conservation plans in Latvia – even on all forest areas in private ownership.

Under such circumstances, can forest owners in Latvia hope for compensation for restrictions on economic activity?

Time will tell! It is possible that compensation for forest owners will be virtual and included in the mentioned trading system for nature conservation plans. Latvia’s private forest owners have been fighting for years for fair treatment, namely, if any restrictions on economic activity (prohibitions) are introduced (set), adequate compensation should be paid for them. Currently, the state has set an annual compensation payment (157 euros/ha if forest management is prohibited, 128 euros/ha if clear-cutting is prohibited, and 43 euros/ha if clear-cutting is prohibited), and that is all. Until now, the portion of timber that has accumulated in stands has not been compensated; only the annual increase in value is compensated. A working group under the auspices of the Ministry of Environmental Protection and Regional Development has discussed both formulas for calculating compensation and methodology (value of growing trees based on stump-age price, net present value of the forest stand, and value of the forest property). Using the generally accepted methodology for determining the value of growing trees, the value was calculated for stands located in private forests where economic activity is restricted. In these areas totaling 121,948 ha, a growing stock of 27.16 million m3 has accumulated (15.24 million m3 corresponds to felling parameters), the total value of which is 209.18 million euros. That would be compensation for the accumulated stock, while the annual increase in value would still need to be compensated each year: approximately 4.87 million euros. There is no such money in the Latvian state budget, but sooner or later some solutions will have to be adopted. The summarized information indicates that the greatest natural values are not only in very old forests but also in middle-aged forests! They exist in forest stands of all ages. This, in turn, points to the previously widespread erroneous information that only old-growth stands are of special importance to nature.

Goal 15. Protect, restore and promote the sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss

– By 2020, ensure the conservation, restoration and sustainable use of terrestrial and inland freshwater ecosystems and their services, in particular forests, wetlands, mountains and drylands, in line with obligations under international agreements.

– By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests and substantially increase afforestation and reforestation globally.

– By 2030, combat desertification, restore degraded land and soil, including land affected by desertification, drought and floods, and strive to achieve a land degradation-neutral world.

– By 2030, ensure the conservation of mountain ecosystems, including their biodiversity, in order to enhance their capacity to provide benefits that are essential for sustainable development.

– Take urgent and significant action to reduce the degradation of natural habitats, halt the loss of biodiversity and, by 2020, protect and prevent the extinction of threatened species.

– Promote fair and equitable sharing of the benefits arising from the utilization of genetic resources and promote appropriate access to such resources, as internationally agreed.

– Take urgent action to end poaching and trafficking of protected species of flora and fauna and address both demand and supply of illegal wildlife products.

– By 2020, introduce measures to prevent the introduction and significantly reduce the impact of invasive alien species on land and water ecosystems and control or eradicate the priority species.

– By 2020, integrate ecosystem and biodiversity values into national and local planning, development processes, poverty reduction strategies and accounts.

a) Mobilize and significantly increase financial resources from all sources to conserve and sustainably use biodiversity and ecosystems.

b) Mobilize significant resources from all sources and at all levels to finance sustainable forest management and provide adequate incentives to developing countries to advance such management, including for conservation and reforestation.

c) Enhance global support for efforts to combat poaching and trafficking of protected species, including by increasing the capacity of local communities to pursue sustainable livelihood opportunities.

Source: Agenda 2030

(Photos by Konsta Punkka and zemeunvalsts.lv used)