Journal of Forest Economics > Vol 20 > Issue 2

Faustmann and the climate

Michael Hoel, Department of Economics, University of Oslo, Norway, mihoel@econ.uio.no Bjart Holtsmark, Statistics Norway, Norway, bjart.holtsmark@ssb.no Katinka Holtsmark, Department of Economics, University of Oslo, Norway, k.k.holtsmark@econ.uio.no
 
Suggested Citation
Michael Hoel, Bjart Holtsmark and Katinka Holtsmark (2014), "Faustmann and the climate", Journal of Forest Economics: Vol. 20: No. 2, pp 192-210. http://dx.doi.org/10.1016/j.jfe.2014.04.003

Published: 0/4/2014
© 0 2014 Michael Hoel, Bjart Holtsmark, Katinka Holtsmark
 
Subjects
 
Keywords
JEL Codes:Q23Q54Q42
ClimateForestryBiofuelsFaustmannRotation lengthSocial cost of carbon
 

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In this article:
Introduction
A model for calculation of optimal rotation length
The social optimum
The optimal rotation period and the social cost of carbon
A commercially unprofitable forest
Numerical illustrations
Discussion and conclusion

Abstract

The paper presents an adjusted Faustmann Rule for optimal harvest of a forest when there is a social cost of carbon emissions. The theoretical framework takes account of the dynamics and interactions of forests’ multiple carbon pools and assumes an infinite time horizon. Our paper provides a theoretical foundation for numerical model studies that have found that a social cost of carbon implies longer optimal rotation periods and that if the social cost of carbon exceeds a certain threshold value the forest should not be harvested. At the same time we show that it could be a net social benefit from harvesting even if the commercial profit from harvest is negative. If that is the case, the optimal harvest age is decreasing in the social cost of carbon.

DOI:10.1016/j.jfe.2014.04.003