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How should a forest carbon rent policy be implemented?

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  • Lintunen, Jussi
  • Laturi, Jani
  • Uusivuori, Jussi

Abstract

Forest economics literature commonly uses two alternative ways to apply carbon payments to forest owners: a carbon rental policy and a policy where carbon compensations are based on subsidies and taxes. Conditions under which these two policy schemes lead to similar market outcomes are identified: We show that perfect capital markets and rational expectations over carbon prices are required for the equivalency of the two policy schemes. However, the basic principles with which the two policies would need to be implemented suggest that the carbon rent policy could be more easily put into practice. Furthermore, we suggest a way how to integrate the forest carbon policies into an emission trading scheme. We show that a fully compensatory carbon rent policy in the EU would require 10–50% of the emission trading revenues depending of the interest rate and expected carbon price inflation. If implemented at the global level, the policy would need even significantly higher shares of hypothesized global emission permit revenues. The policies can utilize baseline trajectories of forest carbon that reduce the costs at desired level, but distort forest owners' valuation of the carbon flows.

Suggested Citation

  • Lintunen, Jussi & Laturi, Jani & Uusivuori, Jussi, 2016. "How should a forest carbon rent policy be implemented?," Forest Policy and Economics, Elsevier, vol. 69(C), pages 31-39.
    • Handle: RePEc:eee:forpol:v:69:y:2016:i:c:p:31-39
    DOI: 10.1016/j.forpol.2016.04.005
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    References listed on IDEAS

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    1. Lintunen, Jussi & Uusivuori, Jussi, 2014. "On The Economics of Forest Carbon: Renewable and Carbon Neutral But Not Emission Free," Climate Change and Sustainable Development 165755, Fondazione Eni Enrico Mattei (FEEM).
    2. Tahvonen, Olli, 1995. "Net national emissions, CO2 taxation and the role of forestry," Resource and Energy Economics, Elsevier, vol. 17(4), pages 307-315, December.
    3. Brent Sohngen & Robert Mendelsohn, 2003. "An Optimal Control Model of Forest Carbon Sequestration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 448-457.
    4. Jussi Uusivuori & Jari Kuuluvainen, 2005. "The Harvesting Decisions When a Standing Forest with Multiple Age-Classes Has Value," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 61-76.
    5. G. Cornelis van Kooten & Clark S. Binkley & Gregg Delcourt, 1995. "Effect of Carbon Taxes and Subsidies on Optimal Forest Rotation Age and Supply of Carbon Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 365-374.
    6. Roger A. Sedjo & Gregg Marland, 2003. "Inter-trading permanent emissions credits and rented temporary carbon emissions offsets: some issues and alternatives," Climate Policy, Taylor & Francis Journals, vol. 3(4), pages 435-444, December.
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    Cited by:

    1. Roy Chowdhury, Pranab K. & Brown, Daniel G., 2023. "Modeling the effects of carbon payments and forest owner cooperatives on carbon storage and revenue in Pacific Northwest forestlands," Land Use Policy, Elsevier, vol. 131(C).
    2. Renata Martins Pacheco, 2022. "Carbon taxation as a means to incentivize forest and fire management," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(10), pages 12387-12403, October.
    3. Petri P. Kärenlampi, 2021. "Diversity of Carbon Storage Economics in Fertile Boreal Spruce ( Picea Abies ) Estates," Sustainability, MDPI, vol. 13(2), pages 1-18, January.
    4. Petri P. Karenlampi, 2022. "Two strategies for boreal forestry with goodwill in capitalization," Papers 2205.06744, arXiv.org.
    5. Lintunen, Jussi & Rautiainen, Aapo, 2021. "On physical and social-cost-based CO2 equivalents for transient albedo-induced forcing," Ecological Economics, Elsevier, vol. 190(C).
    6. Pohjola, Johanna & Laturi, Jani & Lintunen, Jussi & Uusivuori, Jussi, 2018. "Immediate and long-run impacts of a forest carbon policy—A market-level assessment with heterogeneous forest owners," Journal of Forest Economics, Elsevier, vol. 32(C), pages 94-105.
    7. Petri P. Kärenlampi, 2021. "Capital Return Rate and Carbon Storage on Forest Estates of Three Boreal Tree Species," Sustainability, MDPI, vol. 13(12), pages 1-19, June.
    8. Daigneault, Adam & Strong, Aaron L. & Meyer, Spencer R., 2021. "Benefits, costs, and feasibility of scaling up land conservation for maintaining ecosystem services in the Sebago Lake watershed, Maine, USA," Ecosystem Services, Elsevier, vol. 48(C).
    9. Petri P. Kärenlampi, 2022. "Two Manifestations of Market Premium in the Capitalization of Carbon Forest Estates," Energies, MDPI, vol. 15(9), pages 1-26, April.
    10. Juutinen, Artti & Ahtikoski, Anssi & Lehtonen, Mika & Mäkipää, Raisa & Ollikainen, Markku, 2018. "The impact of a short-term carbon payment scheme on forest management," Forest Policy and Economics, Elsevier, vol. 90(C), pages 115-127.

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