Climate-related subsidies for CO2 absorption and fuel substitution: Effects on optimal forest management decisions

Abstract

This study investigates rational ways to optimize stand-level management decisions from an economic perspective to adjust alternative subsidies, aiming to reduce the CO2 level in the atmosphere and consequently, to mitigate the global warming impacts. An objective function consisting of two parts is used to maximize the current production value that forests represent and the value of forests under the effects of different types of subsidies intended to reduce CO2 levels. The optimal ways of adjusting stand-level management decisions are determined using a general comparative statics analysis, which takes into account alternative forms of climate-related subsidies. The optimal changes to stand-level management decisions are functions of the initial conditions of the stand of trees on which the decision will be made. The results have shown that there are one or two of the alternative forms of CO2 subsidies increase: if the initially optimal values of the stock level after harvesting {V1} is lower than the stock level that maximizes the sustainable yield {VMSY}, and the time interval between harvests {t} is sufficiently short, then the initially optimal value of V1 and t increase; if the initially optimal value of V1 is lower than VMSY, and t is sufficiently long, then the initially optimal values of V1 and t may vary or stay unchanged; if the initially optimal value of V1 is equal to VMSY, and t is very short, then V1 and t are not changed; if the initially optimal value of V1 is higher than VMSY, and/or t is sufficiently long, then the initially optimal values of V1 and t decrease. Our approach of providing decisions at the stand-level can be extended to the broader scales at forest landscapes to address the related challenges.