Financial analysis of fuel treatments on national forests in the western United States

Historic, archived document

Do not assume conteni reflects current
scientific knowledge, policies, or practices.

A99.9 F7625U

United States
Department of
Agriculture
Forest Service

Pacific Northwest
Research Station

Research Note
PNW-RN-555

December 2006

FOREST SERV cy

UAS|

USDA
ae

Financial Analysis of Fuel

Treatments on National Forests
in the Western United States

Roger D. Fight and R. James Barbour ‘

Abstract

The purpose of this note is to provide a starting point for discussion of fire hazard
reduction treatments that meet the full range of management objectives, includ-
ing budget priorities. Thoughtful design requires an understanding not only of
the physical and biological outcomes, but also the costs and potential revenues of
applying variations of fire hazard reduction treatments in a wide range of stand
conditions. This analysis was done with My Fuel Treatment Planner software and
provides estimates of cost and net revenue from fire hazard reduction treatments on
18 dry forest stands from 9 national forests in the Western United States. The data
and software tools used in this analysis are all available, so these analyses can be
easily modified to address a wider range of treatments and conditions.

Keywords: Financial analysis, silviculture, fire, prescriptions, economics, fuel

treatments, national forests.

Introduction
The fuels synthesis project (Graham and McCaffrey 2005) set out to provide

integrated information and a set of tools to help fuel treatment planners access

the available scientific information that would be useful for doing National Envi-
ronmental Policy Act planning for fuel treatment projects. This note provides a
financial analysis of fuel reduction treatments on nine forests in the Western United
States. We describe a range of treatment intensities that illustrate the financial
impacts associated with removing increasing numbers and larger trees. Where

merchantable trees are cut, the potential exists for offsetting at least a part of the

‘Roger D. Fight is a research forest economist (retired) and R. James Barbour is a research
forest products technologist, Forestry Sciences Laboratory, P.O. Box 3890, Portland, OR
97208.

Research Note PNW-RN-555

cost of fuel hazard reduction.” These stands represent conditions that commonly
exist on the respective forests, but they are not a representative sample of condi-
tions. We therefore do not make any comparisons between forests or regions and

only report averages for the treatments that were applied.

Analysis Assumptions

The following tabulation provides a list of the forests, regions, and number of

stands that were included in this financial analysis.

Region National forest Number of stands
Northern Bitterroot 2
Northern Gallatin 1
Northern Lewis and Clark 2
Intermountain Payette 3
Pacific Southwest Plumas 3
Pacific Southwest Sierra 1
Pacific Northwest Deschutes 3
Pacific Northwest Malheur 1
Pacific Northwest Okanogan 2

There are four levels of thinning from below: leaving 50, 100, 200, or 300 trees
per acre. There is a size limit of 18 in diameter at breast height (d.b.h.) that in some
cases prevents thinning to 50 trees per acre. In some cases there are not enough
trees available to apply a thinning and leave 300 trees per acre. Each level of thin-
ning has two postthinning treatments: broadcast burning and machine piling and
burning. This combination results in a maximum of eight treatments for each stand.
Markets for logs and chips vary widely in the Western United States. These
analyses were done with delivered log prices for the area where the stands exist.
This provides an overview of the financial cost (or return where revenue minus
treatment costs and hauling costs are positive) of doing fuel reduction treatments.
Those who want to use this analysis as a starting point for estimating financial
cost for their circumstances need to use stands and markets that are similar to
their situation. One strategy is to pick one of the example stands that is similar and

customize the market information. The Web site from which My Fuel Treatment

? The stands and prescriptions used in this analysis were selected and provided by Morris C.
Johnson, USDA Forest Service, Pacific Northwest Research Station, Pacific Wildland Fire
Sciences Laboratory, 400 N 34" Street, Suite 201, Seattle, WA 98103. The effects of these
treatments on forest structure and fire hazard are addressed in Guide to Fuel Treatments in
Dry Forests of the Western United States: Assessing Stand Structure and Fire Hazard by Mor-
ris C. Johnson, David L. Peterson, and Crystal L. Raymond. Unpublished manuscript. On file
with: Jamie Barbour, Forestry Sciences Laboratory, P.O. Box 3890, Portland, OR 97208.

Financial Analysis of Fuel Treatments on National Forests in the Western United States

Planner (MyFTP) software (Biesecker and Fight 2006) and documentation can be
downloaded (http://www.fs.fed.us/pnw/data/myftp/myftp_home.htm) also has one
saved MyFTP scenario for each of the national forests that is included in this analy-
sis. When an example scenario is opened in MyFTP, the market information and the
management assumptions will be available for modification. All of the stand input
files are also available from the Web site, so the modified market and management
assumptions can be applied to any of the scenarios by running the stand files in
MyFTP with those assumptions.

For all forests, only trees that are 8 in d.b.h. or more are made into merchant-
able logs and sold. The minimum merchantable log diameter is 6 in inside bark
diameter on the small end (top of tree) in the three Pacific Coast States and 4 in
inside bark diameter elsewhere. The 4-in limit is of necessity because of model
limitations rather than reflecting a difference in markets. Even where the limit is
4 in, only logs 6 in and larger receive a price.

The following tabulation shows the price ranges for logs delivered to a mill for
most of the species found in the scenarios. Prices are in dollars per thousand board
feet, Scribner scale. In some cases a single price is used for all logs 6 in and larger.

In other cases larger logs have a higher price.

Price Poderosa pine’ Douglas-fir True firs Lodgepole pine
Lowest price Dials 370 321 265
Highest price 525 465 360 434

’ See “Species List” for scientific names of species.

Smaller trees can be converted to clean chips (for pulp or board products) or
dirty chips (for fuel) where markets exist. The tops of larger trees can be converted
to dirty chips. Markets for both clean and dirty chips are widely scattered. The fol-
lowing tabulation shows the number of forests and scenarios for which there were

chip markets available and included in the analysis.

Chip type Number of forests Number of scenerios
No chips 5 9
Clean chips 2 >)
Dirty chips 2 4

Because markets are highly variable across the West, the distances that logs and
chips must be hauled to a market are also highly variable. Haul distances for logs
ranged from a low of 60 to a high of 130 mi. Haul distances for chips ranged from

15 to 80 mi. The shorter haul distances for chips does not mean that chip markets

Research Note PNW-RN-555

are more ubiquitous than log markets, but rather that it is not feasible to haul a low-
value product like chips longer distances.

The stands included in the analysis had a range of slopes from 10 to 40
percent. The logging system used in all cases was a ground-based mechani-
cal whole-tree system. The tops and limbs were chipped in those cases
where there was a market for dirty chips. In other cases, tops and limbs were
included in the material that was treated onsite with machine piling and
burning or broadcast burning.

Results

The merchantable volume, gross revenue, harvesting cost, and hauling cost do not
change with the postthinning treatments (machine pile and burn versus broadcast
burn). Figure 1 shows the average merchantable log volume for the four thinning
prescriptions applied to the 18 stands. On average, the log volume with 50 leave
trees is almost three times the volume with 100 leave trees. With 200 leave trees,
there were very few saw logs. None of the stands had any trees large enough to
yield merchantable logs with 300 leave trees.

Figure 2 shows the average gross revenue for the four thinning prescriptions.
The average gross revenue with 50 leave trees was over three times that for 100
leave trees. The gross revenue is almost proportional to volume because most of
the revenue is from saw logs, and the premiums for larger logs are small. The small
amount of gross revenue for the prescription with 300 leave trees is solely from
chips on the stands that had a chip market.

Figure 3 shows the average harvesting cost for the four thinning prescriptions.
Note that the harvesting cost for the prescription with 100 leave trees is about half
that for 50 leave trees even though the log volume is only about one-third as much.
This is because the trees removed from prescriptions with 100 leave trees are on
average smaller and more costly to harvest.

Figure 4 shows the average hauling cost for the four thinning prescriptions. Pat-
terns in hauling costs look similar to patterns in volumes—higher volume removed
require higher hauling costs. They differ somewhat because the volume shown in
figure | is only log volume, whereas haul costs in figure 4 include costs for chip
volume. The haul cost per unit volume, however, is generally less for chips because
the haul distances are shorter.

Figures 5 and 6 show the mechanical treatment and burning costs, respectively.
The following tabulation defines the combinations of prescription and fuel treat-

ment for the remaining figures.

Financial Analysis of Fuel Treatments on National Forests in the Western United States

Categories Prescription Fuel Treatment

1 50 Mechanical pile and burn
2 100 Mechanical pile and burn
3 200 Mechanical pile and burn
4 300 Mechanical pile and burn
5) 50 Broadcast burn

6 100 Broadcast burn

i 200 Broadcast burn

8 300 Broadcast burn

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Figure 1—Average merchantable volume from thinning from below to 50, 100, 200, and 300 trees per acre.

Research Note PNW-RN-555

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Figure 2—Average gross revenue from thinning from below to 50, 100, 200, and 300 trees per acre.

Harvest cost (dollars per acre)

50 100 200 300

Thinning prescription (trees per acre)

Figure 3—Average harvesting cost for thinning from below to 50, 100, 200, and 300 trees per acre.

Financial Analysis of Fuel Treatments on National Forests in the Western United States

50 100 200 300

Hauling cost (dollars per acre)

Thinning prescription (trees per acre)

Figure 4—Average hauling cost for thinning from below to 50, 100, 200, and 300 trees per acre.

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Figure 5—Average mechanical treatment cost for thinning from below to 50, 100, 200, and 300 trees per acre with machine piling and
burning (categories 1, 2, 3, and 4, respectively). Mechanical treatment cost is zero for broadcast burning scenarios.

Research Note PNW-RN-555

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Figure 6—Average prescribed fire cost for thinning from below to 50, 100, 200, and 300 trees per acre with machine piling and burning
(categories 1, 2, 3, and 4, respectively) and broadcast burning (categories 5, 6, 7, and 8, respectively).

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Figure 7—Average net revenue from thinning from below to 50, 100, 200, and 300 trees per acre with machine piling and burning
(categories 1, 2, 3, and 4, respectively) and broadcast burning (categories 5, 6, 7, and 8, respectively).

Financial Analysis of Fuel Treatments on National Forests in the Western United States

The model on which these figures are based is relatively better at predicting
the average cost for commonly applied thinning treatments than it 1s at predicting
differences in cost for different intensities of thinning. So although these costs do
not differ much between the thinning prescriptions, they will likely show greater
differences in application.

The right half of figure 6 shows the costs for broadcast burning. The same
caveat applies. The model is relatively better at predicting the average cost for
commonly applied treatments than it is at predicting differences in cost for different
intensities of thinning.

From this full analysis there were 2 cases out of 69 where the cost of machine
piling and burning was less than broadcast burning. The broad conclusion is that
the cost of broadcast burning 1s about half that for machine piling and burning. But
this conclusion is only valid to the extent that it is feasible to apply either treat-
ment. The detailed fire behavior information (see footnote 2) should provide the
data needed to determine if broadcast burning can be applied in the conditions that
result from the thinning treatments or if some mechanical treatment may be neces-
sary first to reduce the risk of fires that are undesirably hot or have an unaccept-
able risk of escape. Furthermore, the risk of escape and subsequent damage from
wildfire is likely higher with broadcast burning than with burning piles. The cost of
escaped fires has not been included in these estimates of burning costs.

Average net revenue for a category (the average of all cases for a given combi-
nation of prescription and fuel treatment) is the best indicator of the revenue that
would be generated from doing these treatments or the cost that would have to
be expended (see fig. 7). These net revenue figures are underestimates of the full
cost because they are only the costs of applying the treatments and do not include
agency costs for planning, preparing, or administering these contracts. From the
total set of treatments applied to the 18 stands, there are 6 cases out of 138 where
the net revenue is positive. As shown in figure 7, the average net revenue ranges
from -$139 to -$444 per acre. The machine pile and burn series on the left and
the broadcast burn series on the right show similar patterns. The prescription that
leaves 100 trees per acre is on average the most expensive. Leaving 50 trees has
higher net revenue than leaving 100 trees. This is because the additional 50 cut
trees are larger trees that more than pay their way and reduce the total cost. From a
purely financial standpoint, the conclusion would be that unless one is prepared to
thin heavily enough to remove a significant amount of merchantable logs, it would
be less costly to do a minimal treatment that involves no removal. Leaving 200 and

300 trees per acre may not result in a significant reduction in fire risk, however.

Research Note PNW-RN-555

10

Conclusions

We must be cautious about drawing conclusion from a set of mechanistic thinnings
applied to a small number of stands. Although these results revealed few opportuni-
ties for commercial products to pay for the full treatment cost, they do reveal that in
12 of 18 cases, the removal down to 50 leave trees reduces the cost relative to 100
leave trees. The prescriptions in this analysis are a small part of the set of prescrip-
tions that have been proposed in various venues to respond to the issue of undesir-
able fire hazard. The greater value of this analysis and the files that are available
from this analysis may be in providing a starting point for additional analyses to

explore a wider range of options.

Metric Equivalents

When you know: Multiply by: To find:
Inches(in) = | 2.54 «.~+« Centimeters
Acres (ac) 405 Hectares

Feet (ft) 3048 Meters

Miles (m1) 1.609 Kilometers
Cubic feet (ft?) 0283 Cubic meters

Literature Cited

Biesecker, R.L.; Fight, R.D. 2006. My fuel treatment planner: a users guide. Gen.
Tech. Rep. PNW-GTR-663. Portland, OR: U.S. Department of Agriculture,

Forest Service, Pacific Northwest Research Station. 31 p.

Graham, R.T.; McCraffrey, S.M. 2005. Fact sheet: the fuel synthesis overview.
Res. Note RMRS-RN-19-WWW Revised. Fort Collins, CO: U.S. Department of

Agruculture, Forest Service, Rocky Mountain Research Station. 2 p.

Species List

Common name Scientific Name

Douglas-fir Pseudostuga menziesii (Mirb.) Franco
Lodgepole pine Pinus contorta Dougl. ex Loud.
Ponderosa pine Pinus ponderosa P. & C. Lawson
True fir Abies spp.

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