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Immediate and long-run impacts of a forest carbon policy—A market-level assessment with heterogeneous forest owners

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  • Pohjola, Johanna
  • Laturi, Jani
  • Lintunen, Jussi
  • Uusivuori, Jussi

Abstract

Sequestering carbon in forests and wood products is an inexpensive way to reduce the atmospheric carbon concentration. However, its full potential is not utilized in present climate policies. Optimizing sequestration, while continuing to harvest wood for materials and energy, could reduce the economic burden of mitigation efforts. Optimal sequestration can be incentivized by subsidizing carbon storage according to its social value. We analyze the dynamic market-level impacts of implementing a forest carbon policy by using the Finnish Forest and Energy Policy model (FinFEP). We find that sizeable and immediate increases in carbon sinks can be obtained, even with low carbon prices. High carbon payments strongly increase the carbon sink in the short run, but this impact diminishes over time. Low payments have a milder but longer-lasting impact. Forest owners’ valuations of forest amenities also affect the magnitude and dynamics of harvest and carbon sequestration results. Thus, a realistic description of forest owner behavior is needed to assess the impacts of forest carbon policies. Moreover, we show that a market-level model is necessary for assessing the regional carbon sequestration impacts and costs. Relying on stand-level models with fixed timber prices may yield overly optimistic results.

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  • 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.
    • Handle: RePEc:eee:foreco:v:32:y:2018:i:c:p:94-105
    DOI: 10.1016/j.jfe.2018.03.001
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    Cited by:

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    2. 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).
    3. Miguel Riviere & Sylvain Caurla, 2020. "Representations of the Forest Sector in Economic Models [Les représentations du secteur forestier dans les modèles économiques]," Post-Print hal-03088084, HAL.
    4. Rørstad, Per Kristian, 2022. "Payment for CO2 sequestration affects the Faustmann rotation period in Norway more than albedo payment does," Ecological Economics, Elsevier, vol. 199(C).
    5. Daigneault, Adam & Strong, Aaron L. & Meyer, Spencer R., 2021. "Benefits, costs, and feasibility of scaling up land conservation for maintaining ecosystem services in the Sebago Lake watershed, Maine, USA," Ecosystem Services, Elsevier, vol. 48(C).
    6. Tianchu Feng & Meijuan Liu & Chaozhu Li, 2022. "How Does Vertical Fiscal Imbalance Affect CO 2 Emissions? The Role of Capital Mismatch," Sustainability, MDPI, vol. 14(17), pages 1-15, August.

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    More about this item

    Keywords

    Climate change; Forest carbon policy; Carbon rents; Carbon sequestration; Timber markets; Forest owners’ preferences; Bioenergy;
    All these keywords.

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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