Retributing forest carbon vs. stimulating fuelwood demand insights from the French forest sector model

Forests can contribute to climate mitigation by sequestrating carbon in forest biomass andby replacing fossil-fuel with fuelwood, with potentially conflicting implications for forest management.The present paper assesses the mitigation and the economic impacts of a "stock" policy(payment for sequestration in situ), a "substitution" policy (subsidy to fuelwood consumption),and a combination thereof on the French forest sector. The policies are consistent in that theyare based on the same social cost of carbon. To do so, we use the French Forest Sector Model(FFSM), which combines a dynamic model of French timber resource, and a dynamic partial equilibriummodel of the French forest sector. Simulations show that over the 2010-2020 period,the stock policy is the only one that performs better than Business As Usual (BAU) in terms ofcarbon. Over this period of time, the cumulative substitution benefits of the substitution policyare not sufficient to offset the loss of carbon in standing forests. However, the stock policy hasalso negative impacts on consumers welfare, and increasingly high costs as carbon in excess ofBAU is accumulated in forests. Combining both policies brings intermediate results and is thusless effective than focusing on a single policy.