Tax Breaks for Protecting Landscape

Untouched nature is increasingly scarce.  This is even more true close to big population centers where such areas are of high value. Below I talk mostly of  forests but the ideas are more general.

Old forest.  Many snags and coarse woody debris offer habitat for a wide range of organisms.  Such forests are often suitable for recreational use as there is little undergrowth due to dense canopy above.  Conifer forests of Rattlesnake Ledge, WA

Land is typically taxed based on it's market value.  This approach is simple—it only depends on the size and location of the plot (although determining the value may be tricky).  However, it does not encourage the landowners to preserve the valuable habitats, nor does it encourage it to keep the land open to public.  It implicitly tells that the property owner is the sole decision-maker and does not have to take into account the others' interests.  But natural landscape is valuable not just for the landowner but also for other users, such as leisure trekkers or picnickers, and for many living organisms other than homo sapiens.  In economics parlance, natural landscape possesses positive externalities.

Keeping land open for everyone—for both nature and humans—should be an attractive option.  It can be encouraged by making land tax dependent on the type of usage.  Valuable natural habitats where the public has open access should be free of tax.  In other words, we should not tax land possession but only the "exclusion" of land, using it in a way that does not permit the others (including nature) to benefit from it.

Private property: Harvested natural forest is replaced by a plantation.  The area is made inaccessible both for humans and for large animals.  (Former) temporal forest in Veskimõisa, EE.

This approach will bring a number of changes:

• The landowners should only pay land tax on such a property that is either not open (like gardens and courtyards) or not natural (like fields).  Forests, natural meadows, and other habitats should be considered as "natural land".  If everyone has free access to these areas and human interference is kept at minimum, the land should be tax-free.  I mean "free access" in legal sense, the owner should not have any obligation to facilitate it through specific infrastructure.
• In case the landlord takes some of the natural area into non-natural use (say, by logging), then it will immediately be subject to tax.  The tax will decrease over time as the nature take over and the natural/leisure value of the area increases.
• Analogously, if land that was previously used for non-natural or restricted purpose is left untouched, the tax will fall over years as the value of it grows.
• If land tax is based on the market value, it implicitly (albeit imperfectly) takes into account how the human value of land depends on location.  Land near the population centers is expensive, and hence the potential land tax will be high.  Such a tax exemption encourages creation of publicly open natural areas close to cities more than it does that in far-lying locations.
• In order to be eligible for a lower tax rate, the natural value of the land must be re-assessed. The landowner should apply for re-evaluation, perhaps no more frequently than once in 5-10 years.  Such evaluation reports should be made public to decrease the room for corruption.
• Perhaps the largest problem with this proposal is the need to asses the non-market value of land.  It is a vague concept and leaves room for interpretation.  Simpler but less precise rules may be preferred instead.

Natural resources are a strong incentive to restrict public access.  Diamond area in South Africa, 1940s.

Who are the winners and the losers?  First, I don't think this measure would be massively used and hence the effects will be small. If it will, however, it may harm the logging and wood processing industry. Second, if the tax income from certain plots decreases, it must rise elsewhere (not just on land).  So it amounts to trading more nature for higher taxes.  Obviously, the winners are those who benefit from the nature and the losers are those who do not.  Finally, the largest gains are experienced by property owners who already keep their natural land open for everyone.

Managing Forests for Everyone

The forested private land is largely managed as a profitable asset—the harvesting, planting, and other management is done from the viewpoint of the landowner.  As is often the case, this approach leaves a number of other interested parties with little say about their environment.

Mature forests are an excellent recreational landscape.  They also form a habitat for many species.  Forest near Kaagvere, Estonia, in December 2013.

Forests are a major component of landscape and environment.  This means there are many people (but also other living organisms) with stakes in the forests.  Below, I focus on recreational landscape users, but most of my arguments are valid for the other users as well, including the non-human ones.  The main problem lies here—while landowners profit almost exclusively from logging, the others will mostly enjoy the landscape where the forests are left intact.  (I will ignore such interest groups who profit from logging, such as forest industry.) This is a textbook case of negative externalities.

The most straightforward solution is to let all the recreational landscape users pay the landowners according to their valuation of the intact forests.  Obviously, such an income flow will cease after the forest is cut, and will count as a cost of clearcutting.  Unfortunately, this approach will not work—it offers a perfect opportunity to shirk and hide your private valuation, and it would be extremely costly to locate the landowners and to pay each of them a few euros every time you walk through the forest.  It would also put all the burden of adjustment to the recreational visitors.

A public-sector version of the same idea would look like this: determine the average value of various types of landscape, and pay the landowners accordingly, but only if they maintain it in that particular state.  Such rules can also take the form of individual contracts between the government and landowners with no new legislation introduced.  The payment should be financed through some sort of general taxes, such as payroll tax.  This approach is technically feasible.  Here landowners win, the society bears all the burden.

A third option is to introduce the same reform while shifting the burden to the landholders.  The government taxes the land according to "non-likeability" of the landscape.  If the property is not suitable for recreational use, you pay a lot.  If it is a nice natural area open for everyone, you pay little.  If forest is cut, the land tax increases accordingly.  (In case of well-functioning financial markets, this is equivalent to logging tax.)

This proposal is not free of problems either.  As all the burden is shifted to the landowners, this leads to falling land prices and hence a decreasing property value.  Second, the "non-likeability" is hard to determine.  It is possible to evaluate certain types of landscapes, but not everything. Even more, the policymakers need simple rules to avoid misunderstandings and too much potential for corruption.  Third, it does not take into account the potential value of the landscape.  Some landscape types are inherently more valuable, and even more, we can only enjoy what is at a reasonable distance from us.  The value of places far away is smaller.  The correct approach is not to tax the "non-likeability", but the difference between the potential and the current value.  Can policymakers handle that?

Middle-aged temperate forest in Northern Europe.  The left-hand side of the road is scheduled to be cut soon.  (And sorry for the cellphone photo...)

Pulling the three ideas together, I think a reasonable way forward is to combine the second and the third possibility.  One should differentiate land tax according to a simple scale of landscape value, for instance forest age.  Young forests (0-15 years) will be subject to high taxes, the mature ones (100+) will have low tax.  This data can be collected and handled.  Second, the municipalities should buy recreational land and also make contracts with the landholders to stipulate mutually best management.  This combined approach would shift part of the costs to the landowners, and part to the society. The taxes should be established step-by-step over many years.  However, although feasible, this policy is not free of problems either—the landholders around rich municipalities (big cities) win while those far away loose.