Use of revealed preference data to estimate the costs of forest carbon sequestration in Canada

Estimates of the costs of forest carbon sequestration can guide policy makers in determining the level of effort to place on achieving this form of greenhouse gas emissions mitigation. The Canadian literature on the costs of forest carbon sequestration is dominated by what is known as the bottom-up engineering method. Generally speaking, this approach relies on values observed in markets to estimate land opportunity costs. An alternative is the econometric method, which can capture other potential influences on the behavior of landowners, as revealed by historical data. To our knowledge, there are currently no studies that apply the econometric method to Canada; this may be because detailed land-use data over time is not available. We identified a database compiled by the Canadian Forest Service and used it to estimate an econometric model of afforestation in Ontario. Simulations were conducted from the estimated equation under a range of conditions. The results suggest that carbon sequestration at a given cost could be much lower than indicated by Canadian bottom-up studies. The simulations also demonstrate that, if afforestation is encouraged by awarding offset credits, low carbon prices could result in an unacceptably high share of those credits going to non-additional projects - ones that would have been carried out anyway.