Victoria's Central Highlands' forests would potentially generate more income for the state if they were permanently preserved to store carbon rather than logged, according to a major study.
A detailed analysis using a United Nations' system of environmental and economic accounting concludes the net economic contribution from forestry in the area is relatively minor compared to the contribution to the state's water supply, tourism and farming.
The analysis, by a team of environmental accountants, economists and scientists, from the Australian National University's Fenner School of Environment and Society, found native forestry in the central highlands generated $29 of additional net economic activity per hectare in 2013-14.
That compares to a $2023 per hectare contribution to the state's water supply, a $2667 per hectare contribution to agriculture and $353 per hectare from tourism.
Drawing on a range of sources, including ABS figures and VicForests and Melbourne Water annual reports, the report also estimated that on current trends there will be no suitable saw logs left in 10 years, assuming there are no fires.
But VicForests general manager planning Nathan Trushell disputed the figures, arguing the economic contribution from forestry in the area was much greater.
"The numbers quoted by ANU significantly underestimate the economic contribution of the hardwood timber industry in Victoria," Mr Trushell said. "The industry based in the forests from Healesville through to Gippsland contributes hundreds of millions of dollars to the Victorian economy each year."
One of the report's authors, ecologist David Lindenmayer, said the gap between the economic contribution from forestry and water was particularly stark, given the area feeds the Thomson and Armstrong Creek systems.
"Let's be frank, the timber industry is basically worth 1/70th what the water value is," Professor Lindenmayer said. "This is really dumb economics - we can work out what is happening in every hectare of forest in the region and the very sobering outcome is that you discover that there is not much saw log resource left."
"Forestry is incompatible with water production and this has been known for about 40 years. The values of carbon, tourism, water and biodiversity are complimentary, whereas forestry is mutually exclusive to all of those other things."
The report also found the value of carbon sequestration was potentially greater than the value of forestry. Based on a carbon price of $12.25 - which was the average price paid by the Commonwealth in its second direct action emissions fund auction - it estimated carbon storage could generated about $38 per hectare per year.
The report comes as the Andrews government continues to deliberate on whether to create a new national park in the central highlands, particularly to protect the endangered Leadbeater's possum.
The findings in the report appear to have been taken serious by the government. A spokesman for Environment Minister Lily D'Ambrosio said the report had been referred to the government's forest industry taskforce for consideration, which was set up to examine the future of the industry.
"The taskforce is working well and providing regular updates to the government, with its interim report expected to be received in coming weeks," the spokesman said.