There are a number of reasons for ensuring the upkeep of forests, including promoting biodiversity and providing social and cultural benefits, such as recreational opportunities. The Intergovernmental Panel on Climate Change (IPCC) has suggested that trees provide another significant service by sequestering large amounts of carbon. The authors of this study focus on the efficacy of financial incentives for preserving this carbon sink in the form of carbon credits.
The study models two carbon credit payment schemes which could provide incentives for forest owners to increase the size of their forest and lengthen rotations. It suggests that governments could distribute these credits to help meet their Kyoto Protocol obligations to sequester carbon.
The first scheme allocates credits according to the actual amount of carbon sequestered by the trees. The second scheme, which has lower monitoring costs, allocates credit according to the long-term potential carbon stock on the land. The first scheme provides credit per tree and the second per unit of land. The study also investigates the effects of the monetary value of the credit.
Modest land-based (€70 per hectare per year) and tree-based (€0.2 per m3 per year) carbon payment schemes both produced less abandonment of forest than if there were no carbon credit payment. However, for the tree-based scheme, the rotation periods between harvests were longer. In addition, forest abandonment became more unlikely when the payments were doubled (€140 per hectare or €0.4 per m3 a year). At this price, growing trees for their carbon value (rather than just the timber they produce) becomes a viable business plan.
To investigate the policy implications the researchers assessed the costs and benefits of the two approaches. Again, results indicated that, providing payments are sufficiently generous, carbon credit schemes could effectively increase carbon sequestration. The value of the credits needs to be at least €0.3 per m3 per year for a tree-based scheme is about and €125 per hectare per year for land-based schemes.
At all values of carbon credit the tree-based scheme is superior to the land-based scheme. The difference in cost, at any given level of benefit, between a tree-based and land-based scheme is about €860 per hectare per year. This suggests that the advantage of a tree-based scheme outweighs the costs associated with its monitoring.
The authors point out their model has a number of restrictive assumptions. Only fluctuations in timber price are considered with no allowance for unpredictable changes in timber growth rates or the price of carbon credits. There is also no consideration of a relationship between timber prices and carbon credits. For example, a previous study has suggested that timber prices will initially rise when a carbon credit scheme is introduced (as longer rotation reduces the timber supply), but will eventually fall as more forests are planted.
The model also assumes that, when harvested, all the carbon in the timber is immediately released when, in reality, the harvested timber is likely to continue to store carbon.