Private forestry subsidies and compensations – Promoting wood production and safeguarding biodiversity

The state has granted both direct subsidies and compensations and tax subsidies to private forest owners. The three forms of private forestry funding that are the largest in euro terms are the subsidies under the fixed-term scheme for financing sustainable forestry (Kemera), the compensations under the Forest Biodiversity Programme for Southern Finland (METSO) and tax subsidies, such as the forest deduction. In recent years, the direct state aid has amounted to approximately EUR 70–100 million and the indirect tax subsidies to approximated EUR 170 million a year. The estimates of tax subsidies are not fully accurate.

The audit assessed the cost-efficiency of the different forms of support for private forestry, focusing on the objectives of promoting wood production and safeguarding biodiversity. It was also assessed how the different funding schemes function as a whole in relation to these two main objectives.

The state has supported the production of wood in private forests for almost a hundred years. The Kemera subsidy scheme, managed by the Ministry of Agriculture and Forestry, has been operational since 1997. It has hardly changed even though the operating environment of forestry has undergone significant changes. The new Forestry Incentive Scheme (Metka) should enter into force at the beginning of 2024. Around 80%–90% of the Kemera subsidies have been used to promote wood production. However, based on the audit findings, better evidence of the incentive effects of subsidising wood production is needed. In addition, more robust justifications are needed for the state aid when there is a well-functioning market for wood.

The state also promotes wood production and supply with various tax subsidies. They are not reflected in the state budget but are considered to be loss of tax revenue. The impacts or incentive effects of tax subsidies for private forestry have not been examined. Nor are tax subsidies taken into account when decisions on direct subsidies for wood production are made. The combination of different subsidies increases the risk that public subsidies will supersede private investments while also undermining the justification for public subsidies.

The other objective of the Kemera scheme has been to safeguard the biodiversity of forests. It has been considered that this is achieved primarily by means of the Kemera environmental subsidies and nature management projects, which are part of the METSO programme. In addition, individual environmental conditions have been included in the conditions for the Kemera subsidies for wood production. However, their effectiveness has not been monitored. Wood production subsidies and their conditions have not been fully in line with the biodiversity objective.

The funding of the METSO programme consists of the 10-year Kemera environmental subsidies and nature management subsidies and of the environmental protection and nature management appropriations granted by the Ministry of the Environment. It is likely that the programme will achieve its quantitative protection objective by 2025, although this is uncertain in the case of the Kemera subsidies. The protection has also been of high quality. However, the National Audit Office recommends that the Ministries should together explore ways to further improve the cost-efficiency and effectiveness of the programme. A study should be conducted, for example, on the appropriateness of fixed-term protection agreements, as they involve a risk of the state losing its investment in protection on the expiration of the agreement.