Journal of Forest Economics > Vol 32 > Issue 1

Pricing forest carbon: Implications of asymmetry in climate policy

Mathilda Eriksson, Department of Risk Management & Insurance, Robinson College of Business, Georgia State University, USA, meriksson@gsu.edu Runar Brännlund, Centre for Environmental and Resource Economics, Umeå School of Business, Economics and Statistics, Umeå University, Sweden, Tommy Lundgren, Centre for Environmental and Resource Economics, Umeå School of Business, Economics and Statistics, Umeå University, Sweden,
 
Suggested Citation
Mathilda Eriksson, Runar Brännlund and Tommy Lundgren (2018), "Pricing forest carbon: Implications of asymmetry in climate policy", Journal of Forest Economics: Vol. 32: No. 1, pp 84-93. http://dx.doi.org/10.1016/j.jfe.2018.04.003

Published: 0/8/2018
© 0 2018 Mathilda Eriksson, Runar Brännlund, Tommy Lundgren
 
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Keywords
Climate policyForest carbonCarbon neutralityIntegrated assessment model
 

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In this article:
Introduction
The integrated assessment model
Results
Conclusion and policy implications

Abstract

Using an integrated assessment model, we examine the implications of climate policies that do not fully recognize forest carbon. Specifically, we first investigate the impact of an asymmetric policy that recognizes carbon emissions from fossil fuels while fully ignoring forest carbon. Next, we investigate the relative importance of not recognizing emissions from a reduction in the stock of forest biomass compared to not recognizing sequestration from the growth of forest biomass. We show that asymmetric carbon policies lead to lower levels of welfare, as well as higher emissions and carbon prices. This occurs because the forest resource will be allocated inefficiently under these carbon policies. Broadly, we find that when the social planner does not account for emissions or sequestration from the forest, the planner will set bioenergy levels that are too high and afforestation and avoided deforestation levels that are too low. Our results further reveal that not recognizing forest emissions leads to larger welfare losses than not recognizing sequestration.

DOI:10.1016/j.jfe.2018.04.003