A Review of Performance Bonding in Forest Policy Settings

Abstract

Forest policies have typically relied on prescriptive standards to mitigate various nonpoint negative externalities, whereas more recent approaches have focused on the use of incentive-based policies, such as payments for environmental services (PES), to encourage activities associated with positive externalities. We provide a general review on the current state of knowledge concerning prescriptive standards and incentive-based policies in the context of nonpoint and point source externalities that are typical in industrial and nonindustrial forestry. Our specific focus is on reviewing and assessing the current and future applications of performance bonding in forest policy. We argue that bonds can be viewed either as an enforcement mechanism to achieve compliance with standards, or alternatively, as a deposit-refund instrument that imposes a tax on harmful activities while subsidizing beneficial ones in the form of a refund. Four forest policy settings are considered: best management practices (BMP) for protecting the integrity of water resources, reduced impact logging (RIL) standards in industrial concessions, fire-fuel mitigation in wildland-urban interface (WUI), and carbon sequestration in standing forests and soils. Unique challenges that the successful design of performance bonding present are used as motivation for future research.