The Economics

Native forest logging is a broken business model.

Native forest logging has become financially unviable. Forest protection offers Western Australia millions of dollars every year through the sale of carbon credits.

Published by The Australia Institute, Carbon Credits from Western Australia’s Multiple Use Public Native Forests, details the significant earnings that could be generated by protecting WA’s south-west forests as carbon stores.

Report author and Acting Director of the ANU Centre for Climate Law and Policy, Associate Professor Andrew Macintosh said, “Forest protection could generate significant wealth for Western Australians.

“Depending on the carbon price, the WA Government could earn between $16 million and $438 million per annum between 2013 and 2032 through the sale of carbon credits if it were to stop logging the native forests in the south-west.

“In addition to these financial benefits, the cessation of logging would generate a number of ‘co-benefits’, including improved heritage, biodiversity and hydrological outcomes,” he said.

These significant potential earnings are in stark contrast with the current loss-making logging industry.

The State Government’s logging agency, the Forest Products Commission (FPC), manages the logging of WA’s state-owned native forests, plantations and sandalwood.

The FPC was formed in 2000 and its reported cumulative profit across all its operations to date is a meager $15 million.

This $15 million reported profit relies heavily on the use of accounting devices in which the FPC’s ‘biological assets’, our forests, are revalued on paper. Each year, the FPC revalues the native forests in its books and incorporates that theoretical revaluation into its profit and loss statements. These revaluations, amounting to $121 million, have had an overwhelming and distorting impact on FPC’s claimed financial performance. The impact of this is profound.

Without the theoretical revaluations the FPC has incorporated into its accounts, the agency has operated since formation at a $106 million loss.

Over that same period, by way of grants, subsidies and capital injection, the State and Federal Governments have poured well over $100 million into the FPC.

Since the formation of the FPC in 2000, rainfall has declined by almost 10 percent. Drought, forest diseases, major fires and insect attacks have had significant detrimental impacts on forest health and on the quality of timber.

Since 2004, when the current forest management plan came into operation, the amount of good quality saw logs sold each year by the FPC has fallen dramatically, from 144,000 tonnes in 2004 to just 56,000 tonnes in 2011 (see graph on right).

In real world terms, WA’s native forests have not increased in value by $121 million since 2000. The FPC has been logging our forests at a significant loss and taxpayers are footing the bill.  .

WA needs a new forest economy; one in which our forests are protected as bio-diverse carbon stores and the money earned by selling the carbon credits is used to protect our forest legacy and benefit all Western Australians. This change would also eliminate unfair competition to the plantation industry which would have further beneficial repercussions for the State.