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, Luleå

· · · 00 Forests: enormous carbon sinks

· · · 00 Forests: enormous carbon sinks Two conflicting demands • Timber products VS forest sequestration 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

· · · 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

· · · 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

· · · 02 Our Method Objective function max 𝛽 1 ,𝛽 2 ,𝛽 3 𝑎 = 𝑂𝑄𝑊 𝑢𝑗𝑛𝑐𝑓𝑠 + 𝑂𝑄𝑊 𝑜𝑝𝑜−𝑢𝑗𝑛𝑐𝑓𝑠 𝑡 𝑅 𝑢 1000 120 𝑈 𝑡 𝑓 −𝑠𝑢 𝑈 𝐵 𝑢,𝑏 𝑓 −𝑠𝑢 = + 𝑆 𝑌 𝑈+1 + 𝑄 𝑟; 𝛾 𝑢 𝑒𝑟 − 𝑑 𝑌 𝑢 , 𝑅 𝑢 𝑢=1 𝑢=1 𝑏=1 60−𝑏 0 1+𝑓 15 𝑡 = 𝛽 1 𝐽 𝑢 𝛽 2 𝑄 𝑢 𝛽 3 Aggregate supply of timber s. t. 𝑅 𝑢 𝑒 ) 𝛾 2 Inverse timber demand function 𝑄 𝑢 = 𝛾 1 (𝑅 𝑢 𝑡 = 𝑅 𝑢 𝑒 Market clearing condition 𝑅 𝑢 𝑡 Growth function of the forest 𝑌 𝑢+1 = 𝐻 𝑌 𝑢 , 𝑅 𝑢 𝑌 1 = 𝑌 0 Initial forest condition

· · · 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 CO 2 /m 3 )

· · · 02 Our Method Scenario setting Carbon price Label Description (SEK/tonne CO 2 ) SC0 0 Serve as a benchmark 170 SEK ($20) SC1 A wide range of CO 2 prices to examine the SC2 340 SEK ($40) interaction between forest sequestration and 510 SEK ($60) SC3 carbon price SC4 680 SEK ($80) 1428 SEK ($168) Carbon tax in Sweden SC5

· · · 02 Our Method New objective function max 𝛽 1 ,𝛽 2 ,𝛽 3 𝑎 = 𝑂𝑄𝑊 𝑢𝑗𝑛𝑐𝑓𝑠 + 𝑂𝑄𝑊 𝑜𝑝𝑜−𝑢𝑗𝑛𝑐𝑓𝑠 + 𝑂𝑄𝑊 𝑑−𝑡𝑢𝑝𝑠𝑏𝑕𝑓 𝑡 𝑅 𝑢 𝑈 𝑡 𝑓 −𝑠𝑢 where 𝑂𝑄𝑊 𝑢𝑗𝑛𝑐𝑓𝑠 = 𝑄 𝑟; 𝛾 𝑢 𝑒𝑟 − 𝑑 𝑌 𝑢 , 𝑅 𝑢 + 𝑆 𝑌 𝑈+1 𝑢=1 0 1000 𝑈 120 𝐵 𝑢,𝑏 𝑓 −𝑠𝑢 𝑂𝑄𝑊 𝑜𝑝𝑜−𝑢𝑗𝑛𝑐𝑓𝑠 = 𝑢=1 𝑏=1 60−𝑏 1+𝑓 15 𝑈 𝑢 × 𝜃 𝑓 −𝑠𝑢 𝑑−𝑡𝑢𝑝𝑠𝑏𝑕𝑓 = 𝑂𝑄𝑊 𝑄 𝑑 × 𝑊 𝑢+1 − 𝑊 𝑢=1

· · · 03 Result Timber production Pc=0 Pc=20 Pc=168

· · · 03 Result Forest sequestration 590 490 stored carbon (million tonnes) 390 Alternatives 290 190 Baseline 90 Pc=0 Pc-20 Pc=40 Pc=60 Pc=80 Pc=168 -10 2015 2025 2035 2045 2055 2065 2075 2085 2095 2105 2115 Accumulative net CO 2 sequestration with different carbon prices

· · · 03 Result Sequestration supply curve 1500 Annual sequestration during the period from 2015 to 1250 Carbon Price (SEK/tonne CO 2 ) 2020, 2030, 2040 and 2050 will be 5.00, 4.89, 4.66 and 1000 4.22 million tonnes of CO2 750 when the carbon price is $80 2015-2020 (SEK 680) per tonne of CO2 500 2015-2030 2015-2040 250 2015-2050 0 0 20 40 60 80 100 120 140 160 180 200 220 240 Increase in net carbon sequestration (million tonne CO 2 )

· · · 03 Result The direct cost of increasing sequestration with a carbon price Welfare change from 510-680 SEK/tonne will lead to extra cost of 71-88 SEK/tonne in Consumer Producer Non-timber CO 2 Social cost of term of the reduction of total CO 2 price surplus surplus benefits sequestration sequestration surplus. SEK/tonne Billion SEK million tonne SEK/tonne 0 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

· · · 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 CO 2 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 CO 2 .

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