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On the economics of forests and climate change: Deriving optimal policies

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  • Lintunen, Jussi
  • Uusivuori, Jussi
Abstract
First-best optimal forest sector carbon policy is examined. Using a forest and energy sector model with a carbon cycle module we show that the renewability and carbon neutrality arguments do not warrant emission free status of wood use. As a general optimality principle, the release of carbon is penalized by a tax and carbon capture is subsidized. However, under the biomass stock change carbon accounting convention, the land owners pay for the roundwood emissions and, to avoid double counting, the use of roundwood is treated as emission free. Yet, the carbon accounting convention followed does not affect the equilibrium outcome. The bioenergy from harvest residues is not emission free either. Furthermore, we show that an optimal policy subsidizes the production of wood products for their carbon sequestration. Correspondingly, carbon removals by biomass growth are subsidized and the harvest residue generation taxed. Numerical solution of the model shows that, although the use of wood is not emission free, it is optimal to increase the use of wood, possibly also in the energy sector. Before the wood use can be increased, the forest biomass will be increased. This carbon sink decreases the net emissions until the forest resources reach a new equilibrium.

Suggested Citation

  • Lintunen, Jussi & Uusivuori, Jussi, 2016. "On the economics of forests and climate change: Deriving optimal policies," Journal of Forest Economics, Elsevier, vol. 24(C), pages 130-156.
    • Handle: RePEc:eee:foreco:v:24:y:2016:i:c:p:130-156
    DOI: 10.1016/j.jfe.2016.05.001
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    References listed on IDEAS

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    Cited by:

    1. Jussi Lintunen & Aapo Rautiainen & Jussi Uusivuori, 2022. "Which Is more Important, Carbon or Albedo? Optimizing Harvest Rotations for Timber and Climate Benefits in a Changing Climate," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 134-160, January.
    2. Kuusela, Olli-Pekka & Lintunen, Jussi, 2020. "Modeling market-level effects of disturbance risks in age structured forests," Forest Policy and Economics, Elsevier, vol. 118(C).
    3. Bryngemark, Elina, 2019. "Second generation biofuels and the competition for forest raw materials: A partial equilibrium analysis of Sweden," Forest Policy and Economics, Elsevier, vol. 109(C).
    4. Rong Li & Brent Sohngen & Xiaohui Tian, 2022. "Efficiency of forest carbon policies at intensive and extensive margins," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(4), pages 1243-1267, August.
    5. Zhai, Jun & Kuusela, Olli-Pekka, 2022. "Incidence of domestic subsidies vs. export taxes: An equilibrium displacement model of log and lumber markets in Oregon," Forest Policy and Economics, Elsevier, vol. 135(C).
    6. Pohjola, Johanna & Laturi, Jani & Lintunen, Jussi & Uusivuori, Jussi, 2018. "Immediate and long-run impacts of a forest carbon policy—A market-level assessment with heterogeneous forest owners," Journal of Forest Economics, Elsevier, vol. 32(C), pages 94-105.

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    More about this item

    Keywords

    Climate policy; Forest carbon; Non-industrial private forest owners; Effective emission factor; Age-structured forest; Optimization; Bioenergy;
    All these keywords.

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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