Forest carbon benefits,costs and leakage effects of carbon reserve scenarios in the United States

This study evaluated the potential effectiveness of future carbon reserve scenarios, where U.S. forest landowners would hypothetically be paid to sequester carbon on their timberland and forego timber harvests for 100 years. Scenarios featured direct payments to landowners of $0 (baseline), $5, $10, or $15 per metric ton of additional forest carbon sequestered on the set aside lands, with maximum annual expenditures of $3 billion. Results indicated that from 1513 to 6837 Tg (Teragrams) of additional carbon (as carbon dioxide equivalent, CO₂e) would be sequestered on U.S. timberlands relative to the baseline case over the next 50 years (30–137 Tg CO₂e annually). These projected amounts of sequestered carbon on timberlands take into account projected increases in timber removal and forest carbon losses on other timberlands (carbon leakage effects). Net effectiveness of carbon reserve scenarios in terms of overall net gain in timberland carbon stocks from 2010 to 2060 ranged from 0.29 tCO₂e net carbon increase for a payment of $5/tCO₂e to the landowner (71% leakage), to 0.15 tCO₂e net carbon increase for a payment of $15/tCO₂e to the landowner (85% leakage). A policy or program to buy carbon credits from landowners would need to discount additions to the carbon reserve by the estimated amount of leakage. In the scenarios evaluated, the timber set-asides reduced timberland area available for harvest up to 35% and available timber inventory up to 55%, relative to the baseline scenario over the next 50 years, resulting in projected changes in timber prices, harvest levels, and forest product revenues for the forest products sector.     

The potential and cost of increasing forest carbon sequestration in Sweden

This paper examines the potential and the cost of promoting forest carbon sequestration through a tax/subsidy to land owners for reducing/increasing carbon storage in their forests. We use a partial equilibrium model based on intertemporal optimization to estimate the impacts of carbon price (the tax/subsidy rate) on timber harvest volume and price in different time periods and on the change of forest carbon stock over time. The results show that a higher carbon price would lead to higher forest carbon stocks. The tax/subsidy induced annual net carbon sequestration is declining over time. The net carbon sequestration during 2015–2050 would increase by 30.2 to 218.3 million tonnes of CO₂, when carbon price increases from 170 SEK to 1428 SEK per tonne of CO₂. The associated cost, in terms of reduced total benefits of timber and other non-timber goods, ranges from 80 SEK to 105.8 SEK per tonne of CO₂. The change in carbon sequestration (as compared with the baseline case) beyond 2050 is small when carbon price is 680 SEK per tonne of CO₂ or lower. With a carbon price of 1428 SEK per tonne of CO₂, carbon sequestration will increase by 70 million tonnes of CO₂ from the baseline level during 2050-2070, and by 64 million tonnes during 2070–2170.     

Optimal forest harvest age considering carbon sequestration in multiple carbon pools: A comparative statics analysis

We present an analytical model for determination of the economically optimal harvest age of a forest stand considering timber value, and the value of carbon fluxes in living biomass, dead organic matter, and wood products pools. Through comparative statics analysis, we find that consideration of timber value and fluxes in biomass carbon increase harvest age relative to the timber only solution, and that the effect on optimal harvest age of incorporating fluxes in the dead organic matter and wood products pools is indeterminate.We also present a numerical example to examine the magnitudes of these effects. In general, incorporating the dead organic matter and wood products pools have the effect of reducing rotation age. Perhaps more interestingly, when initial stocks of carbon in dead organic matter or wood products pool are relatively high, consideration of these pools can have a highly negative effect on net present value.     

The multiple effects of carbon values on optimal rotation

Non-consumptive benefits which increase with crop age, like keeping carbon sequestered, lengthen optimal rotation compared with rotation for timber alone. High proposed carbon prices may extend rotation indefinitely. Carbon storage in wood products reduces this tendency. Biomass as an energy source displacing fossil fuels favours rotations near those of maximum biomass productivity. Use of sawn timber to displace structural materials with high embodied carbon favours somewhat longer rotations. Effects of rotation on soil carbon, and fossil carbon volatilised in harvesting operations, are further complications. Including all carbon effects results in optimal rotations somewhat longer than those based only on timber value, but shorter than those based on timber plus forest carbon. To include all factors intuitively is not possible: balanced appraisal needs economic calculations.     

Rewarding carbon sequestration in South-Western French forests: A costly operation?

The extension of rotation lengths in forests has been proposed as an option for increasing carbon storage and contributing to climate change mitigation. This paper presents the results of a case study conducted on forests located in the southwest of France. The aim of this research was to assess the cost effectiveness of a subsidy/tax system on carbon fluxes. First, it is shown that such a mechanism leads forest owners to extend rotation lengths. However, cost effectiveness analysis shows that: (1) marginal social costs are more expensive than the private marginal costs of carbon sequestration; (2) marginal costs are higher when carbon stocks are discounted, ranging from 170.1 €/tC to 719.8 €/tC with discounted carbon stocks; and from 38.8 €/tC to 78.4 €/tC with undiscounted carbon stocks; (3) marginal costs are in the range of measures of the social value of carbon for France; (4) marginal costs increase with timber prices and increase with discount rate.     

Economics of carbon sequestration under fluctuating economic environment,forest management and technological changes: An application to forest stands in the southern United States

This study presents a model that determines the effect of current and future payments for carbon sequestration, proportion of wood that sequesters carbon in long-lived product and landfills, and amount of carbon in the wood, on the optimal current forest harvest age. Increased current and future prices of carbon would lead to a longer and shorter harvest age, respectively. Higher current prices of carbon could increase the supply of carbon at a decreasing rate due to longer harvest ages. Moderate prices of carbon would encourage landowners to maintain standing timber. Policies focused then on stimulating landowners to hold timber on forestlands may not necessarily imply higher amounts of sequestered carbon. Increased future values of carbon could imply a reduction of the current supply of carbon.     

Long‐term versus temporary certified emission reductions in forest carbon sequestration programs*

Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, forest projects can receive returns for carbon sequestration via two crediting instruments: temporary or long‐term certified emission reductions (tCERs or lCERs). This study shows the effect of lCERs on the private owner’s forest rotation intervals decision and carbon credit generation in afforestation and reforestation projects. A credit verification mechanism with a harvest penalty implemented under the lCERs policy distorts the timber harvesting decision and the corresponding carbon credit supply. Two opposing incentives are created by the lCERs mechanism which leads to either longer or shorter rotations compared to the Faustmann rotation, depending on which incentive prevails. Our numerical results show that both lCERs and tCERs seem to have similar impacts on harvesting incentives, but the resulting carbon supply differs among the instruments owing to the credit verification mechanism. The tCERs carbon supply curve is monotonically increasing in the carbon price, while a lCERs carbon supply is non‐monotonic and may have a backward bending region over a range of carbon prices.     

Consequences of carbon offset payments for the global forest sector

Long-term effects of policies to induce carbon storage in forests were projected with the Global Forest Products Model. Offset payments for carbon sequestered in forest biomass of $15–$50/t CO₂e applied in all countries increased CO₂ sequestration in world forests by 5–14 billion tons from 2009 to 2030. Limiting implementation to developed countries exported environmental damage from North to South, as developing countries harvested more, decreasing their stored CO₂e. Substantially more CO₂e was sequestered by allocating a given budget to all countries rather than to developed countries only. As offset payments increased wood prices relatively more than they decreased production, timber revenues generally increased. In the few countries with timber revenues losses they were more than compensated by the offset payments.     

Allocating provincial CO2 quotas for the Chinese national carbon program

In order to improve the efficiency of climate change initiatives China launched its national carbon market in December 2017. Initial CO2 quota allocations are a matter of significant concern. How should we allocate CO₂ emissions reduction responsibilities among Chinese provinces, assuming that provinces will not or cannot trade these responsibilities among themselves? In this paper, we allocate CO₂ quota from the perspective of cost minimisation. First, we estimate the national CO₂ marginal abatement cost (MAC) function and deduce the interprovincial MAC functions. Second, we build an allocation model with nonlinear programming for cost minimisation. Finally, we obtain the allocation results under the emissions reduction target by 2030. The results are as follows. (i) The national MAC was 134.3 Yuan/t (at the constant price of 1978) in 2011, with an overall upward trend from 1990 to 2011. (ii) The interprovincial MACs differ significantly and decline gradually from east to west. Hebei has the largest emissions reduction quota, and Shandong has the largest emissions quota by 2030. (iii) Compared with other criteria of per capita, gross domestic product (GDP), grandfathering and carbon intensity, the proposed approach is the most cost‐effective in achieving the reduction target, with cost savings of 37.7, 34.5, 47.9 and 33.87 per cent, respectively.     

Market and welfare implications of the reservation price strategy for forest harvest decisions

Previous studies have reported significant gains from adopting the adaptive harvest strategy under conditions of timber price uncertainty. For the final harvest decision in even-aged stand management, the adaptive strategy typically means that a stand is harvested when the timber price is sufficiently high, whereas low prices are avoided by postponing the harvest. Such a harvest behavior may have significant impacts on the future price process, which in turn affects the landowner's profits. Moreover, it would certainly affect the timber-based industry and consumers. This paper assesses these impacts in a hypothetical timber market, using the Faustmann rule (FR) as a benchmark. The results show that changing from the FR to the reservation price strategy (RPS) reduces the supply of timber, thereby pushes up the price level. The RPS significantly reduces the short-run random variation of timber price. In the long run, both the mean and the variance of the timber price tend to stabilize. Depending on the anticipated price variation underlying the RPS, the expected timber price may be close to, or much higher than, the benchmark level, and the variance of price can be very large or very small. The welfare effect of the RPS is small if the anticipated variance of timber price used to optimize the RPS is small. If the anticipated variance of price is large, then the RSP leads to significant increase in the landowners’ profits and at the same time reduces the consumer surplus by a much larger amount.     

Functional Land Management for managing soil functions: A case-study of the trade-off between primary productivity and carbon storage in response to the intervention of drainage systems in Ireland

Globally, there is growing demand for increased agricultural outputs. At the same time, the agricultural industry is expected to meet increasingly stringent environmental targets. Thus, there is an urgent pressure on the soil resource to deliver multiple functions simultaneously. The Functional Land Management framework (Schulte et al., 2014) is a conceptual tool designed to support policy making to manage soil functions to meet these multiple demands. This paper provides a first example of a practical application of the Functional Land Management concept relevant to policy stakeholders. In this study we examine the trade-offs, between the soil functions ‘primary productivity’ and ‘carbon cycling and storage’, in response to the intervention of land drainage systems applied to ‘imperfectly’ and ‘poorly’ draining managed grasslands in Ireland. These trade-offs are explored as a function of the nominal price of ‘Certified Emission Reductions’ or ‘carbon credits’. Also, these trade-offs are characterised spatially using ArcGIS to account for spatial variability in the supply of soil functions.To manage soil functions, it is essential to understand how individual soil functions are prioritised by those that are responsible for the supply of soil functions – generally farmers and foresters, and those who frame demand for soil functions – policy makers. Here, in relation to these two soil functions, a gap exists in relation to this prioritisation between these two stakeholder groups. Currently, the prioritisation and incentivisation of these competing soil functions is primarily a function of CO₂ price. At current CO₂ prices, the agronomic benefits outweigh the monetised environmental costs. The value of CO₂ loss would only exceed productivity gains at either higher CO₂ prices or at a reduced discount period rate. Finally, this study shows large geographic variation in the environmental cost: agronomic benefit ratio. Therein, the Functional Land Management framework can support the development of policies that are more tailored to contrasting biophysical environments and are therefore more effective than ‘blanket approaches’ allowing more specific and effective prioritisation of contrasting soil functions.     

Effects of resin tapping on optimal rotation age of pine plantation

This paper analyses the effects of resin benefit on the optimal rotation age of Simao pine plantation. Timber growth and resin yield functions were first derived, and then an integrated formulation for Hartman rotation was solved by taking both timber and resin benefits into consideration through numerical optimization. Empirical results indicate that: (1) the inclusion of resin benefit results in lengthening optimal rotation age; (2) resin benefit has a greater effect on rotation age when discount rate is low than when it is high, ceteris paribus; (3) with an improvement of site productivity, resin benefit has a decreasing effect on rotation age, other factors being constant. These effects are also true with respect to benefit gains in present value.     

Logs or permits? Forestry land use decisions in an emissions trading scheme

Negative carbon emissions options are required to meet long-term climate goals in many countries. One way to incentivise these options is by paying farmers for carbon sequestered by forests through an emissions trading scheme (ETS). New Zealand has a comprehensive ETS, which includes incentives for farmers to plant permanent exotic forests. This research uses an economy-wide model, a forestry model and land use change functions to measure the expected proportion of farmers with trees at harvesting age that will change land use from production to permanent forests in New Zealand from 2014 to 2050. We also estimate the impacts on carbon sequestration, the carbon price, gross emissions, GDP and welfare. When there is forestry land use change, the results indicate that the responsiveness of land owners to the carbon price has a measured impact on carbon sequestration. For example, under the fastest land use change scenario, carbon sequestration reaches 29.93 Mt CO₂e by 2050 compared to 23.41 Mt CO₂e in the no land use change scenario (a 28% increase). Even under the slowest land use change scenario, carbon sequestration is 25.89 Mt CO₂e by 2050 (an 11% increase compared with no land use change). This is because, if foresters decide not to switch to permanent forests in 1 year, carbon prices and ultimately incentives to convert to permanent forests will be higher in future years.     

Soil CO2 emission and carbon budget of a wheat/maize annual double-cropped system in response to tillage and residue management in the North China Plain

To investigate the impacts of tillage and crop residue managements on soil CO₂ emission and C budget in a wheat (Triticum aestivum L.)/maize (Zea mays L.) double-cropped system in the North China Plain (NCP), a field experiment was conducted consisting of four treatments: tillage with crop residues retention (CT+), tillage with crop residues removal (CT?), no-till with crop residues retention (NT+), and no-till with crop residues removal (NT?). Daily soil CO₂ fluxes changed with crop growing stage and peaked during the most vigorous growth of period, fluxes in maize season were higher than those in wheat season. Compared to the tilled soils, cumulative CO₂ emissions were significantly lower under no-till treatments. The largest cumulative CO₂ emission occurred under CT+ (65?g CO₂-C m^?2 y^?1) and the smallest was under NT+ (39?g CO₂-C m^?2 y^?1). After 5 years of the experiment, soil organic carbon (SOC) sequestration were greater with crop residues retention (CT+ and NT+) than with crop residues removal (CT? and NT?), the maximum SOC stock was in NT+ (5940?g C m^?2) while the minimum was in CT? (3635?g C m^?2). NT+ could help to mitigate CO₂ emission in the annual wheat/maize double-cropping system of the area.     

The opportunity cost of preserving the Brazilian Amazon forest

We estimate the trade‐off between forest preservation and agricultural production for the Legal Amazon region, using census and deforestation data for municipalities in 2006. We use a directional distance function to represent the production possibility frontier, and then calculate the shadow price of reducing deforestation in terms of agricultural income foregone. Results indicate that, on average, to preserve 1 ha of forest, $797 in annual agricultural GDP must be foregone. Using a discount rate of 10% and average forest carbon density of 132 tons per hectare, these results imply an average shadow price of $16 per ton of CO₂ permanently sequestered.     

Optimizing joint production of timber and carbon sequestration of afforestation projects

Optimizing harvesting decisions has been a matter of concern in the forestry literature for centuries. However, in some tropical countries, growth models for fast-growing tree species have been developed only recently. Additionally, environmental services of forests gain importance and should be integrated in forest management decisions. We determine the impact of a joint production of timber and carbon sequestration on the optimal rotation of a fast-growing species in north-western Ecuador, comparing different optimization approaches and taking the latest developments of the Kyoto Protocol into account. We find that payments for carbon sequestration have substantial impact on the rotation length: in contrast to an optimum of 15 years when focusing on timber production only, joint production leads to a doubling of the rotation length, which means that timber harvest should be postponed until the end of the carbon project.     

Does carbon farming provide a cost‐effective option to mitigate GHG emissions? Evidence from China

In this study, we apply a whole farm bioeconomic analysis to explore the changes in land use, farm practices and on‐farm greenhouse gas (GHG) emission under varying levels of agricultural greenhouse gas abatement incentives in the form of a carbon tax for a semi‐arid crop‐livestock farming system in China's Loess Plateau. Our results show that the optimised agricultural enterprises move towards being cropping‐dominated reducing on‐farm emission since livestock perform is the major source of emission. Farmers employ less oats‐based and rapeseed‐based rotations but more dry pea‐based rotations in the optimal enterprise mix. A substantial reduction in on‐farm greenhouse gas emission can be achieved at low cost with a small increase in carbon incentives. Our estimates indicate that crop‐livestock farmers in China's Loess Plateau may reduce their on‐farm GHG emission between 16.6 and 33 per cent with marginal abatement costs <￥100/t CO₂e and ￥150/t CO₂e in 2015 Chinese Yuan. The analysis implies that reducing greenhouse gas emission in China's semi‐arid crop‐livestock agriculture is potentially a low‐cost option.     

Optimal management of a flammable forest providing timber and carbon sequestration benefits: an Australian case study*

In deciding to keep or fell a forest stand given its age, the risk of loss of timber through wildfire is an important consideration. If trees also have value from sequestration of carbon, another effect of fire is the unplanned loss of stored carbon. Factors affecting the decision to keep or fell trees, and how much to spend on fire protection, are investigated using stochastic dynamic programming, using carbon sequestration in stands of mountain ash in Victoria as a case study. The effect of treating sawlogs as a permanent carbon sink after harvesting is explored.     

Review - Roger A. Sedjo (2003): Economics of Forestry

Ashgate Publishing Limited, Gower House, Croft Road, Aldershot, Hants GU11 3HR, England (www.ashgate.com). 498 p. £ 100.00. ISBN 0-7546-2237-1 (hardback).Being one volume in the series of the International Library of Environmental Economics and Policy (T. Tietenberg and W. Morrison, gen. eds.), this book is a collection of some of the most significant journal essays in forest economics and forest policy. In compiling this volume, Roger Sedjo did a great service to the forest economics profession.This volume includes twenty-five essays originally published between 1849 and 1996 in a dozen journals, and one chapter from the Third Assessment Report of the International Panel on Climate Change (IPCC, 2001) which addresses the biological sequestration of carbon in terrestrial ecosystems. These are organized into four parts: the harvest rotation issue, timber supply, multiple-use and non-timber outputs, and global issues. An introduction essay to this volume, written by the editor, provides an overview of the major issues in forest resource management and discusses some the most important contributions to the forest economics literature.The eleven essays in the first part of the book provide a rather complete coverage of the most important contributions to the literature on optimal rotation age, which is a fundamental issue in forest management and forestry investment. Four of the essays (Faustmann 1849, Ohlin 1921, Bentley and Teeguarden 1965, and Samuelson 1976) address the basic formulation and interpretation of the optimal rotation model. Four essays (Löfgren 1985, Newman, Gilbert and Hyde 1985, Reed 1984, and Brazee and Mendelsohn 1988) extend the basic rotation model to examine the rotation age decision in the presence of deterministic trends and uncertainty in timber yield and price, respectively. Based on the Faustamnn rotation model, Klemperer (1976) and Chang (1982) examine the impacts of taxation on forest value and on the optimal rotation age. Koskela (1989) provides a detailed analysis of the impacts of taxation on timber harvest decisions under price uncertainty. What I feel missing in this part is a comparative statics analysis examining the impacts of changing economic parameters on the optimal rotation age.Part II includes five essays on economic analysis of long-run timber supply. Clawson (1979) reviews the historical development of forest resource and forest utilization in the United States. Vaux (1973) examines the long-run potential supply of timber from forest plantations in California. Berck (1979) investigates the difference in harvesting behavior between private forest owners and public managers. Lyon (1981) and Lyon and Sedjo (1983) examine the optimal exploitation of old-growth natural forests and the transition to steady state. While these essays all focus on the long-run timber supply in the United States, the methods developed and used in these papers could be applied for any other region. The exploitation of old-growth natural forests and the long-term availability of timber have been without doubt two major concerns in the United States. In many parts of the world, however, concerns about timber supply in the short-run have also had great influences on the development of forest policy. It would have been appreciated if a couple of essays addressing the short-run supply of timber had been included.Part III contains three essays dealing with the problem of multiple-use forest management. Gregory (1955) develops an economic framework for multiple-use management based joint production theory. Hartman (1976) examines the multiple-use rotation age decision. Swallow, Parks and Wear (1990) investigate the problem of non-convexities involved in multiple-use rotation age decisions. The merits of these essays lie in that they use rather simple models to demonstrate the importance of incorporating non-timber benefits in forestry decisions and the complexities of the multiple-use problem. In his 1976 essay, Hartman points out that in many situations management practices applied to one stand affect the value of non-timber outputs derived from the adjacent stands; such interdependence needs to be incorporated into multiple-use decision analysis. I certainly would like to find in this volume one or two essays examining the impacts of stand interdependence on the optimal decision. Another important issue in multiple-use management, which is not covered in this volume either, is the valuation of non-market priced outputs and services. Yet I believe that this omission is well motivated, for there are two separate volumes in this series devoted to non-market valuation methods (R. T. Carson, ed. Direct Environmental Valuation Methods, Volumes I and II).The seven essays in Part IV deal with a set of forest economic and policy issues related to global warming and biodiversity conservation. Parks and Hardie (1995) examine the cost-effective subsidies to convert marginal agricultural land to forests for the purpose of carbon sequestration. Hoen and Solberg (1993) analyze the potential and cost-effectiveness of increasing carbon sequestration in existing forests by changing forestry practices. van Kooten, Binkley and Delcourt (1995) examine the effect of carbon taxes and subsidies on the optimal rotation age. The chapter from the Third Assessment Report of IPCC (2001) provides a comprehensive review of the literature on the ecological, environmental, social and economic aspects of carbon sequestration in terrestrial ecosystems. While forests and forest management could play an important role in mitigating climate change, increasing level of atmospheric dioxide and climate change would inevitably affect the productivity of forest ecosystems, thereby could have significant impacts on future timber growth, harvest and inventory as well as carbon storage in forest ecosystems. Joyce et al. (1995) present a framework for analyzing the potential effects of climate change on the forest sector. The remaining two essays in this part examine the costs and benefits of biodiversity preservation, respectively. Montgomery, Brown and Adams (1994) estimate the marginal cost of preserving the northern spotted owl. Simpson, Sedjo and Reid (1996) examine the expected value of the marginal species as an input to pharmaceuticals.The editor points out in the introduction chapter that there are many other important contributions that are not included in this volume, some of these are mentioned, others not. In addition to the few omissions noted earlier, several important economic and policy issues such as uneven-aged stand management, deforestation, international trade, sustainable forestry, forest recreation, wildlife management and so on are not discussed. Moreover, none of the journal essays published since 1997 is selected. That there are many other important contributions does not mean the essays included in this volume are less important, however. While each forest economist may present a different list of the most important papers, most (if not all) of the essays in this volume would appear on anyone's list. I strongly recommend this book for research scientists and graduate students of forest economics as an essential addition to their reference library.     

Designing afforestation subsidies that account for the benefits of carbon sequestration: A case study using data from China's Loess Plateau

This paper presents a method for determining the subsidy required to motivate farmers to participate in timber afforestation programs designed to maximize social well-being. The method incorporates a carbon sequestration benefit function into the land expected value model in order to quantify the social benefit arising from carbon sequestration by the planted trees. This is used to calculate the optimal rotation age for newly planted forests that maximizes social utility. The minimum subsidy required to motivate farmers to participate in the afforestation program was calculated using a modified decision model that accounts for the subsidy's impact. The maximum subsidy offered by the government was taken to be the NPV of the carbon sequestration achieved by afforestation. Data on Robinia pseudoacacia L. trees planted on the Loess Plateau were used in an empirical test of the model, which in this case predicts an optimal subsidy of 254.38 yuan/ha over 40 years. This would guarantee the maintenance of forest on land designated for afforestation until they reached the socially optimal rotation age. The method presented herein offers a new framework for designing afforestation subsidy programs that account for the environmental service (specially, the carbon sequestration) provided by forests.