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Potential impact of carbon trading on forest management in New Zealand

Author

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  • Manley, Bruce
  • Maclaren, Piers

Abstract

The New Zealand Government has enacted an emissions trading scheme (ETS) under which owners of Kyoto-compliant forests will receive/surrender units for increases/decreases in the carbon stocks of their plantations. Each unit represents one tonne of carbon dioxide (CO2) and can be traded. In this paper we evaluate the potential impact of the ETS on forest management decisions including whether to establish new forest, choice of species and silviculture, and forest rotation length. Criteria used in the analysis are financial return (LEV or NPV) and carbon price risk (cost or percentage of units to be surrendered after harvest). Results show that carbon trading has the potential to increase forest profitability and influence the choice of silviculture. Forest rotation length increases with expected carbon price. However there is considerable risk arising from carbon prices. We develop strategies that hedge against carbon price risk at both the stand level and the forest estate level. The former include growing a valuable crop and trading only a portion of units received. The latter includes managing forest structure via age-class composition. We evaluate trade-offs between financial return and risk in order to identify the opportunity cost of strategies that are robust against future carbon prices.

Suggested Citation

  • Manley, Bruce & Maclaren, Piers, 2012. "Potential impact of carbon trading on forest management in New Zealand," Forest Policy and Economics, Elsevier, vol. 24(C), pages 35-40.
    • Handle: RePEc:eee:forpol:v:24:y:2012:i:c:p:35-40
    DOI: 10.1016/j.forpol.2010.01.001
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    Citations

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    Cited by:

    1. Tahvonen, Olli & Rautiainen, Aapo, 2017. "Economics of forest carbon storage and the additionality principle," Resource and Energy Economics, Elsevier, vol. 50(C), pages 124-134.
    2. Gren, Ing-Marie & Zeleke, Abenezer Aklilu, 2016. "Policy design for forest carbon sequestration: A review of the literature," Forest Policy and Economics, Elsevier, vol. 70(C), pages 128-136.
    3. Kerchner, Charles D. & Keeton, William S., 2015. "California's regulatory forest carbon market: Viability for northeast landowners," Forest Policy and Economics, Elsevier, vol. 50(C), pages 70-81.
    4. Manley, Bruce, 2018. "Forecasting the effect of carbon price and log price on the afforestation rate in New Zealand," Journal of Forest Economics, Elsevier, vol. 33(C), pages 112-120.
    5. Hou, Guolong & Delang, Claudio O. & Lu, Xixi & Olschewski, Roland, 2020. "Optimizing rotation periods of forest plantations: The effects of carbon accounting regimes," Forest Policy and Economics, Elsevier, vol. 118(C).
    6. Manley, Bruce, 2013. "How does real option value compare with Faustmann value in the context of the New Zealand Emissions Trading Scheme?," Forest Policy and Economics, Elsevier, vol. 30(C), pages 14-22.
    7. Thomas Wilson & Miles Grafton & Matthew Irwin, 2023. "Comparing the Carbon Storage Potential of Naturally Regenerated Tea Trees with Default New Zealand Carbon Look-Up Tables: A Case Study," Agriculture, MDPI, vol. 13(4), pages 1-12, April.
    8. Coleman, Andrew, 2018. "Forest-based carbon sequestration, and the role of forward, futures, and carbon-lending markets: A comparative institutions approach," Journal of Forest Economics, Elsevier, vol. 33(C), pages 95-104.
    9. Manley, Bruce, 2023. "Impact of carbon price on the relative profitability of production forestry and permanent forestry for New Zealand plantations," Forest Policy and Economics, Elsevier, vol. 156(C).
    10. Manley, Bruce, 2020. "Impact on profitability, risk, optimum rotation age and afforestation of changing the New Zealand emissions trading scheme to an averaging approach," Forest Policy and Economics, Elsevier, vol. 116(C).

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