Private forest owner preferences for action- and result-based biodiversity restoration contracts – A discrete choice experiment in Denmark and Finland

Abstract

Payment for ecosystem services schemes aimed at private forest owners have recently garnered renewed interest as a policy tool to promote forest restoration efforts in the EU. Although schemes that pay for biodiversity results rather than management actions have not yet been applied in the European forest sector, the EU's new State aid regulations now explicitly allow for their implementation, as evidence from the agricultural sector suggests that they are potentially more cost-effective than their action-based counterparts. We conduct a discrete choice experiment to estimate Danish and Finnish forest owners' compensation requirements for engaging in action- and result-based biodiversity schemes with contract targets based on empirically established relationships between forest structural attributes and species richness levels. We find that, on average and depending on the schemes' targets, Danish forest owners need 29–56% more compensation to enroll in result-based contracts than in action-based ones, while Finnish forest owners require a markup of 101–135%. Our results demonstrate that average compensation requirements for voluntary biodiversity schemes can vary substantially across countries and contract designs. In terms of scheme design, forest owners generally favor payments in annual instalments to lump sum payments at the start or end of the contract term, and for payments to be tied to continuous increases in outcome indicators rather than to particular thresholds. Danish owners prefer to monitor contract outcomes with support of a consultant, on average. Finnish owners have a preference for self-monitoring under action-based contracts, but highly disprefer being involved in monitoring efforts under result-based contracts.