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Impact of carbon price on the relative profitability of production forestry and permanent forestry for New Zealand plantations

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  • Manley, Bruce

Abstract

New Zealand has an Emissions Trading Scheme (ETS) under which forest growers can earn carbon units for increases in carbon stock. Between March 2020 and March 2022 carbon price increased from $24/NZU to $74/NZU. Carbon price increased to the extent that the Land Expectation Value (LEV) of permanent forestry (without clearfelling) exceeds the LEV of production forestry (with clearfelling) on many sites. This paper reports on an analysis comparing the LEV of permanent forestry with the LEV of production forestry for land of different site productivity, harvest difficulty (i.e. slope) and location (i.e. distance to market). Breakeven carbon price (when LEV for permanent forestry equals LEV for production forestry) is calculated for each combination to reveal overall trends. The effect of carbon price on the proportion of national afforestation for which permanent forestry gives a higher LEV is estimated. Results indicate that, at a carbon price of $50/NZU, permanent forestry is more profitable than production forestry on 71% of area with measured carbon and 26% of area with look-up table carbon. When carbon price reaches $100/NZU, permanent forestry is more profitable for all area.

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  • Manley, Bruce, 2023. "Impact of carbon price on the relative profitability of production forestry and permanent forestry for New Zealand plantations," Forest Policy and Economics, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:forpol:v:156:y:2023:i:c:s1389934123001521
    DOI: 10.1016/j.forpol.2023.103057
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    References listed on IDEAS

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    1. Gregory S. Amacher & Markku Ollikainen & Erkki A. Koskela, 2009. "Economics of Forest Resources," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012480, December.
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    6. G. Cornelis van Kooten, 2023. "Determining optimal forest rotation ages and carbon offset credits: Accounting for post‐harvest carbon storehouses," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 71(2), pages 255-272, June.
    7. 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.
    8. Manley, Bruce, 2020. "Impact on profitability, risk, optimum rotation age and afforestation of changing the New Zealand emissions trading scheme to an averaging approach," Forest Policy and Economics, Elsevier, vol. 116(C).
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    1. Szajkó, Gabriella & Rácz, Viktor József & Kis, András, 2024. "The role of price incentives in enhancing carbon sequestration in the forestry sector of Hungary," Forest Policy and Economics, Elsevier, vol. 158(C).

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