Estimating the Potential Impact of Carbon Markets on North Carolina Forests

Abstract

Several studies have examined the theoretical aspects of determining the optimal carbon rotation. This paper explores the tradeoff between timber and net carbon sequestration in managing representative forest management types in North Carolina. Under conservative assumptions regarding the social benefits of carbon storage, optimal rotation periods are extended depending on the forest type, carbon price, interest rate, and emission penalty under consideration. Analysis shows when carbon price is low the extension of the joint timber-carbon rotation are similar among DOE, CCX, and VCS protocols; when carbon price is high, the joint rotation extends longer under DOE protocol than the other two protocols, especially in the lowland hardwood forest type. Results suggest that such joint strategies could be financially attractive. Sensitivity analysis is used to examine the effects of changes in financial parameters on landowner returns and optimal management. Under most assumptions, our findings indicate that including carbon sequestration in forest management increases returns but leads to only marginal changes in rotation length.