Optimal forest rotation age under efficient climate change mitigation

TL;DR

This paper develops a model for determining the optimal forest rotation age under an increasing carbon price, highlighting how carbon pricing influences harvest timing and forest management over multiple rotations.

Contribution

It introduces a method to approximate optimal forest rotation ages considering an evolving carbon price, accounting for infinite rotation sequences and their economic implications.

Findings

Higher initial carbon prices extend the first rotation.

Optimal harvest ages can reach several hundred years with rising carbon prices.

Higher growth rates of carbon price tend to lower optimal harvest ages.

Abstract

This paper considers the optimal rotation of forests when the carbon flows of forest growth and harvest are priced with an increasing price. Such an evolution of carbon price is generally associated with economically efficient climate change mitigation, and would provide incentives for the land-owner for enhanced carbon sequestration. With an infinitely long sequence of even-aged forest rotations, the optimal harvest age changes with subsequent rotations due to the changing carbon price. The first-order optimality conditions therefore also involve an infinite chain of lengths for consecutive forest rotations, and allow the approximation of the infinite-time problem with a truncated series of forest rotations. Illustrative numerical calculations show that when starting from bare land, the initial carbon price and its growth rate both primarily increase the length of the first rotation. With some combinations of the carbon pricing parameters, the optimal harvest age can be several hundred years if the forest carbon is released to the atmosphere upon harvest. This effect is not, however, entirely monotonous. Consequently, the currently optimal harvest ages are generally lower with higher rates of carbon price increase. This creates an interesting temporal aspect, suggesting that the supply of wood and carbon sequestration by forests can change considerably during subsequent rotations under an increasing price on carbon.