Browsing by Author "Assmuth, Aino"

This study applies two novel forest economic models to analyze the effect of optimal carbon storage on the choice between clearcuts and continuous cover forestry. Unlike previous studies, we determine the economically optimal management regime endogenously, by optimization. We study a policy where the society pays forest owners a Pigouvian subsidy for the carbon that is sequestered by the stand as it grows. The focus of our analysis is a subsidy system that also takes into account the carbon both stored in and released from wood products. In the first part of the thesis, the question of optimal carbon storage is studied using a continuous time biomass model that does not include any a priori assumptions on clearcuts vs. continuous cover forestry. We show analytically that subsidized carbon sequestration postpones thinning and increases optimal stand volume along the rotation. With high carbon price the shadow value of stand volume becomes negative. Numerical results show that carbon prices within a realistic range may switch the optimal management regime from clearcuts to continuous cover management. A higher interest rate can lead to a higher stand volume and a longer optimal rotation, which contrasts the results of the classic Faustmann model. Next, the question is studied applying a more detailed size-structured transition matrix model based on empirically estimated Scandinavian growth data. This approach produces a more accurate description of the complex dynamics of uneven-aged stands and optimization of harvesting activities. According to numerical results, thinning is invariably carried out from above, and the size of the harvested trees increases with carbon price. Optimal rotation age increases with carbon price, and moderate carbon pricing is sufficient to switch the management regime to continuous cover management. Optimal rotation age also increases with interest rate. Clearcut management is the more competitive, the more productive is the site type. Both models suggest that carbon storage has a significant effect on optimal forest management, and that it typically favors continuous cover forestry. Similar analysis on optimal carbon storage in forestry has not been presented before. We also discuss various carbon subsidy systems in the context of developing climate policy.