This paper examines the role and impact of taxation on sustainable forest management. It is shown that fiscal instruments neither reinforce nor substitute for traditional regulatory approaches. Far from encouraging more sustainable forest management, fiscal instruments such as an inappropriate tax policy can actually undermine it. The paper uses the arguments at the root of the Faustmann solution to draw conclusions on the incentives for sustainable tropical forest exploitation. The paper also proposes a bond mechanism as an alternative market-based instrument to encourage sustainable forest logging while reducing monitoring costs.
where end-of-pipe measurements often suffice as a basis for a Pigovian pollutiontax.
39 The actual economic cost of watershed degradation and soil erosion is dependent on the nature and value of downstream infrastructure, notably road, power-generation, and irrigation facilities. It could be negligible in an uninhabited area and very severe in a densely populated urban zone. The damage to biodiversity will similarly depend on the species affected. Note that none of these arguments bears any relation to the market value of the timber extracted.
. Increasing taxation, combined with the provision of subsidies for the establishment of plantations, has the perverse effect of encouraging the outright conversion of still viable but degraded natural forests into monocrop plantations.
Logging should be treated as a form of pollution
Taxation-based approaches to environmentally sound forest management are built on a superficial similarity with industrial pollution. If a pollutiontax is now firmly established as an appropriate instrument to deal with industrial pollution, we have seen that the same is generally not