Browsing by Subject "California Cap-and-Trade"

We study the compensation required to increase carbon sequestration in privately owned forests as a part of effective climate policy. We develop a theoretically correct understanding of compensating additional carbon sequestration in a voluntary stand-level carbon offset scheme by creating incentives for extending the rotation from the privately optimal length. We examine the cost of extending the length of the rotation to a socially desired level. The resulting costs and the increase in carbon sequestration determine the level of compensation required to make the private forest owner indifferent between joining the compensation scheme and resuming privately optimal forest management. A correctly defined subsidy scheme is required as forests are expected to play a major role in meeting national climate change mitigation targets, and so far, the existing schemes have failed to attract voluntary participants. The well-established univariate optimal rotation model (Faustmann 1894, Samuelson 1976) with a net carbon subsidy (van Kooten et al. 1995) is used to evaluate the compensation structure in the California Forest Offset Protocol and the New Zealand Emissions Trading Scheme, and to present a theoretically sound framework for subsidizing additional carbon sequestration in forests. An empirically more realistic size-structured forestry model with carbon storage (Assmuth et al. 2018) is used to verify the understanding of a correctly defined subsidy scheme when thinnings and multiple carbon pools are included. The results of the theoretical modelling are compared to practical applications in California Cap-and-Trade and the New Zealand Emissions Trading Scheme. These practical applications have faced various problems and have been subject to numerous revisions, due to issues with baseline establishment, over-crediting, questionable additionality, and leakage. We show that if the compensation scheme follows the Californian structure, a significantly high compensation is required to create sufficient incentives for private forest owners to participate in the sequestration program. The exclusion of carbon stored in harvested wood products may have decreased voluntary participation of post-1989 forests in the New Zealand Emissions Trading Scheme. These schemes serve as an example for the rest of the world of constructing a carbon sequestration compensation scheme. Thus, it is paramount to evaluate the choices in policy design, by comparing the compensation structure to a theoretically sound way of incentivizing additional carbon sequestration.