SAN FRANCISCO (Reuters) - Faced with declining prices for timber products, owners of forest lands could find new sources of revenue in environmental efforts, industry experts said on Tuesday.

Because uncut trees are stores of carbon, forest owners may be able to extract value from them by just leaving them alone, particularly as a U.S. market for trading carbon emissions develops, experts told a conference in San Francisco.

Also, timberland owners and investors can sell easements that protect resources or wildlife, or provide sustainable fuel for burning in biomass power plants.

“Conservation and biomass are new return drivers,” said Andrew Kelsen, director of alternative investments at investment consulting firm Gray and Co.

The hope of revenue from green initiatives comes at an uncertain time for investors in timberlands. Forestry investing has accelerated in recent years, driving up prices for timberland and leading some analysts to question whether a recent slide in their prices signals a steeper fall.

“If we are in a bubble, (investors) are buying at a peak,” said E. Thomas Tuchman, president of U.S. Forest Capital LLC.

The current housing slump has driven down demand for lumber products and pounded stocks like International Paper Co and Weyerhaeuser Co.

Still, lower demand has not dampened the outlook for timber at the biggest U.S. pension fund, the California Public Employees’ Retirement System, which owns timber assets in Australia and Latin America. Calpers has set a target allocation for timber at 1 percent to 1.5 percent of its total assets, or roughly $3 billion, and targets a 6 percent real rate of return on its forest land investments.

Farouki Majeed, a senior investment officer with the pension fund, is unfazed by falling timber prices. “We’re long-term investors,” Majeed said. “We think we can ride this out.”

Timberland has gained traction in recent years among large institutional investors such as state pension funds and university endowments as they look to diversify their investment portfolios.

As an asset class, timberland outperformed stocks between 1987 and 2007, with the National Council of Real Estate Investment Fiduciaries’ timberland index generating a compounded annual return of 15.3 percent, versus the S&P 500’s 10 percent.

The pension fund’s investment staff sees timberlands as an inflation hedge. “We’re probably in a period where we’re likely to see inflation emerge as an issue we need to be concerned about,” Majeed said.