Carbon sequestration through afforestation under uncertainty

Economic studies have demonstrated that agricultural landowners could mitigate significant quantities of greenhouse gas (GHG) emissions through afforestation. The associated carbon, however, must remain stored in soils or biomass for several decades to achieve substantial mitigation benefits. Policies and programs to enhance carbon sequestration in forest systems must accommodate the possibility of premature carbon releases. We develop a dynamic nested optimal-control model of carbon sequestration through afforestation given uncertainties associated with fire and pest hazards. Our framework highlights a number of factors that affect landowner decisions to invest in fire or pest prevention measures. For fire, we show the net influence of these factors is to encourage investment in prevention measures when the probability of fire occurring is less than the ratio of expected net economic benefits to expected gross economic benefits of adopting fire prevention measures. For pests, we show that landowners will invest in prevention measures when the probability of fire is less than the ratio of the difference between net benefits before and after the discovery of tree pests to the difference between gross economic benefits before and after the discovery of pests. For both risks, landowners will over-invest in prevention if the other risk is ignored.