Knock on wood: managing forests for carbon in the presence of natural disturbance risk

ABSTRACT

Carbon prices are used to induce forest managers to adopt longer rotation periods, leading to higher carbon sequestration in the ecosystem and storage in harvested wood products. However, national governments can choose whether or not to include emissions from natural disturbances in carbon accounting schemes. Using a stochastic dynamic programming model, we study optimal forest manager behaviour in the presence of natural disturbance risk and under a range of carbon prices, which we then use to calculate the carbon offsets so generated. Excluding such risk results in a reduced ability to use carbon prices to influence forest manager behaviour.

KEYWORDS:

• carbon accounting
• stochastic dynamic programming
• natural disturbance risk

JEL:

• C61
• Q23
• Q54
• Q57

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1 For convenience, it is assumed that forest management always increases carbon sequestration above what it would be in the absence of management.

Additional information

Funding

This work was supported by the USDA McIntire-Stennis Formula Fund [grant number WIS01899]; the USDA Forest Service [grant number 16-CS-11330143-039]; and the Social Sciences and Humanities Research Council of Canada [grant number #890-2016-0064].