Journal of Forest Economics > Vol 24 > Issue 1

On the economics of forests and climate change: Deriving optimal policies

Jussi Lintunen, , Jussi Uusivuori, ,
Suggested Citation
Jussi Lintunen and Jussi Uusivuori (2016), "On the economics of forests and climate change: Deriving optimal policies", Journal of Forest Economics: Vol. 24: No. 1, pp 130-156.

Publication Date: 0/8/2016
© 0 2016 Jussi Lintunen, Jussi Uusivuori
JEL Codes:Q23Q43Q50Q54
Climate policyForest carbonNon-industrial private forest ownersEffective emission factorAge-structured forestOptimizationBioenergy


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In this article:
Optimal policy 
Numerical simulations for a small economy 
Discussion and conclusions 


First-best optimal forest sector carbon policy is examined. Using a forest and energy sector model with a carbon cycle module we show that the renewability and carbon neutrality arguments do not warrant emission free status of wood use. As a general optimality principle, the release of carbon is penalized by a tax and carbon capture is subsidized. However, under the biomass stock change carbon accounting convention, the land owners pay for the roundwood emissions and, to avoid double counting, the use of roundwood is treated as emission free. Yet, the carbon accounting convention followed does not affect the equilibrium outcome. The bioenergy from harvest residues is not emission free either. Furthermore, we show that an optimal policy subsidizes the production of wood products for their carbon sequestration. Correspondingly, carbon removals by biomass growth are subsidized and the harvest residue generation taxed. Numerical solution of the model shows that, although the use of wood is not emission free, it is optimal to increase the use of wood, possibly also in the energy sector. Before the wood use can be increased, the forest biomass will be increased. This carbon sink decreases the net emissions until the forest resources reach a new equilibrium.