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Estimating the Cost of Carbon Sequestration in Global Forests

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Objectives/Hypothesis: Forest management is often considered as an option for reducing net human carbon emissions and helping to avert global warming. While previous studies have considered regional forest programs, forest policies must be large in scale to have any real impact on reducing net carbon emissions. The investigators maintain that the estimates of the costs of regional programs cannot be summed to determine global costs because there are system-wide, dynamic effects that have not been considered. This project will explore the following question: What is the cost of storing carbon in forests with large-scale, global carbon sequestration programs? The specific objectives of the proposal are to (1) Develop a model of the marginal cost of carbon sequestration in forests; (2) Develop a global carbon storage database for forested Biomes; (3) Develop alternative strategies for carbon sequestration in forests and estimate costs.
Approach: This project will develop methods for estimating the welfare impacts of alternative forestry strategies for mitigating carbon dioxide emissions. An empirical model will be built based on an existing dynamic economic model of global timber markets to capture welfare effects. Additional data will be collected on land use, tree planting, and forest maintenance costs, as well as carbon accounting parameters in different forested biomes to use in the model. Six particular global strategies for carbon sequestration in forests will be explored. Marginal cost functions will be developed by comparing welfare paths and carbon sequestration paths in a baseline case with the alternative strategies.

Expected Results: This research will provide marginal cost functions for six large-scale programs to sequester additional carbon in global forests. The path of carbon flux arising from forest management will be predicted and presented for the baseline path and the alternative sequestration strategies. We maintain that earlier cost estimates may be biased downward because modelers have focused on regional programs, and they have not considered system wide, dynamic effects - both of which are addressed directly here. In addition, several additional strategies to tree planting will be explored in this research.

Improvements in Risk Assessment or Risk Management: This study relates directly to estimating the costs of managing the risks of climate change. Policy makers have long considered forest management as a carbon mitigation strategy, however, cost studies may have previously underestimated these costs. Providing estimates that capture global market interactions and long term, dynamic effects will help fill this information gap.

Metadata

EPA/NSF ID:
R826616
Principal Investigators:
Sohngen, Brent
Mendelsohn, Robert
Sedjo, Roger
Technical Liaison:
Research Organization:
Ohio State University
Funding Agency/Program:
EPA/ORD/Valuation
Grant Year:
1998
Project Period:
September 1, 1998 to August 31, 2000
Cost to Funding Agency:
$87,401
Project Status Reports:
      In 1999:

      Objectives of the Research Project:

      Forest management is considered an option for reducing net human carbon emissions and helping to avert global warming. Although previous studies have considered regional forest programs, forest policies must be large in scale to have any real impact on reducing net carbon emissions. The estimates of the costs of regional programs cannot be summed to determine global costs because there are system-wide, dynamic effects that have not been considered. This project will explore the cost of storing carbon in forests with large-scale, global carbon sequestration programs. The specific objectives of the proposal are to: (1) develop a model of the marginal cost of carbon sequestration in forests, (2) develop a global carbon storage database for forested biomes, and (3) develop alternative strategies for carbon sequestration in forests and estimate costs.

      Progress Summary/Accomplishments:

      A database of carbon storage in global biomes has been developed and used to estimate carbon flux from harvests and the management of industrial forests in a global timber market, a baseline case, a high demand case, and a low demand case. Results are presented for specific regions and for the globe. Harvests and management of forests are predicted to store an additional 184 Tg (1 Tg = 1012 grams) of carbon per year in forests and wood products during the next 50 years, with a range of 108–251 Tg per year. Although harvests in natural boreal and tropical forest regions will cause carbon releases, new plantation establishment in subtropical emerging regions more than offsets these losses. Unlike many existing studies, these results suggest that harvests and management of North American forests will lead to carbon emissions from that region during the next 50 years. The results are quantitatively sensitive to the assumed growth in demand, but are qualitatively similar in the sensitivity analysis.

      The potential system-wide effects of large-scale afforestation programs that would cause carbon to leak from the forests, thereby reducing net sequestration, were considered. The potential scale of this leakage under several different afforestation schemes was estimated using a global timber model; the results suggest that leakage occurs in two ways. First, forests created to sequester carbon enhance future timber supply and decrease anticipated future prices; these lower prices crowd out some commercial forests that would otherwise have been established. Second, lower anticipated future prices cause some landowners to liquidate their existing stock, resulting in short-term net carbon fluxes from forests to the atmosphere. When these effects are considered, the expected gain in long-term carbon storage may be reduced by one half. The short-term effects are likely to be more important for near-term carbon mitigation policies, such as tradable carbon emissions permits, because forestry programs may actually increase carbon emissions at given time periods in the future.

      Publications/ Presentations:

      Mendelson R, Sedjo R. The marginal cost of carbon sequestration in global forests. Presented at the Association of Environmental and Resource Economists session at the annual meeting of the American Agricultural Economics Association, Salt Lake City, UT, August 5, 1998.

      Mendelson R, Sedjo R. Carbon sequestration in developing country plantations: costs and economic adjustments. Presented at the World Bank Annual Bank Conference on Development Economics, Washington, DC, April 29, 1999.

      Mendelson R, Sedjo R. Dynamic forestry modeling: climate and carbon. Presentation to the Joint Program on the Science and Policy of Global Change, Massachusetts Institute of Technology, Boston, MA, September 14, 1999.

      Mendelson R, Sedjo R. An economic investigation into alternative policies for sequestering carbon in global forests. Presented at the Heartland Environmental Economics Workshop, Iowa State University, Ames, IA, September 20, 1999.

      Sohngen B, Sedjo R. Potential carbon flux from timber harvests and management in the context of a global timber market. Climatic Change 2000 (in press).

      Future Activities:

      In Fiscal Year 2000, the research will complete an extensive revision to the global timber model for use in carbon abatement cost estimation. In addition, the researchers will undertake the policy scenario analysis to determine regional and global costs of carbon sequestration in forest sinks. Costs under alternative policies will be analyzed and compared. The researchers will finalize two research papers and will present the results at several economics and policy conferences.

      Supplemental Keywords: public policy, decisionmaking, cost benefit, environmental assets, measurement methods.

Project Reports:
      Final
      Objective:

      Forest management often is considered an option for reducing net human carbon emissions and helping to avert global warming. While previous studies have considered regional forest programs, forest policies must be large in scale to have any real impact on reducing net carbon emissions. We maintain that the estimates of the costs of regional programs cannot be summed to determine global costs because there are system wide, dynamic effects that have not been considered. This research project explored the following question: What is the cost of storing carbon in forests with large-scale, global carbon sequestration programs? The specific objectives of this research project were to: (1) develop a model of the marginal cost of carbon sequestration in forests; (2) develop a global carbon storage database for forested biomes; and (3) develop alternative strategies for carbon sequestration in forests and estimate costs.

      The methods used for this research project include the following:


        Development of a model of the marginal cost of carbon sequestration in forests. The methods used for this objective include the development of theoretical methods to link estimated carbon prices from integrated assessment models to carbon rental prices that can be used in forestry models. The price of carbon sequestration depends on carbon emissions, damages from those emissions, and the marginal costs of carbon abatement in the energy sector. The theoretical links then are employed empirically in a linked, dynamic forestry-integrated assessment modeling approach.

        Development of a global carbon storage database for forested biomes. The study reviews the literature and collects additional data on both economic and carbon storage estimates for different regions of the globe.

        Development of alternative strategies for carbon sequestration in forests and estimate costs. This research project used scenario analysis to explore how different damages from climate change resolve to different carbon prices and forest sequestration projections. Although the original proposal intended to develop scenarios considering a range of payment mechanisms, this objective was revised due to feedback obtained in early presentations of the research. Given the range of potential strategies that may be used worldwide, it is infeasible to develop methods that could be used and compared meaningfully in the global modeling context of this study. Therefore, this research project considered a rental system, where carbon is rented on an annual basis and the rental price of carbon is tied directly to the price of carbon predicted by an integrated assessment model. This allowed us to consider the global potential storage under optimal conditions. Future research will consider how optimal, or close to optimal, systems may be designed for different regions and timber management classes.


      Summary/Accomplishments:

      This research project built a database of carbon sequestration in global forest regions. The database is built on an earlier version that included parameters that account for carbon storage in different forest types, including tree, floor, understory, and soil carbon components. The database has been expanded to include the new regions and to more thoroughly account for soil carbon. Additional research suggests that the earlier estimates for carbon sequestration in soils was too large, and the earlier estimates have been revised downward in this research. This research project also considers baseline carbon in agricultural soils, which is particularly important for conversions between agriculture and forestry. The carbon database also has been linked directly to the optimal control model to allow for direct valuation of the carbon component of standing forests.

      This research project has expanded the global timber model to value carbon sequestration as a joint product with timber products; it has provided a theoretical model and description of the marginal cost of carbon sequestration, and it has developed empirical estimates of the marginal costs. The timber model maximizes the present value of timber production alone. The updated model expands the earlier model to value both timber products and carbon sequestration. Carbon sequestration is valued by renting carbon. This allows the timber model to be linked directly to the price of carbon abatement in the energy sector. Renting carbon is a different concept that is used in many other studies. Theoretically, annual carbon rental rates for holding a ton of new carbon in forests indefinitely can be determined with present value techniques and estimates of carbon prices. New carbon is determined as carbon above the baseline, and carbon prices are determined by the institutional arrangements that may evolve for carbon sequestration and mitigation programs. The carbon price today is the present value of avoiding the future damages that arise when one ton of carbon enters the atmosphere. Carbon rental rates are the value of holding 1 ton of carbon in forests for 1 year. Given a set of current and future carbon prices, rental rates can be determined with present value techniques.

      Annual carbon rental rates depend on current and future carbon prices. Suppose carbon prices, PC(t), are assumed to be constant, then carbon rental rates are:

      R(t) = rP(t),

      where r is the interest rate. If carbon prices are rising, carbon rental rates must account for the increase in future carbon prices. Carbon rental rates are:

      R(t) = (r-n)P(t),

      where n is the rate of growth of carbon prices.

      This research project expanded an existing global forestry model to include new forest regions in South and Central America, Africa, and Asia-Pacific, and land supply functions for all regions modeled. A number of forested regions were not considered because these regions comprise a small proportion of global timber supply. When considering carbon sequestration issues, however, these other regions could be important for carbon storage, particularly if carbon prices increase. This research expanded the earlier version of the global timber model to include additional regions. In addition to adding new forest types, land supply functions have been included. Land supply functions cause land rental rates to rise as higher quality land is converted to forestry. Land supply functions are important for the carbon sequestration problem, given that potentially large areas of land could change use. Land supply functions are defined for each timber type in the model. This approach misses some of the price responses that could occur as more land is removed from the agricultural base and converted into trees. For instance, agricultural prices could change, and to capture these price effects, one would want to develop a comprehensive forestry-agricultural sector model at the global level.

      This research project developed a direct link between the forestry-carbon model and an integrated assessment model. Given the large potential storage of carbon in the world's forests, the global forestry model has been linked directly to an integrated assessment model of climate and the economy, namely the Dynamic Integrated model of Climate and Economy (DICE) model. Linking the two models allowed us to assess whether carbon sequestration programs may affect the price for carbon abatement, and the amount of abatement done in the energy sector. This is a different type of leakage than considered in other models, which considers only leakage across land uses. In addition to the global emphasis developed by this model, this new and unique feature allows carbon sequestration programs to be compared directly to carbon mitigation programs in the energy sector. Over the next 100 years, global forested ecosystems are projected to release 29 billion metric tons of carbon if carbon policies are not undertaken. These losses are projected to occur largely in tropical regions, where annual average forest carbon emissions are projected to be 334 million tons per year, mainly from deforestation. Temperate forests are projected to sequester an additional 58 million tons per year through afforestation. By 2050, global forests could sequester 12.7 to 33.8 billion metric tons of carbon at carbon prices ranging from $30 to $92 per ton. Over the next 100 years, forests could sequester 38.6 to 102 billion metric tons at carbon prices ranging from $61 to $187 per ton. Nearly 70 percent of the new carbon stored at these prices is predicted to be stored in tropical and subtropical regions of South America, Africa, and Asia-Pacific. Much of this is predicted to occur as reductions in deforestation, although some additional carbon is stored by expanding plantations and altering rotation ages. Within the temperate zone, afforestation accounts for 63 percent of total carbon gains, while increasing rotation ages accounts for 28 percent, and increasing management intensity accounts for 6 percent. Market storage is predicted to account for a relatively small proportion of total carbon storage. Carbon sequestration in forests could be large enough to have an effect on carbon abatement prices, although the effect is not dramatic. If the damages from climate change are fairly low, carbon sequestration has a relatively small role. However, if climate damages are large, carbon sequestration can play a significant role, and the inclusion of sequestration on a global level could affect the price of abating climate change in the energy sector. Total costs of an optimal program designed to rent only new carbon stored in forests ("so-called" additional carbon) are predicted to range from $61 to $501 billion to store an additional 38 to 102 billion tons of carbon by 2100. Total costs of a program to rent all carbon in the world's forested ecosystems would be dramatically more expensive, ranging from $3.7 trillion to $11.5 trillion for storing the same amount of carbon. This research project showed how carbon prices from integrated assessment models can be linked to forestry models to estimate carbon sequestration potential in forests. The concept of renting carbon is introduced and utilized to value carbon in a global timber market model. An existing dynamic optimization model of global timber markets is expanded to include additional regions and land supply functions, and to value carbon with the rental concept. The model of global timber markets is linked to a dynamic optimization model of climate and the economy, and scenarios are presented to show the potential for storing additional carbon as carbon prices rise. The results suggest that 38 to 102 billion tons of additional carbon can be stored globally at carbon prices ranging from $61 to $187 per ton. These estimates account for timber market activity, and thus account for potential leakage in markets. Most of the additional storage (70 percent) is predicted to occur in tropical regions through reductions in deforestation. Within the temperate zones, afforestation accounts for 63 percent of total carbon gains, while increasing rotation ages accounts for an additional 28 percent of storage. Storage in markets does not account for much additional carbon sequestration at the prices considered.

      Paper:

      Sohngen B, Mendelsohn R. Optimal global forest sequestration. Working paper AEDE-WP-0009-01. Department of Agricultural, Environmental, and Development Economics, Ohio State University, Columbus, OH, 2001.

      Presentations:

      Mendelson R, Sedjo R. An economic investigation into alternative policies for sequestering carbon in global forests. Presented at the Heartland Environmental Economics Workshop, Iowa State University, Ames, IA, September 20, 1999.

      Sohngen B, Mendelsohn R, Sedjo R. Carbon sequestration in global forests. Presented at the Annual Meeting of the American Economics Association, New Orleans, LA, January 4-7, 2001.

      Sohngen B, Sedjo R. Leakage and carbon sequestration forests. Presented at a Workshop on Biological Sequestration of Carbon, John F. Kennedy School of Government, Harvard University, Cambridge, MA, June 1999.

      Sohngen B. Optimal global carbon sequestration. Presented at the Department of Agricultural and Resource Economics, Oregon State University, Columbus, OH, November 2000.

      Sohngen B. The cost of carbon sequestration in global forests under alternative policy mechanisms. Presented at the Western Economic Association Meeting, Vancouver, British Columbia, June 29-July 3, 2000.

      Sohngen B, Mendelsohn R. The effect of alternative policies on carbon sequestration costs in forests. Presented at the Western Regional Research Group Annual Meeting (W-133), Kauai, HI, February 26-March 1, 2000.

      Sohngen B, Mendelsohn R. The effectiveness of carbon sequestration strategies with system-wide adjustment. Presented at the World Congress of Environmental and Resource Economists, Venice, Italy, June 25-27, 1998.

      Mendelson R, Sedjo R. The marginal cost of carbon sequestration in global forests. Presented at the Association of Environmental and Resource Economists session at the Annual Meeting of the American Agricultural Economics Association, Salt Lake City, UT, August 5, 1998.

      Supplemental Keywords: climate change, terrestrial ecosystems, carbon sequestration.


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