The state of California, backed by the federal gov- ernment, had offered to pay nearly $500 million to preserve a 7,000- acre stretch of old-growth redwoods in the Headwaters Forest in Humboldt County.
The deal was controversial enough with environmentalists, as the parcel represented only a fraction of the 210,000 acres of redwood forest under threat in the area.
But even this offer was not enough for the Pacific Lumber Company, whose aggressive felling of vast stretches of the Headwaters Forest has made it the central target for environmentalist protests.
Hours ahead of today's deadline for accepting the proposed federal funds, the company declared it could not afford to accept the terms of the deal because the attached logging restrictions would make it impossible to run its business.
"The terms would have cut operations nearly in half, forcing hundreds of employee layoffs ... and made our company uncompetitive," said John Campbell, president of Pacific Lumber.
To environmentalists that reasoning sounded like a last-minute pretext, since the deal was painstakingly negotiated over several years and had been agreed by the company as long ago as 1996. What the company appeared to have calculated was that it stood to gain more by turning down the money and exploiting loopholes in existing forestry policy to keep logging.
Since being taken over by the Texan financier Charles Hurwitz and his Maxxam Corporation in 1986, Pacific Lumber has tripled the rate of its logging activities, provoking river silting, landslides and other environmental damage.
The firm has been cautioned many times for breaking forestry rules and wiping out the habitat of protected species such as the marbled murrelet and the coho salmon. Twice it has had its logging licence suspended.
California's new Democratic governor, Gray Davis, responded to the collapse of the deal by vowing to double inspection efforts to clamp down on abuses. Environmental groups who have resorted to "tree-sitting" - living in the trees to prevent logging - have declared a virtual state of war against Pacific Lumber.
But pro-environmental forces appear helpless to stop the destruction. For small landowners to maintain forests has grown increasingly expensive, and parcel after parcel has been sold to big corporations such as Maxxam. They in turn can rely on the support of the local community, which needs the revenue from logging even as it sees its source of livelihood inexorably destroyed.