SLIDE 1
The potential and cost of increasing forest carbon sequestration in Sweden
Jinggang Guo, Peichen Gong Department of Forest Economics, CERE, SLU SAEE 2016, Luleå
00 Forests: enormous carbon sinks
The potential and cost of increasing forest carbon sequestration in - - PowerPoint PPT Presentation
The potential and cost of increasing forest carbon sequestration in - - PowerPoint PPT Presentation
The potential and cost of increasing forest carbon sequestration in Sweden Jinggang Guo, Peichen Gong Department of Forest Economics, CERE, SLU SAEE 2016, Lule 00 Forests: enormous carbon sinks 00 Forests: enormous carbon
SLIDE 2
SLIDE 3
00 Forests: enormous carbon sinks
· · ·
Two questions
- Q1: To what extent forests can contribute to the mitigation of climate change
- Q2: How much it will cost to provide the sequestration service
Two conflicting demands
- Timber products VS forest sequestration
SLIDE 4
01 A previous study
· · ·
Backéus et al. (2005)
- Study area: 3.2 million ha of forests in northern Sweden
- Annual harvest level is 5 million cubic meters and sequestration rate is 1.48
million tonnes when the carbon price is zero
- Sequestration rate is 2.05 million tonnes when price is above 1000 SEK/tonne C
- Pricing sequestration can affect both harvest levels and carbon storage
SLIDE 5
02 Our Method
· · ·
Two differences
- Extend the scope to the whole productive forest land
- Timber price is endogenously determined
Basic model
- An inter-temporal model by taking the timber and non-timber into account.
- Use an aggregate demand and supply function to calculate the surplus of timber
value; use the logistic function of forest age to calculate the non-timber benefits
- Demand function is pre-defined and supply function with the coefficients of α
needs to be optimized to capture the forest owners’ responses to policy changes
SLIDE 6
02 Our Method
· · ·
Objective function max
𝛽1,𝛽2,𝛽3 𝑎 = 𝑂𝑄𝑊 𝑢𝑗𝑛𝑐𝑓𝑠 + 𝑂𝑄𝑊 𝑜𝑝𝑜−𝑢𝑗𝑛𝑐𝑓𝑠
= 𝑄 𝑟; 𝛾𝑢 𝑒𝑟 − 𝑑 𝑌𝑢, 𝑅𝑢
𝑡 𝑅𝑢
𝑡
𝑓−𝑠𝑢
𝑈 𝑢=1
+ 𝑆 𝑌𝑈+1 +
1000 1+𝑓
60−𝑏 15
𝐵𝑢,𝑏𝑓−𝑠𝑢
120 𝑏=1 𝑈 𝑢=1
- s. t. 𝑅𝑢
𝑡 = 𝛽1 𝐽𝑢 𝛽2 𝑄𝑢 𝛽3 Aggregate supply of timber
𝑄𝑢 = 𝛾1(𝑅𝑢
𝑒)𝛾2 Inverse timber demand function
𝑅𝑢
𝑡 = 𝑅𝑢 𝑒 Market clearing condition
𝑌𝑢+1 = 𝐻 𝑌𝑢, 𝑅𝑢
𝑡 Growth function of the forest
𝑌1 = 𝑌0 Initial forest condition
SLIDE 7
02 Our Method
· · ·
Adding carbon payment
- Payment to forest owners is proportional to the increase in carbon stock in forests
𝐷𝑏𝑠𝑐𝑝𝑜 𝑄𝑏𝑧𝑛𝑓𝑜𝑢 = 𝑄
𝑑 × 𝑊 𝑢+1 − 𝑊 𝑢 × 𝜃
𝑄
𝑑 = carbon price (rate of payment)
𝑊
𝑢 = standing volume of timber in the forest at time t
η = biomass expansion parameter (t CO2/m3)
SLIDE 8
02 Our Method
· · ·
Scenario setting Label Carbon price (SEK/tonne CO2) Description SC0 Serve as a benchmark SC1 170 SEK ($20) A wide range of CO2 prices to examine the interaction between forest sequestration and carbon price SC2 340 SEK ($40) SC3 510 SEK ($60) SC4 680 SEK ($80) SC5 1428 SEK ($168) Carbon tax in Sweden
SLIDE 9
02 Our Method
· · ·
New objective function max
𝛽1,𝛽2,𝛽3 𝑎 = 𝑂𝑄𝑊 𝑢𝑗𝑛𝑐𝑓𝑠 + 𝑂𝑄𝑊 𝑜𝑝𝑜−𝑢𝑗𝑛𝑐𝑓𝑠 + 𝑂𝑄𝑊 𝑑−𝑡𝑢𝑝𝑠𝑏𝑓
where 𝑂𝑄𝑊
𝑢𝑗𝑛𝑐𝑓𝑠 =
𝑄 𝑟; 𝛾𝑢 𝑒𝑟 − 𝑑 𝑌𝑢, 𝑅𝑢
𝑡 𝑅𝑢
𝑡
𝑓−𝑠𝑢
𝑈 𝑢=1
+ 𝑆 𝑌𝑈+1 𝑂𝑄𝑊
𝑜𝑝𝑜−𝑢𝑗𝑛𝑐𝑓𝑠 = 1000 1+𝑓
60−𝑏 15
𝐵𝑢,𝑏𝑓−𝑠𝑢
120 𝑏=1 𝑈 𝑢=1
𝑂𝑄𝑊
𝑑−𝑡𝑢𝑝𝑠𝑏𝑓 =
𝑄
𝑑 × 𝑊 𝑢+1 − 𝑊 𝑢 × 𝜃 𝑓−𝑠𝑢 𝑈 𝑢=1
SLIDE 10
03 Result
· · ·
Timber production
Pc=0 Pc=20 Pc=168
SLIDE 11
03 Result
· · ·
Forest sequestration
- 10
90 190 290 390 490 590 2015 2025 2035 2045 2055 2065 2075 2085 2095 2105 2115 stored carbon (million tonnes) Accumulative net CO2 sequestration with different carbon prices Pc=0 Pc-20 Pc=40 Pc=60 Pc=80 Pc=168
Baseline Alternatives
SLIDE 12
03 Result
· · ·
Sequestration supply curve
250 500 750 1000 1250 1500 20 40 60 80 100 120 140 160 180 200 220 240 Carbon Price (SEK/tonne CO2) Increase in net carbon sequestration (million tonne CO2) 2015-2020 2015-2030 2015-2040 2015-2050
Annual sequestration during the period from 2015 to 2020, 2030, 2040 and 2050 will be 5.00, 4.89, 4.66 and 4.22 million tonnes of CO2 when the carbon price is $80 (SEK 680) per tonne of CO2
SLIDE 13
03 Result
· · ·
Welfare change
CO2 price Consumer surplus Producer surplus Non-timber benefits CO2 sequestration Social cost of sequestration SEK/tonne Billion SEK million tonne SEK/tonne 1169.7 425.8 156.8 153.8 170 ($ 20) 1159.8 432.1 157.6 184.0 95.8 340 ($ 40) 1153.0 436.9 158.2 210.0 73.7 510 ($ 60) 1132.6 450.8 160.0 276.9 71.5 680 ($ 80) 1121.7 456.8 160.7 301.4 88.6 1428 ($ 168) 1105.9 468.2 162.1 372.0 74.0
The direct cost of increasing sequestration with a carbon price from 510-680 SEK/tonne will lead to extra cost of 71-88 SEK/tonne in term of the reduction of total surplus.
SLIDE 14
04 Conclusions
· · ·
Summary
- Carbon payment policy can affect the timber production and the sequestration and
the effect will gradually fade away with time passing by.
- Contribution to the CO2 reduction is mild even facing a very high carbon price
- Like other policy instrument, carbon payment will also distort the total well-being,
but the deadweight loss is not that much. So paying for sequestration can act as a short term policy instrument to reduce CO2 .
SLIDE 15