Diffuse Load Abatement with Biodiversity Co-Benefits: The Optimal Rotation Age and Buffer Zone Size

Abstract

This article analyzes the optimal rotation age and the size of the buffer zone when society values harvest revenue, water quality, and biodiversity. In a theoretical model, we extend the traditional Faustmann rotation model to include the possibility of leaving an unharvested riparian buffer zone between the clearcut area and the watercourse to reduce nutrient load damages to the watercourse and increase biodiversity benefits in the buffer zone. We then analyze how the optimal rotation age and the optimal size of the buffer zone are chosen simultaneously. In an empirical analysis, we use Finnish data including simulation results of nitrogen loads to find the socially optimal solution with a numerical model. Biodiversity is valuated as a willingness to pay for retention trees left in the buffer zone. According to the empirical results, in the social optimum it is not optimal to allocate any land to an unharvested buffer zone when we consider the reduction of the nitrogen load as the only benefit provided by the buffer zone. However, when we add the biodiversity benefits into the empirical analysis, the optimal size of the buffer zone is 4% of the area in the social optimum.