Article ID Journal Published Year Pages File Type
91767 Forest Policy and Economics 2007 15 Pages PDF
Abstract

The valuation of forest stands is traditionally based on a profit calculus involving revenue from wood sales and associated costs. Currently, the role of carbon management in forests is actively discussed. In a stochastic setting we extend the analysis of the optimal rotation period by considering uncertain revenue streams from carbon trading. We develop a real options model given uncertainties in future wood and CO2 price behaviour. A detailed sensitivity analysis of the numerical results for both cases – with and without carbon sequestration – is provided. We find that optimal rotation periods vary considerably with (i) the type of price process, (ii) the way how carbon income is defined, and (iii) the selection of discount rates.

Related Topics
Life Sciences Agricultural and Biological Sciences Forestry
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