The Optimal Length of an Agricultural Carbon Contract

In this paper, we present the economic determinants of the optimal length of a carbon offset contract. We find that because of a declining capacity of the soil to sequester carbon, the optimal length of the carbon contract is finite (the marginal benefit of remaining in the contract is declining over time, whereas marginal opportunity cost is rising). We also explore the effect of varying key parameter values on the optimal length in the contract. If the contract requires the farmer to sequester at a higher rate, the farmer chooses the contract for a shorter length of time, and this may decrease rather than increase social welfare. If society places a higher value on carbon accumulation, the contract is chosen for a longer length of time. Finally, if both the farmer and society have a higher discount rate, the model provides a somewhat surprising result. The overall time in the contract, and benefits from carbon accumulation are higher when the common discount rate is higher.     

Economic analysis of exploitation and regeneration in plantations with problematic site productivity

Although intensive managed plantations clearly increase the growth and yield of forests several papers refer to declining forest productivity. Therefore in this paper we study the impact of declining forest productivity on the land expectation value and the optimal rotation length. We start from the research by Lu and Chang (1996) and try to fill the gap between the stable site productivity (“best”) and the site mining (“worst”) cases. For that we extend the classical Faustmann model by availability of different recovering technologies. In general the model allows the analysis of the two plantation groups: “mining the site by high productive plantation followed by management of degraded areas” and “high productive plantation and regeneration cycling” with the same comparative static. The model, analysis and comparison with the two extreme cases in Lu and Chang (1996) leads to a detailed understanding of land use management when site productivity decline is possible. Particularly the relation between declining periods with intensive land use and land use alternatives after declining periods with regeneration can be well understood. Findings are: Not ever declining process asks for regeneration. Many declining processes can be stopped at early times by high cash flows after mining periods. Shortenings of the regeneration time can boost site mining intensities.     

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.     

Further generalization of Faustmann's formula for stochastic interest rates

Markov decision process (MDP) models generalize Faustmann's formula by recognizing that future stand states, prices, and interest rates, are not known exactly. Buongiorno (Forest Science 47(4) 2001) presents a dynamic programming and a linear programming formulation of the MDP model with a fixed interest rate. Both formulations are generalized here to account for a stochastic interest rate. The objective function is the expected present value of returns over an infinite horizon. It gives, like Faustmann's formula, the value of the land and the eventual standing trees. The changes between stand states, prices, and interest rate, are represented by Markov chains. Faustmann's formula is a special case where the change from one state to another has 0 or 1 probability, and the interest rate is constant. The MDP model applies to any stand state, even- or uneven-aged, and the best decisions are tied uniquely to the current system state. An example shows the effects of recognizing variations in interest rate on the land expectation value, and the cost of ignoring them.     

Optimal Economic Rotation for a Mixed Species Even-Aged Forest

Most forest crops in real life are mixtures of species and the theory of optimal economic rotations as presented in literature does not quite apply to them. A model for determining the optimal economic rotation of a mixed species even-aged forest has, therefore, been developed. Data for jack pine and black spruce from an actual forest managed by a forest company have been used to demonstrate the value of the model. It has been concluded that at high discount rates faster growing components of a mixture should be given more importance in deciding the common optimal rotation. At low discount rates the slower growing components need to be emphasized.
La majeure partie de la récolte forestière consiste en réalité en mélanges d'essences et la théorie des rotations économiques optimales ne s'y applique pas tout à fait; Un modèle pour déterminer la rotation économique optimale a done áté developpé. Afin de démontrer la valeur de ce modéle, on s'est servi de données provenant d'une forêt de pin gris et d'épinette noire gárée par une compagnie forestiére. On a con-clu qu'avec des taux d'intérět éleves, on devrait donner plus d'importance aux constituants dont la croissance est la plus rapide lorsqu'il s'agit de décider la rotation commune optimale. Par contre, avec des taux d'tntérêt bas, on doit faire valoir les constituants à croissance plus lente.     

Determining optimal forest rotation ages and carbon offset credits: Accounting for post-harvest carbon storehouses

Sequestering carbon in forest ecosystems is important for mitigating climate change. A major policy concern is whether forests should be left unharvested to avoid carbon dioxide (CO₂) emissions and store carbon, or harvested to take advantage of potential carbon storage in post-harvest wood product sinks and removal of CO₂ from the atmosphere by new growth. The issue is addressed in this paper by examining carbon rotation ages that consider commercial timber as well as carbon values. A discrete-time optimal rotation age model is developed that employs data on carbon fluxes stored in both living and dead biomass as opposed to carbon as a function of timber growth. Carbon is allocated to several ecosystem and post-harvest product pools that decay over time at different rates. In addition, the timing of carbon fluxes is taken into account by weighting future carbon fluxes as less important than current ones. Using simple formulae for determining optimal rotation ages, we find that: (1) Reducing the price of timber while increasing the price of carbon will increase rotation age, perhaps to infinity (stand remains unharvested). (2) An increase in the rate used to discount physical carbon generally reduces the rotation age, but not in all cases. (3) As a corollary, an increase in the price of carbon increases or reduces rotation age depending on the weight chosen to discount future carbon fluxes. (4) Site characteristics and the mix of species on the site affect conclusions (2) and (3). (5) A large variety of carbon offset credits from forestry activities could be justified, which makes it difficult to accept any.     

ANALYSIS OF RANGELAND DEGRADATION USING STOCHASTIC DYNAMIC PROGRAMMING

Degradation of arid rangeland, and efforts to control that degradation, have become topical issues. However, the inherent characteristics of the rangeland, and the intertemporal nature of the problem, complicate the analysis of degradation issues in the search for more appropriate rangeland policies. Stochastic dynamic programming is examined as one means of allowing for those complexities. Using the case of the Queensland mulga rangelands, optimal stocking rates are shown to rise with lower property sizes, higher discount rates, higher wool prices and declining risk aversion. Importantly, the analysis reveals that a strategy of high stocking rates with the potential for rangeland degradation is an optimal response to the economic and social factors that confront graziers and is not an intertemporal information problem alone.     

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.     

Pressler's indicator rate formula as a guide for forest management

In this paper, it is shown that Pressler's indicator rate formula is also the optimal condition for the determination of the optimal harvest age under the generalized Faustmann formula. In addition, a modern treatment of the quantity increment, quality increment, and price increment is presented. Pressler's indicator rate formula is then applied to determine the optimal harvest age in a dynamic world of unanticipated changes.     

DO HIGH DISCOUNT RATES DESTROY TROPICAL FORESTS

The short-term viewpoint implicit in high discount rates seems to favour immediate forest exploitation rather than conservation for perpetual benefits. However, the value of logging revenues increases with a lower discount rate, because of the greater weighting given to investible funds. Thus, in several theoretical models, net present value of logging increases as discount rate is lowered. In practice, however, long-term costs of logging may also incur the weighting appropriate to investment funds; reinvestment of logging revenues may not actually take place; and lower discount rates may be appropriate for costs but not revenues. These circumstances favour conservation, the more so at lower discount rates.     

Optimal rotation with negative discount rates: completing the picture

While the rotation of maximum forest rent (no discounting of revenues and costs) is sometimes discussed conceptually and calculated practically, forest economists have almost invariably focused on optimal rotation with a positive discount rate. Some circumstances, especially related to increasing marginal utility with decreasing availability per head of products, would justify use of a negative discount rate. For a logically complete suite of conditions, a means of identifying optimal rotation with such a rate is needed. Applying the usual formulation for land expectation value then produces a meaningless result. Two approaches seem to give a solution. One uses the first-order conditions for an optimum. Another uses inversion of time perspective to produce sensible-seeming results. However, for cases where the world, or the value of forest production, ends suddenly at an unpredictable time, the optimal rotation is, surprisingly, that of maximum forest rent. Where the cause of negative discount rates is of limited duration before stability or growing affluence is re-established, this “provisional optimum” can be modified responsively.     

Red clover (Trifolium pratense) in conservation agriculture: a compelling case for increased adoption

The rapidly growing population will soon require a near doubling of food production. This increase must be achieved in a manner that maintains environmental integrity, preserves public health and resolves food access and distribution equalities. The use of forage legumes in arable rotations can make significant and multidimensional contributions to this sustainable intensification and this paper reviews the potential contribution of red clover (Trifolium pratense L.), with particular reference to sustainable cereal production in conservation agriculture systems. The use of red clover as a tool in soil fertility-building and the multiple benefits to the cropping system in which it is used is described. The benefits discussed include atmospheric nitrogen fixation, soil conservation, structural soil improvements and a suite of agroecosystem services including increased soil microbial activity, the phytoremediation of polluted soils and the provision of food for pollinators. Reported allelopathic weed suppression by red clover cover crops and the role of modern plant breeding in creating new varieties that further enhance system sustainability is also discussed. Finally, as economic considerations will always impact on adoption rates, the profitability of red clover rotations in terms of silage value and yield benefits is taken into account.     

Climate,carbon, civil war and flexible boundaries: Sudan's contested landscape

The confluence of climate change, oil development, farmer–nomad interaction, and civil war has given rise to serious contestation over land and water resources in the heart of Sudan. Here we report on direct involvement in the very difficult and protracted efforts to resolve these land-use conflicts. Repeated efforts to define and implement “hard demarcation” of boundaries in agroecological regions characterized by great temporal variability across space have been unsuccessful for many reasons. In semi-arid and savanna environments, where nomads share the use of land with sedentary communities, boundary disputes are minimized by the existence of flexible demarcations. Flexible boundaries are identifiable but subject to change in response to negotiation and agreement among resource users. It seems that the struggle is always over “rights” to particular areas of land. But it is necessary to understand the distinction between interests and rights. Each individual – and each group – has interests that they will seek to protect and, very often, enhance. But the conversion of interests into rights is a more difficult matter. As long as the need to deal with risk and uncertainty dominate livelihood strategies, flexible adaptation rather than rigid boundaries remains the optimal strategy in agro-pastoral economies.     

Compliance and market exclusion in Brazilian agriculture: Analysis and implications for “soft” governance

“Soft” or “hybrid” governance holds considerable promise in attempts to reconfigure state-market-society relationships toward improved environmental outcomes. “Soft” governance processes in Brazil's globally competitive, high-input/output agriculture sector have major implications for landuse policies. Here we identify and analyze two emergent processes, a compliance regime and bioregion-based market exclusion approach, that stand out amid a background of conflicts between agricultural land uses and environmental regulation. We address the effectiveness of “soft” governance, using a framework that focuses on interactions among state and non-state actors, use of geographic information, relations to global processes, and discourse. These policies may play an important role in bridging the divide between environmental and agricultural interests, but market and state actors, and the uneven effects of globalization, will influence effectiveness. Our framework for analyzing governance processes should complement future work that directly measures environmental outcomes.     

Intergenerational equity and the social discount rate

Recent modelling of the costs and benefits of climate change has renewed debate regarding assumptions for the social discount rate in analysing the impacts of environmental change. Previous literature suggests two key factors influence estimates of the social discount rate: the rate of pure time preference and the elasticity of marginal utility of future consumption. These components of the social discount rate reinforce the linkages between the choice of social discount rate and intergenerational distribution. This paper addresses the question of the relationship between intergenerational equity and the social discount rate and promotes the application of intergenerational distributional weights as a means of incorporating intergenerational equity preferences in policy analysis. Intergenerational equity‐adjusted social discount rates are derived as a means of decomposing the intergenerational equity aspect of the social discount rate. The work has significant policy implications for projects with long time frames given the sensitivity of Cost Benefit Analysis outcomes to decisions regarding the social discount rate.     

Contrasting two approaches in real options valuation: Contingent claims versus dynamic programming

This paper compares two well-known approaches for valuing a risky investment using real options theory: contingent claims (CC) with risk neutral valuation and dynamic programming (DP) using a constant risk adjusted discount rate. Both approaches have been used in valuing forest assets. A proof is presented which shows that, except under certain restrictive assumptions, DP using a constant discount rate and CC will not yield the same answers for investment value. A few special cases are considered for which CC and DP with a constant discount rate are consistent with each other. An optimal tree harvesting example is presented to illustrate that the values obtained using the two approaches can differ when we depart from these special cases to a more realistic scenario. We conclude that for real options problems the CC approach is preferred when data exists (such as futures prices) that allow the estimation of the market price of risk or convenience yield. Even when such data do not exist we argue that the CC approach is preferred as it has the advantage of allowing the individual specification of the prices of different sources of risk.     

Smallholder farms’ adaptation to the impacts of climate change: Evidence from China’s Loess Plateau

The impacts of climate change on agriculture in developing countries will depend on the extent to which agricultural production in those regions adapts to climate change’s influences. This study uses a whole-farm land use optimisation approach to explore climate change impacts, when including adaptation, on farm profitability, production and associated greenhouse gas (GHG) emissions in the Loess Plateau of northern China. The results show that with adaptation activities, the losses in smallholder farm profitability caused by the climate change could be moderate. Declining rainfall results in land use changes that generate higher on-farm GHG emissions with the most economically beneficial adaptations. With 5 % or 10 % decline in annual rainfall, the introduction of agricultural carbon tax would generate substantial reduction in on-farm GHG emissions. With 30 % rainfall reduction, agricultural carbon tax is not likely to bring about considerable emission reduction. The economically optimised land uses are generally sensitive to potential changes. When rainfall reductions appear, there is a clear trend toward reducing cropping area and transiting to pasture. With 5–10% rainfall reductions, increasing agricultural carbon tax with same rainfall reduction leads to the expansion in cropping enterprises. However, with 30 % rainfall reduction, land allocations are not sensitive to agricultural carbon tax. When with declining annual rainfall, in the optimal enterprises more oats-pasture rotations are employed to reduce wheat dominated rotations. Besides land use patterns, adaptations through altering farm management practices are also necessary. The economically optimised sheep flock would be increased considerably with declining rainfall. Overall, policymakers are suggested to initial more educational schemes to tell smallholder farmers how to make the best use of available adaptation strategies and consider changes in climate when design and implement agricultural policy.     

The declining price anomaly in sequential auctions of identical commodities with asymmetric bidders: empirical evidence from the Nephrops norvegicus market in France

The declining price anomaly for sequential sales of identical commodities challenges auction theory which predicts constant prices within a day. Among other hypotheses explaining the phenomenon stands the dual value of goods including a risk premium in early transactions. We consider that asymmetric bidder groups (primary processors, fishmongers, supermarket buyers) and seasonal landings may also affect the daily price pattern. On the basis of stylized facts and several panel data models, this hypothesis is tested on a Redundant French fish market of homogenous goods (live Nephrops norvegicus) when the time effects (high and low seasons, weekday effect) affecting the demand and supply conditions are taken into consideration. All models support the evidence of a daily declining pattern, but not to the same extent for all days and seasons, and all categories of buyers. Our results also show an earlier and steeper decline on periods of lower supply (or higher demand), supporting the theoretical hypothesis of risk‐averse behaviors of bidders, especially fishmongers with respect to primary processors and supermarkets.     

EVALUATING LONG-LIVED PROJECTS: THE ISSUE OF INTER-GENERATIONAL EQUITY

The role of the discount rate in benefit-cost analysis is reviewed, and its impact considered. A positive rate clearly 'tilts the balance overwhelmingly against generations in the distant future'. In this context, the issue of inter-generational equity is discussed, and it is concluded that although a positive rate representing social time preference or opportunity cost is appropriate when considering questions of economic efficiency, this is not the case when equity questions are being examined. In the case of irreversible change, an extreme example of inter-generational inequity, there may be no alternative to a constrained optimisation approach, where the constraint is determined by an ethical decision. A range of approaches for analysing the issue of inter-generational equity are canvassed and it is concluded that efficiency and equity questions need to be dealt with separately. If the analysis of the options on each issue are set out clearly, then policy makers will be better placed to make an informed and responsible decision.     

Landscapes with history: Addressing shortcomings in Swedish EIAs

Sixteen EU member states have ratified the European Landscape Convention (ELC), which works parallel to the EU's Environmental Impact Assessment (EIA) directives. The ELC defines landscape and emphasizes the importance of public dialogue and identifying, analysing, and assessing the landscape. Researchers are dissatisfied with how landscape is treated in EIAs; to address this, the paper focuses on the retrospective historical view, landscape change, and public participation. I reviewed ten Swedish road and railroad EIAs, noting deficiencies in how they describe and analyze landscape. Furthermore, efforts to make the landscape more comprehensible to the public in EIAs or consultations could be improved. These problems arise from professional planners’ lack of appropriate tools combined with their traditional working methods. Swedish researchers have stressed the lack of appropriate tools for describing and analyzing the landscape in EIAs. This paper presents an applied tool developed to improve visual understanding of the landscape's historical dimensions and how they change, focusing on visualization to facilitate public consultation. The tool also helps planners better harmonize new infrastructure with the surrounding landscape. The tool combines the matching of historical artworks and maps with current photographs and field visits, providing comprehensive “before” versus “now” overviews of landscapes.