Carbon pricing mechanisms and the optimal forest harvest age

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Carbon pricing mechanisms and the optimal
forest harvest age

• Glen W. ArmstrongDepartment of Renewable
  Resources
• University of Alberta
• gwa_at_ualberta.ca

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Acknowledgements

• Sustainable Forest Management Network
• Patrick Asante, Geoff McCarney Laure Wilson
• Vic Adamowicz Stewart Elgie
• Martin Faustmann Richard Hartman

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Starting points

• Privately managed forest stand
• Decision maker maximizes net present value over a
  long planning horizon
• Decision maker receives financial benefits and
  incurs costs for timber harvest and carbon
  storage
• Faustmann (1849) and Hartman (1976) provide a
  useful framework

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Starting points (contd)

• Decision rule
• Choose the harvest age that maximizes NPV given
  values for timber harvest and carbon storage
• What are the optimal NPV and harvest age?
• Example
• Naturally regenerated lodgepole pine from NE
  British Columbia (TIPSY)
• Simplified representation of carbon pools from
  CBM-CFS3

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Net present value
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Study design

• Alternative carbon markets
• Permanent vs. temporary credits
• Exclusion vs. inclusion of product pools
• Fixed vs. business-as-usual (BAU) baseline
• Model parameters
• Carbon price
• Discount rates
• Initial stocks

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Definitions

• Permanent credits
• Carbon price received for each unit increase in
  CO2 stored
• Carbon price paid for each unit decrease in CO2
  released
• Temporary credits
• Annual rental for each unit of CO2 stored above a
  baseline (fixed or business-as-usual)
• Based on Total Ecosystem Carbon or TECProduct
  Pool

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Base case parameters

• Initial age 0 yrs
• Initial DOM stock 370 tC/ha
• Log price 50 /m3
• Cost of logging 5000 /ha
• Carbon price 20 /tC02
• Discount rate 5/year
• DOMt(1-d)DOMt-1 f BMt

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• Age 0, 370 tC/ha

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• Age 0, 0 tC/ha

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• Age 0, 200 tC/ha

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• Age 40, 370 tC/ha (at age 0)

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• Effect of discount rate

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• Effect of initial stock of carbon

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• Geoff McCarneys thesis work

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Initial Landscape AppearanceBoreal Plains Forest
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End Landscape AppearanceBoreal Plains Forest
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Carbon Markets Increase Forest NPV

• Adding Carbon market always increases NPV
  (usually a lot)
• Carbon price (relative to timber), ownership of
  carbon rights, harvest constraints, and forest
  age all matter.

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Non-Timber Resources

• Concerns for non-timber values expressed as
  constraints on minimum areas of good wildlife
  habitat.
• Represented for five vertebrate species American
  Marten, Meadow Vole, Broad-Winged Hawk,
  Black-Throated Green Warbler, Northern
  Three-Toed Woodpecker (shown left to right).

www.washington.edu
www.wildbirdphotos.com
www.homestead.com
bna.birds.cornell.edu
www.nps.gov
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Concluding remarks

• Increasing CO2 prices ? delayed harvest
• Will provinces permit companies to delay/decrease
  harvest?
• Including product pool tempers effect
• Can product mix be changed?
• Many cases where NPV of no harvest is close to
  NPV at optimal harvest age
• Accounting mechanisms that penalize carbon losses
  can lead to huge reductions in forest land value.
  Who takes responsibility?
• Initial stock of DOM is critical

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Complications

• Baseline???
• Forest level constraints
• Maximum sustained yield, even flow
• Are companies already operating at a longer
  rotation age?
• Declining yield curves
• Fire, insects, wind