Minimum Cost Strategies for Sequestering Carbon in Forests.(Statistical Data Included)

I. INTRODUCTION

Sequestering carbon in forests and forest products is a potentially useful mechanism in global efforts to offset expanding greenhouse gas emissions (see, for example, United Nations 1992). In the United States, the Clinton Administration's 1993 Climate Action Plan called for near-term incremental carbon savings of some 10 million metric tonnes (Mmt) per year through various activities in the forest sector (Clinton and Gore 1993).(1) The potential for expanded rates of forest carbon sequestration or net carbon flux beyond 10 Mmt annually appears to be substantial, however, and an array of recent economic studies have examined the costs of attaining higher rates.(2) In most of these studies, the sole vehicle for expanding flux is the afforestation of agricultural land. Consideration of afforestation is certainly critical, since it will likely form the backbone of any program to obtain major expansions in forest carbon flux, but it need not be the only focus for policy action. Rates of forest carbon flux can also be modified through changes in management on existing and future forests, without drawing new land into the forest base. In addition, the time patterns of flux change attainable with afforestation alone are limited. Other management actions may be needed, particularly if large near-term flux increases are required.

This paper examines the costs of meeting incremental forest carbon flux targets in the United States, when both forest management actions and the area of forests can vary. Costs are estimated as the welfare losses in the markets for forest and agricultural products incurred in pursuing various flux policies over the first five decades of the program. We consider a representative range of flux target scenarios and identify the mixes of management actions and land transfers needed to meet these targets at minimum social cost. In the following sections we describe the methods and models used to estimate costs, derivation of the example targets, and projection results. A concluding section discusses the implications of our analysis for forest carbon sequestration policy.

II. METHODS FOR ESTIMATING COSTS AND CARBON FLUX

In reckoning the costs of carbon sequestration programs, many previous studies have limited attention to the direct costs of afforestation, plus the compensation or subsidies required to induce owners of agricultural and to shift its use to forestry. The present analysis measures cost as the net change in producer and consumer surpluses in markets for forest and agricultural commodities.(3) We employ a model of the U.S. forest and agricultural markets in which the sectors are linked through the market for land. Alternative carbon flux targets are examined by constraining the model to find market solutions that allow achievement of the targets. Welfare differences between constrained and unconstrained results provide estimates of impacts on market participants and include the conversion and land use opportunity costs of previous studies.

This is, of course, a partial equilibrium analysis. Our model explicitly treats primary producers in both forest and agriculture sectors, but includes only a portion of the vertical market structures, stopping short of final consumers. Welfare impact estimates derived from the model, under conditions described by Just, Hueth, and Schmitz (1982), may reflect changes in the main markets of the forest and agriculture sectors, but not in tributary factor or product markets where we have assumed (as is customary) fixed prices. Further, we do not consider any impacts on amenity, existence, or other non-commodity values in the two sectors that might arise from changes induced by a carbon sequestration policy. Finally, we consider only adjustments in private forest land and management. While public forest lands will play some role in meeting carbon targets, policy directions are not at present clear and we have assumed that their management and harvests are held constant in their current form and levels in all projections.

Within the conditions noted above, the aim of the present study is to identify what can be termed minimum social cost strategies to achieve forest carbon flux targets and to characterize the associated resource and management changes comprising these strategies. While we offer some comments on the nature of public programs to implement these changes in the concluding section, specific analysis of policy vehicles is left to future research.

Market Model

Estimates of flux target costs were obtained from simulations using a merged model of the U.S. forest and agriculture sectors (Adams et al. 1996). The combined model employs a joint objective function, maximizing the present value of producers' and consumers' surpluses in the markets of the two sectors, and restrictions on the disposition of the land base that is suitable for use in either sector. The combined structure is an optimizing-intertemporal, spatial-equilibrium market model that simulates prices, production, consumption, and management actions in the two sectors. Producers are assumed to have full knowledge of current and future market conditions and access to perfect markets for capital. Simulations proceed on a decade time step with a nine decade time horizon to accommodate treatment of terminal inventories. We limit our policy analysis to results for the 50-year period from 1990 to 2040. All prices and costs are deflated (in 1990 dollars) and the real discount rate was 4%.

Treatment of the forest sector is restricted to the market for logs, which are distinguished by species (hardwood and softwood) and product (sawlogs, pulpwood, and fuel-wood). Demand functions for logs were derived from solutions of the TAMM and NAPAP models (Adams and Haynes 1996; Ince 1994). The resulting functions shift over the decades of the projection. They incorporate endogenous adjustments and substitution responses in the TAMM and NAPAP models, as would be observed in a 10-year period, and are more elastic than the short-run relations found in TAMM and NAPAP.(4) Log-processing capacity is limited in each time period and decisions to purchase additional capacity are treated as endogenous. Output in certain product categories can be used as substitutes (sawlogs for pulpwood, pulpwood for fuelwood) and residue generated in sawlog processing can replace pulpwood. Export demand and import supply relations are used to represent options for log trade with other countries.

Private timber inventories are modeled using the "linear forest" structure described by Johansson and Lofgren (1985) or the "model II" form of Johnson and Scheurman (1977). We distinguish timberland by age class, forest type, management intensity, suitability for agriculture, and site quality, for nine domestic regions and two ownerships (industrial and nonindustrial). Harvest age, management intensity, and forest type decisions (when regenerating harvested land) are endogenous. Log supply from public lands is fixed.

An earlier equilibrium model described by Chang et al. (1992) was expanded and adapted to describe the agricultural sector. Its objective maximizes the present value of consumer willingness-to-pay net of the costs of factors and transportation. Demand elasticity estimates were drawn from a variety of sources (see Chang et al. for discussion) to reflect substitution options and potentials consistent with our 10-year time interval. Production activities are represented by potential budgets for …