Modeling forest carbon sink trading with carbon credit using stochastic differential game

Abstract

Forest carbon sinks integrated into the carbon trading is an important way to solve the funding shortage of carbon emission reduction and is a major measure to achieve carbon sequestration and thereby carbon neutrality. We propose a carbon credit trading mechanism based on forest carbon sinks and build an optimal carbon credit trading model on forest companies and manufacturers. The scale of carbon sink forest and trading price is determined by stochastic differential game method. Reasonable emission reduction responsibilities are set to achieve coordination between forest carbon sequestration and economic development. The results show that farsighted forest company is more likely to participate in carbon credit trade when the total amount of forest carbon sequestration is small, while shortsighted forest company is more likely to participate in carbon credit trade when the total amount of forest carbon sequestration is large. Low emission reduction responsibility in carbon credit trade is conductive to increasing forest carbon sequestration, and improving the enthusiasm of shortsighted forest company to participate in the trade, which reflects the superiority of the proposed carbon credit trading mechanism. This implies that the forest company should undertake low emission reduction responsibilities to achieve a win-win situation for economic and environmental benefits.