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Economic value of carbon sequestration in forests under multiple sources of uncertainty

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  • Gren, Ing-Marie
  • Carlsson, Mattias

Abstract

The purpose of this paper is to calculate the value of stochastic carbon sequestration in climate change mitigation when also carbon dioxide emissions from fossil fuels and abatement costs are stochastic. The replacement cost method is used where the value of carbon sink is calculated as associated cost savings from replacement of more expensive mitigation options for achieving a given emission target. Minimum costs with and without carbon sinks are derived with a safety-first approach in a chance constrained programming framework which also accounts for variability in control costs. The theoretical results show that for high enough risk discount, carbon sink is not included in a cost effective mitigation program even when the carbon sink cost is zero. The empirical application to the EU independent commitment of 20% reduction in carbon dioxides shows large variation in carbon sink value depending on risk discount. Under no uncertainty, the value can correspond to 0.33% of total GDP in EU, but it declines due to the uncertainty associated with forest carbon sink and is zero for high probability levels in achieving the target. Thus, whether or not to recommend the inclusion of carbon sink in the EU climate policy depends on the uncertainty of carbon sinks in relation to other sources and on the importance of reaching stipulated emission reduction targets.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Forest Economics.

Volume (Year): 19 (2013)
Issue (Month): 2 ()
Pages: 174-189

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Handle: RePEc:eee:foreco:v:19:y:2013:i:2:p:174-189

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Related research

Keywords: Carbon sequestration; Carbon sink value; Replacement cost method; Uncertainty; Safety-first; Chance constrained programming; EU emission target;

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References

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Cited by:
  1. Gren, Ing-Marie & Baxter, Peter & Mikusinski, Grzegorz & Possingham, Hugh, 2014. "Cost-effective biodiversity restoration with uncertain growth in forest habitat quality," Journal of Forest Economics, Elsevier, vol. 20(1), pages 77-92.
  2. Gren, Ing-Marie Gren & Elofsson, Katarina, 2013. "Value of land use for carbon sequestration: An application to the EU climate policy," Working Paper Series 2012:4, Department Economics, Swedish University of Agricultural Sciences.

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