Pricing Forest Carbon: Implications of Asymmetry in Climate Policy

Mathilda Eriksson (), Runar Brännlund () and Tommy Lundgren ()
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Mathilda Eriksson: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden, http://www.cere.se/
Runar Brännlund: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden, http://www.cere.se
Tommy Lundgren: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden, http://www.cere.se

No 2016:6, CERE Working Papers from CERE - the Center for Environmental and Resource Economics

Abstract: In this paper, we use an integrated assessment model to examine the implications of not recognizing, and partially recognizing forest carbon in climate policy. Specifically, we investigate the impact of an asymmetric carbon policy that recognizes emissions from fossil fuels while ignoring emissions from forests. We additionally investigate the relative importance of not recognizing positive emissions from a reduction in the stock of forest biomass, or of not recognizing negative emissions from the growth of forest biomass. We show that asymmetric carbon policies lead to lower levels of welfare, as well as higher emissions and carbon prices. This occurs because the forest resource will be allocated inefficiently under these carbon policies. Broadly, we find that when the social planner does not account for neither positive or negative forest emissions, the planner will set bioenergy levels that are too high and afforestation and avoided deforestation levels that are too low. Our results further reveal that not recognizing forest emissions leads to larger welfare losses than not recognizing sequestration.

Keywords: Climate change; Integrated assessment; Forest Carbon; Carbon Taxes and Subsidies (search for similar items in EconPapers)
JEL-codes: C61 H23 Q23 Q54 Q56 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-04-06
New Economics Papers: this item is included in nep-agr, nep-env and nep-res
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