Thorsen, BJ, Strange, N, Jacobsen, JB, Termansen, M & Lundhede, T. 2018. IFRO Report, no. 267

The Danish government has set specific goals for setting aside forest land for biodiversity purposes in the form of untouched forests, where no production forestry operations can be undertaken. Part of these goals will be fulfilled on public and state owned forest land, and parts will be fulfilled on private lands. Setting aside forest land as untouched with the restriction that no further harvest can take place implies the loss of future income from forestry net of related forest operation costs and in 2017 a support grant scheme was designed and implemented to compensate forest owners for their forgone income. In private owned forests the government can terminate normal forestry operations by purchasing the right of harvesting from the forest owner. These rights can be offered to the government on a basis, which resembles a reversed auction.

The report reviews different auction formats and examines research in efficient multi-attribute procurement that has addressed the potential for applying pricing methods. Specifically, the use of data envelopment analysis for yard stick pricing in procurement auctions is being studied.

The report also illustrates the influence of some of the key considerations for a cost-effective design, using existing data of the spatial distribution of forest owners, biodiversity indicators and the capital value of mature forests to analyse four possible designs. Finally, it is essential for reverse auctions to reach an adequate level of participation from landowners in order to obtain the desired environmental effect and to secure competition. Consequently, the report concludes by examining potential barriers for participation.

Thorsen, BJ, Strange, N, Jacobsen, JB, Termansen, M & Lundhede, T. 2018. Auction mechanisms for setting aside forest for biodiversity. IFRO Report, no. 267, Department of Food and Resource Economics, University of Copenhagen, Frederiksberg.