Forests as Economic Assets

The many kinds of value forests provide beyond timber, from food and medicine to clean water and carbon storage, and how that value can be recognised.

Forests cover around a third of the world’s land. They are often valued only for timber, but economists increasingly recognise that forests provide many other kinds of value, most of which do not appear in markets.

Types of value

Timber and wood: for construction, furniture, paper and fuel. Fuelwood remains a key energy source for many households in developing countries.
Non-timber forest products: fruits, nuts, honey, medicinal plants, bamboo and leaves. In India, products such as tendu leaves, used to wrap bidis, and mahua flowers provide income for millions of forest-dwelling people, many from Adivasi communities.
Ecosystem services: the benefits forests provide to people, including regulating water flow, preventing soil erosion, supporting rainfall and pollinators, and protecting biodiversity.
Carbon storage: forests absorb and store large amounts of carbon, helping limit climate change.
Cultural and recreational value.

Why forests are undervalued

Many forest benefits are public goods or externalities. A landowner who clears a forest for farming gains income, while the loss of water regulation, carbon storage and biodiversity falls on others. As a result, markets tend to undervalue standing forests.

Paying for ecosystem services

One response is payments for ecosystem services, where people are paid to protect forests. Costa Rica began a national programme in 1997, paying landowners to protect and restore forest, funded partly by a fuel tax. Carbon markets can also pay for avoided deforestation.

A city pays for upstream forests

New York City gets much of its drinking water from forested watersheds in the Catskill Mountains. In the 1990s, rather than build a filtration plant estimated to cost billions of dollars, the city invested far less in protecting land and working with farmers and landowners upstream to keep the water clean. The forests provided a water filtration service worth more than a treatment plant.

Community forest rights

India’s Forest Rights Act of 2006 recognised the rights of forest-dwelling communities to use and manage forest resources. Research in several countries suggests that forests managed by local communities with secure rights can be conserved as well as, or better than, strictly protected areas.

Thinking a forest's value is its timber

Timber is only one part of a forest's value. Its role in water supply, climate, biodiversity and local livelihoods often exceeds the value of its wood, but these benefits are rarely paid for, which is why forests are often lost.

Key takeaways

Forests provide timber, non-timber products, ecosystem services, carbon storage and cultural value.
Many of these benefits are public goods, so markets undervalue standing forests.
Payments for ecosystem services, such as Costa Rica's programme, reward protection.
Secure community forest rights, as in India's 2006 Forest Rights Act, can support conservation.