Ambitious forest biodiversity conservation under scarce public funds: Introducing a deferrence mechanism to conservation auctions

The European Union's Biodiversity Strategy sets an ambitious goal to increase the area of protected land and sea to 30% with 10% devoted to strict protection by 2030. The large land areas required to fulfil the conservation target and the quick schedule of implementation challenge both the current policy instruments and public funding for conservation. We introduce a deferrence mechanism for forest conservation by using procurement auctions. Deferring the conservation payments allows the government to conserve large areas in a quicker schedule, reduce the irreversible biodiversity loss due to harvesting risks and distribute the financial burden of conservation cost for a longer period of time. The deferred payments are paid an interest. The interest earning and an auction mechanism for downpayments strengthens the incentives for landowners to take part in conservation. We characterize the general properties of the mechanism and run numerical simulations to find that the deferrence mechanism facilitates a quick conservation of stands and thereby minimizes the loss of ecologically valuable sites caused by harvesting risks. The analysis suggests that keeping the lending period no longer than 10 years and paying a 3% interest rate provides a compromise that works rather well and outperforms the up-front mechanism regardless the payments being determined by the conservation programme or by an auction.