Optimal forest rotation age under efficient climate change mitigation

Abstract

This paper considers the optimal rotation of forests when the carbon flows from forest growth and harvest are priced with an increasing price. Such evolution of carbon price is generally associated with economically efficient climate change mitigation, and would provide incentives for the land-owner for enhanced carbon sequestration. For an infinitely long sequence of even-aged forest rotations, the optimal harvest age changes with subsequent rotations due to the changing carbon price. The first-order optimality conditions therefore also involve an infinite chain of lengths for consecutive forest rotations, and allow the approximation of the infinite-time problem with a truncated series of forest rotations.Illustrative numerical calculations show that when starting from bare land, the initial carbon price and its growth rate both primarily increase the length of the first rotation. With some combinations of the carbon pricing parameters, the optimal harvest age can be several hundred years if the forest carbon is released to the atmosphere upon harvest. In the near term, however, a higher growth rate of carbon price can lead to shorter rotations for forests that are already near their optimal rotation age, indicating that the effect of carbon price dynamics on optimal rotation is not entirely monotonous. The introduction of carbon pricing can also have a significant impact on bare land value, and in some considered parametrizations the land value was based solely on its potential to capture and store atmospheric carbon.