Market Failure for Plantations: Past Experiences and Emerging Trends for Delivering Wood Production and Ecosystem Services in Australia

Planted forests have increased globally in area in recent decades and are used for productive purposes such as wood production and ecosystem services such as soil conservation and biodiversity. Historically, these purposes have been largely regarded as mutually exclusive, reflecting market failure in the ability of investors to capture the benefits from ecosystem services. Trade liberalisation and global trade has also inhibited new plantation investment for wood in high land cost countries such as Australia. It is argued that market based mechanisms for ecosystem services may help overcome investment hurdles for private wood plantations, while delivering multiple benefits. An Australian case study is used to describe these trends and opportunities, including shifts away from direct wood plantation promotion to emerging policies for carbon, water and biodiversity. It is important that policy settings are designed to promote the potential net benefits from joint production and avoid any unintended negative environmental consequences.