Treating irregularities in carbon price and discount schedule: resolving a nightmare for forest economics?

C. Price and R. Willis

2014, Number 45, May 22-24, 2014, Uppsala, Sweden, 2014, vol. 2014, issue 45, 11

Abstract: Classical forest economics posits an optimal sequence of constant rotations. Projected variation of discount rate changes optimal rotation through time, as does projected relative price change for multiple products. These factors greatly increase the difficulty of calculating NPV of multirotation forestry projects, for traditional timber production or for multiple purposes. If, however, a given schedule of time-dated carbon prices is used, combined with set discount rates, a spreadsheet solution is practical and feasible. A given sequence of rotation lengths can be evaluated and compared with alternative sequences. Beyond when both discount rate and carbon prices are projected to stabilise, classical formulas can be used for perpetual series of constant rotations. Among the consequences of using government-mandated values are: very high value for most commercial forest crops; very long optimal rotation; favour for no-thinning regimes. Bizarre consequences include a negative carbon account for regimes which are carbon-neutral; a positive or negative value of a regime, depending on start date; a crop’s being more valuable if infected with a serious disease.

Keywords: Environmental Economics and Policy; Financial Economics; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ssfesf:199240

DOI: 10.22004/ag.econ.199240

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