Climate and forests: The tradeoff between forests as a source for producing bioenergy and as a carbon sink

• There is a conflict between producing bioenergy and using forests as carbon sinks.
• The optimal forest volume is higher the higher is the social cost of carbon.
• We derive the taxes and subsidies required to reach the social optimum.

Forest harvests are a possible source of second-generation wood-based bioenergy. The carbon stored in the forest is highest when there is little or no harvest from the forest. Increasing the harvest from a forest, in order to produce more bioenergy, may thus conflict with the direct benefit of the forest as a carbon sink. We analyze this conflict using a simple model where bioenergy and fossil energy are perfect substitutes. Our analysis shows how the social optimum will depend on the size of the climate cost, and how the social optimum may be obtained by suitable taxes and subsidies.