Valuation of Carbon Forestry and the New Zealand Emissions Trading Scheme: A Real Options Approach Using the Binomial Tree Method

James Tee, Riccardo Scarpa, Dan Marsh and Graeme Guthrie

No 123665, 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil from International Association of Agricultural Economists

Abstract: Under the New Zealand Emissions Trading Scheme, new forests planted on/after 1st January 1990 can earn carbon credits. These credits have to be repaid upon forest harvest. This paper analyses the effects of this carbon scheme on the valuation of bareland, on which radiata pine is to be planted. NPV/LEV and Real Options methods are employed, assuming stochastic timber and carbon prices. Valuation increases significantly and rotation age is likely to be lengthened. We include a scenario analysis of potential implications of rotation age lengthening on carbon stock management in New Zealand.

Keywords: Demand and Price Analysis; Environmental Economics and Policy; Land Economics/Use; Resource/Energy Economics and Policy; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 30
Date: 2012-05-21
New Economics Papers: this item is included in nep-ene and nep-env
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Working Paper: Valuation of Carbon Forestry and the New Zealand Emissions Trading Scheme: A Real Options Approach Using the Binomial Tree Method (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iaae12:123665

DOI: 10.22004/ag.econ.123665

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