Valuation of Carbon Forestry and the New Zealand Emissions Trading Scheme: A Real Options Approach Using the Binomial Tree Method
Under the New Zealand Emissions Trading Scheme, new forests planted on/after 1st January 1990 can earn carbon credits. These credits have to be repaid upon forest harvest. This paper analyses the effects of this carbon scheme on the valuation of bareland, on which radiata pine is to be planted. NPV/LEV and Real Options methods are employed, assuming stochastic timber and carbon prices. Valuation increases significantly and rotation age is likely to be lengthened. We include a scenario analysis of potential implications of rotation age lengthening on carbon stock management in New Zealand.
|Date of creation:||21 May 2012|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.iaae-agecon.org/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Graeme Guthrie & Dinesh Kumareswaran, 2009. "Carbon Subsidies, Taxes and Optimal Forest Management," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(2), pages 275-293, June.
- Jasmina Behan & Kieran McQuinn & Maurice J. Roche, 2006. "Rural Land Use: Traditional Agriculture or Forestry?," Land Economics, University of Wisconsin Press, vol. 82(1), pages 112-123.
- G. Cornelis van Kooten & Clark S. Binkley & Gregg Delcourt, 1995. "Effect of Carbon Taxes and Subsidies on Optimal Forest Rotation Age and Supply of Carbon Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 365-374.
- Brent Sohngen & Robert Mendelsohn, 2003. "An Optimal Control Model of Forest Carbon Sequestration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 448-457.
- Olschewski, Roland & Benítez, Pablo C., 2010. "Optimizing joint production of timber and carbon sequestration of afforestation projects," Journal of Forest Economics, Elsevier, vol. 16(1), pages 1-10, January.
- de Braganca, Gabriel Fiuza & Boyle, Glenn & Evans, Lewis, 2008.
"Forest and Forest Land Valuation: How to Value Forests and Forest Land to Include Carbon Costs and Benefits,"
Working Paper Series
4014, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
- Meade, Richard & Fiuza, Gabriel & Lu, Andrea & Boyle, Glenn & Evans, Lewis, 2009. "Forest and Forest Land Valuation: How to Value Forests and Forest Land to Include Carbon Costs and Benefits," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48163, Australian Agricultural and Resource Economics Society.
- Meade, Richard & Fiuza, Gabriel & Lu, Andrea & Boyle, Glenn & Evans, Lewis, 2009. "Forest and Forest Land Valuation: How to Value Forest and Forest Land to Include Carbon Costs and Benefits," 2009 Conference, August 27-28, 2009, Nelson, New Zealand 97127, New Zealand Agricultural and Resource Economics Society.
- Clarke, Harry R. & Reed, William J., 1989.
"The tree-cutting problem in a stochastic environment : The case of age-dependent growth,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 13(4), pages 569-595, October.
- Harry R Clarke & William J. Reed, 1989. "The Tree-Cutting Problem in a Stochastic Environment: The case of Age Dependent Growth," Working Papers 1989.01, School of Economics, La Trobe University.
- Thomas A. Thomson, 1992. "Optimal Forest Rotation When Stumpage Prices Follow a Diffusion Process," Land Economics, University of Wisconsin Press, vol. 68(3), pages 329-342.
- Miller, Robert A. & Voltaire, Karl, 1983. "A stochastic analysis of the tree paradigm," Journal of Economic Dynamics and Control, Elsevier, vol. 6(1), pages 371-386, September.
- Margaret Insley & Kimberly Rollins, 2005. "On Solving the Multirotational Timber Harvesting Problem with Stochastic Prices: A Linear Complementarity Formulation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(3), pages 735-755.
- Provencher Bill, 1995. "Structural Estimation of the Stochastic Dynamic Decision Problems of Resource Users: An Application to the Timber Harvest Decision," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 321-338, November.
- Rajendra Prasad Khajuria & Shashi Kant & Susanna Laaksonen-Craig, 2009. "Valuation of Timber Harvesting Options Using a Contingent Claims Approach," Land Economics, University of Wisconsin Press, vol. 85(4), pages 655-674.
- Insley, Margaret, 2002. "A Real Options Approach to the Valuation of a Forestry Investment," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 471-492, November.
- Duku-Kaakyire, Armstrong & Nanang, David M., 2004. "Application of real options theory to forestry investment analysis," Forest Policy and Economics, Elsevier, vol. 6(6), pages 539-552, October.
- Reed, William J & Clarke, Harry R, 1990. "Harvest Decisions and Asset Valuation for Biological Resources Exhibiting Size-Dependent Stochastic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 147-69, February.
- Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Chladna, Zuzana, 2007. "Determination of optimal rotation period under stochastic wood and carbon prices," Forest Policy and Economics, Elsevier, vol. 9(8), pages 1031-1045, May.
When requesting a correction, please mention this item's handle: RePEc:ags:iaae12:123665. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.