Carbon rentals and silvicultural subsidies for private forests as climate policy instruments

Abstract

A forest model with an endogenous growth description and age-class structure is applied to study the impacts of potential climate policy instruments on the carbon services of privately owned and managed forests. The model describes the behaviour of a utility-maximizing private nonindustrial landowner who optimizes consumption flow, harvest timing, and the intertemporal allocation of silvicultural investments. Two policy options, one in which the landowner is granted periodic carbon rental payments and one in which the government subsidizes the costs of silvicultural investments, are studied. The rules for when the policy measures have both intended and unintended effects are derived. Using numerical examples, we demonstrate that the effectiveness of both policy options depends on the age-class structure of forests when future carbon benefits are discounted. In that case, carbon rental payments are more effective for forests with old age-class structures, while silvicultural subsidies are more effective for forests with young age-class structures.