carbon sequestration, optimum forest rotation and their environmental impact
TRANSCRIPT
Environmental Impact Assessment Review 37 (2012) 18–22
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Environmental Impact Assessment Review
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Carbon sequestration, optimum forest rotation and their environmental impact
Erhun Kula a,⁎, Yavuz Gunalay b
a Department of Economics, Bahcesehir University, Besiktas, Istanbul, Turkeyb Department of Business Studies, Bahcesehir University, Besiktas, Istanbul, Turkey
⁎ Corresponding author. Tel.: +90 212 3810494; fax:E-mail addresses: [email protected] (E. K
[email protected] (Y. Gunalay).
0195-9255/$ – see front matter © 2011 Elsevier Inc. Alldoi:10.1016/j.eiar.2011.08.007
a b s t r a c t
a r t i c l e i n f oAvailable online 2 October 2011
Keywords:Carbon sequestrationEnvironmental impact of forestryOptimum cutting age
Due to their large biomass forests assume an important role in the global carbon cycle by moderating thegreenhouse effect of atmospheric pollution. The Kyoto Protocol recognises this contribution by allocatingcarbon credits to countries which are able to create new forest areas. Sequestrated carbon provides an envi-ronmental benefit thus must be taken into account in cost–benefit analysis of afforestation projects. Further-more, like timber output carbon credits are now tradable assets in the carbon exchange.By using British data, this paper looks at the issue of identifying optimum felling age by considering carbonsequestration benefits simultaneously with timber yields. The results of this analysis show that the inclusionof carbon benefits prolongs the optimum cutting age by requiring trees to stand longer in order to soak upmore CO2. Consequently this finding must be considered in any carbon accounting calculations.
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1. Introduction
As the volume of greenhouse gasses released into the atmo-sphere continues to increase every year, the parallel problem ofunabated deforestation is continuing in many parts of the world.Furthermore, the creation of new forests, which act as biologicalscrubbers, is an extremely slow process unmatched by what hasbeen destroyed. Richard and Stokes (2004) estimate that onequarter of the global warming problem can be attributed to defor-estation. Consequently, if we can slow down forest destructionnow while simultaneously replacing what has been destroyedthrough new forestry projects, we shall gain precious time inour endeavours to protect the global climate.
Article 3.3 of the Kyoto Protocol states that “the net changes ingreenhouse gas emissions by source and removal by sinks resultingfrom human induced land use change and forestry activities limitedto afforestation, reforestation and deforestation activities since 1990measured as verifiable changes in carbon stock in early commitmentperiod, shall be used to meet commitments under the Protocol.” Inthis respect the Kyoto Protocol grants carbon credits to newly createdforests and woodlands. These credits can be traded in the open car-bon market at prevailing prices in an analogous fashion to the buyingand selling of company share certificates.
The environmental benefits of afforestation projects added ontothe traditional timber benefits substantially improve the rates of re-turn in this sector, which serves as an incentive to private and publicsector planters, Kula (2010). Some countries, such as Britain and
Ireland, provide planting grants and tax concessions to private for-esters to encourage plantation which also affect the optimum rota-tion, Van Kooten et al. (1995). Other important influencing factorsare the prevailing interest rates and the opportunity cost of the landused to grow trees, Kula (1998). This paper demonstrates that carbonbenefits will also impact the optimum forest rotation rate revealingthat trees should, in fact, stand substantially longer in order to absorbmore carbon dioxide from the atmosphere.
Forestry policy in the United Kingdom and the Republic of Irelandis driven by the need to reverse the significant forest destruction thattook place in the past which essentially rendered these Islands tree-less. The United Kingdom, as one of the largest importers of woodin the world, now employs a policy to create sufficient home growntimber resources to meet a good part of her domestic needs. In addi-tion, the over expansion of the dairy andmeat sectors in the EuropeanUnion has put pressure on some member countries to take land out ofagriculture in favour of forestry. The need for greater forest resourcesis further enhanced by the Kyoto carbon credit system which makesforestry a more attractive sector now in comparison to the past.
When is the best time to fell a tree? If left undisturbed, a treewould grow for a substantial period of time until the maximum vol-ume of wood is attained, beyond which the tree begins to decay.This paper addresses the issue of identifying the optimum forest rota-tion which is one of the oldest technical problems known to econo-mists, Faustmann (1849) and Von Thunnen (1826). Originally theseeconomists considered only the benefits of timber. In this paper wecalculate the optimum felling age by simultaneously accounting fortimber and carbon benefits together. The results show that the inclu-sion of carbon benefits considerably lengthens the gestation periods.Another major finding in this paper is the significant impact of themagnitude of the discount rate on the optimum felling age. In the
Fig. 1. Wood volume and cumulative CO2 captured by one hectare Sitka Spruce forestwith yield classes 16 and 22 (YC-16, YC-22 respectively).Source: Forestry Commission (1971, 2003) and Green et al. (2006).
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illustrative example, the optimum cutting time increases by morethan 6 years when the discount rate falls from 4% to 3%. Finally it isshown that the value of carbon sequestrated is crucial. The higherthe value of the carbon benefits the longer the gestation period.
2. Optimum forest rotation
Silviculture represents an intervention in ecosystems in order tomodify the yield of trees for the intended purposes inwhich the growthpattern of trees can be influenced by fertilising, thinning and pest con-trol. Trees can be grown for a variety of purposes such as Christmas dec-orations, pulp, box-wood, saw quality timber, water conservation,avalanche prevention, flood control, amenity, pollution abatement, etc.
When the objective is wood production many forest managerstrained in forest biology and engineering have traditionally advocatedthat the goal of good policy is to have the maximum sustainable out-put. This corresponds to the highest point on the volume/age curve offorest growth schedules. If all trees were cut down at this point intheir lives the forest owner would achieve the objective of generatingthe maximum production of quality wood. Some economists, such asSamuelson (1976), have challenged this practice by stating that treeswould be left standing for too long thereby lowering the profits.Others have stated that determining an optimum felling age is an es-sentially redundant exercise in the United Kingdom, Miller (1981).They argue that at realistic profit margins, it does not pay to keep pri-vate or public forests in existence.
In forestry economics the dominant criterion is net revenuemaximisation as measured by the optimum sustainable yield whichis different from the maximisation of wood output. The maximumsustainable yield can be determined in either single or multiple rota-tion models. In the former the forest manager tries to identify a timeperiod to maximise profits over a single cycle, see Boulding (1935);Fisher (1930) and Hotelling (1925). Multiple rotation models involvea much longer planning horizon where after each felling operationthe area would be replanted on the same scale and this cycle wouldgo on indefinitely.
Let Bt represent the revenue from the sale of timber at time t, andEt the benefit obtained from carbon sequestration. Then, at a givendiscount rate, r, the net present value for wood benefits only, NPVW
and net present value for both gains from timber sale and carbonsequestration, NPVW+E will be:
NPVW ¼ Bte−rt−C ð1Þ
and
NPVWþE ¼ Bte−rt þ ∫
t
0
Exe−rxdx−C ð2Þ
where C is the initial establishment cost, Bt is the income generatedby felling the tree at time t and Et is the incremental benefit from car-bon sequestration at time t.
In order to find the optimum cutting age, t, we need to maximisethe NPV for both cases. Note that since both Bt and Et are concavefunctions (see Fig. 1) Eqs. (1) and (2) are also concave. Their maxi-mum point is obtained after differentiating Eqs. (1) and (2) withrespect to time and setting them equal to zero. After somemathemat-ical manipulations the necessary conditions for the optimum cuttingperiods, tW and tW+E, would be achieved by the following equationsrespectively:
r ¼ dBt=dtBt
t¼tW�� ð3Þ
and
r ¼ Et þ dBt=dtBt
t¼tEþW :�� ð4Þ
Note that in the solution to Eqs. (4) and (5), the maximising tvalues represent the optimum cutting age of the forest only if thesufficiency condition, i.e., the NPV≥0, is satisfied for both cases. Forthe wood only case, the NPV of this investment is maximised whenthe marginal benefit from the selling of timber is equal to thediscount rate. This is intuitively obvious since it is not profitable tomaintain the stand when the marginal revenue becomes lower thanthe interest rate. When this point is arrived at it would be more ben-eficial to cut the trees and invest the money in, say, a time deposit.
Samuelson (1976) argues that the single rotation solution wouldbe relevant when the land used for afforestation has a negligible op-portunity cost. When both wood and carbon benefits are includedthe NPV would be maximised at the point where the incrementalrevenue resulting from the carbon capture and the selling of timberequal to the discount rate. This would represent the optimum timeto fell the trees. Since the revenue arising from carbon capture is pos-itive for all t, it is obvious from Eqs. (4) and (5) that the optimumcutting age for the second case (carbon-and-wood benefits) is alwayslonger than for the wood only case. One purpose of this paper is toestimate how long this additional time period would be in a typicalplantation on a marginal land in Britain and Ireland.
3. Estimating optimum rotation without carbon sequestration
In this paper we focus on cases in the United Kingdom whosuffers, chronically, from the home grown timber deficiency.Since the establishment of the Forestry Commission of Britain in1919 and the Forest Service of Northern Ireland in 1921 thenation has made a painfully slow progress to boost her forestresources. Today the United Kingdom is still one of the least for-ested regions of Europe and thus we believe that the UK forestryshould receive a greater attention from the academic community.Here we consider the optimum forest rotation over a single cyclewith timber benefits on two locations where the agriculturalvalue of the land is very poor and thus negligible. Such areas,described as the less favoured regions by agricultural and forestryauthorities, exist in many parts of Scotland and Northern Irelandwhere the rental value of land is near zero, Forest Service (2007).
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The species planted is Sitka spruce, quick growing evergreen vari-ety planted extensively throughout the United Kingdom and theRepublic of Ireland. Observations were carried out on two differentlocations, County Fermanagh and County Tyrone. The former (Site1) is 30 ha, in a low lying area facing the south where the land has amild slope and wet, unsuitable for lucrative agriculture and thus leftidle for many years. The output on this location has been estimatedas yield class 22 (YC 22) meaning that trees planted here wouldhave maximum mean annual increment of about 22 m3/ha, greaterthan 21 but less than 23. The County Tyrone site (Site 2) consists of50 ha of land that is on fairly exposed ground with a moderate gradi-ent. The yield class is estimated to be 16.
In both locations the saplings are widely spaced and thus growingtrees will not undergo thinning; that is, a no thinning regime isemployed, which is now quite a common practice in Ulster. Since itis anticipated that the trees will be sold standing, all harvesting and
Table 1Optimum cutting time, tW (for wood only) and tW+E (for wood and CO2), for both yield cl
Years Yield class 16 (Site 2)
Est. Cost (£) Wood benefits Environ. benefits NPVW NPVW+E
0 1850 −1850 −18501 2 −1850 −18482 2 −1850 −18483 3 −1850 −18474 3 −1850 −18475 101 4 −1766 −17626 131 4 −1744 −17377 161 4 −1724 −17148 201 6 −1698 −16849 241 6 −1674 −165610 281 6 −1652 −162911 322 6 −1631 −160512 372 7 −1606 −157513 452 11 −1563 −152514 603 21 −1481 −143015 841 33 −1353 −128216 1013 24 −1271 −118717 1203 26 −1186 −108818 1410 29 −1099 −98519 1631 31 −1011 −88120 1867 33 −923 −77721 2115 35 −836 −67322 2376 36 −750 −57123 2647 38 −667 −47024 2928 39 −586 −37325 3087 40 −563 −33326 3422 41 −473 −22627 3756 42 −390 −12728 4088 43 −316 −3629 4419 44 −248 4730 4748 44 −188 12231 5075 45 −135 19132 5399 45 −89 25233 5719 45 −48 30734 6037 45 −13 35535 6351 46 16 39836 6661 45 39 43437 6966 45 58 46638 7268 45 72 49139 7564 45 82 51340 7856 44 87 52941 8143 44 89 54142 8425 43 87 54943 8701 42 82 55344 8972 42 73 55445 9238 41 62 55146 9497 40 48 54547 9752 39 32 53748 10,000 38 14 52549 10,242 37 −7 51150 10,479 36 −29 495
haulage costs will be incurred by the buyer. In the calculations allcosts and benefits are determined on a per hectare basis.
Planting costs are incurred at the beginning of the rotation, year 0.These costs include some draining, ploughing, planting and fertilising.Beating up, which means replacing plants that succumbed in the ini-tial planting, is not carried out. Only partial fencing is required forboth sites. All road building to take the merchandise to the roadsidewill be the responsibility of the buyer at the conclusion of the rota-tion. On a one hectare basis the cost of planting is o2050 for Site 1and it is o1850 for Site 2 (2007 prices), see Table 1.
In order to convert the output into monetary benefits we need toknow the price of timber. Given the fact that forestry projects havelong gestation periods, this implies that there is a need to estimatetimber prices that will occur in the distant future. During the lifetimeof forestry projects many variables that determine wood prices couldchange. In the world market the price of timber, just like the price of
asses Y16 and Y22, when r=3.5%.
Yield class 22 (Site 1)
Est. Cost (£) Wood benefits Environ. benefits NPVW NPVW+E
2050 −2050 −20502 −2050 −20483 −2050 −20454 −2050 −20425 −2050 −2037
161 6 −1915 −1897201 8 −1887 −1863271 10 −1838 −1806362 13 −1777 −1735472 15 −1705 −1653593 17 −1632 −1568724 18 −1558 −1481854 18 −1489 −1400
1029 24 −1397 −12931245 30 −1287 −11651490 34 −1169 −10261760 38 −1045 −8802055 41 −917 −7302372 44 −787 −5762708 47 −657 −4233063 49 −529 −2703434 52 −403 −1193819 54 −282 274217 55 −165 1694626 57 −53 3055065 58 61 4445528 59 175 5825980 60 274 7046422 61 360 8136853 61 434 9087276 62 496 9927689 62 548 10658094 62 591 11288492 61 626 11828883 61 652 12289267 61 672 12659645 60 686 1296
10,017 59 694 132010,384 58 696 133810,745 57 694 135011,102 56 688 135811,454 55 677 136111,802 54 664 135912,146 53 647 135412,485 51 627 134512,821 50 604 133313,153 48 579 131713,481 47 552 129913,805 45 523 127914,125 44 492 125514,441 42 459 1230
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any other commodity, is established by the forces of demand and sup-ply. The cost of transport is also important in determining the localprices because wood is a bulky commodity in relation to its value.Transport by sea is much cheaper than by road and no part ofNorthern Ireland is far from the ports. Ordering imports from dis-tant regions such as Russia and Canada takes time but quicklyaffect local prices when the shipments are actually in transit.
The United Kingdom meets more than three quarters of her woodrequirement by imports but recently in Northern Ireland forests thatwere planted 25–30 years ago are coming into maturity and thus thelocal produce is playing an important role in price determination.According to annual report by the Forest Service (2007) the averageprice for coniferous wood was o22.0/m3 which forms the basis ofthe wood benefits in this analysis. From this we deduct o7/m3 of tim-ber for creating access roads to the stand, felling and haulage opera-tions. That is, at the end of the rotation the output would be sold tothe timber merchant at o15/m3.
Apart from timber prices another important factor in determiningthe optimum rotation is the discount rate which is a dominantparameter in Eqs. (4) and (5), and thus any change in this will alterthe final result. It must be obvious that a high interest rate will short-en the optimum rotation point, Table 2. The discount rate used in thisanalysis is the Treasury's mandatory figure of 3.5% for the publicsector in the United Kingdom, HM Treasury (2003).
Table 1 shows the establishment costs for the two stands as wellas the cumulative wood output on a per hectare basis. Based uponEq. (1) the NPVs for Site 2 and Site 1 are estimated in columns 5and 9 respectively. With the wood benefits only the optimum timeto terminate the rotations are; 41 years for Site 2 and 38 for yearsSite 1.
4. Optimum felling age with wood and carbon benefits together
In this section we consider carbon sequestration benefits whichhave monetary value similar to timber output. The level of CO2 inthe atmosphere is determined by continuous flow amongst the storesof carbon on land, oceans and the air. The emission of CO2, largelystemming from burning of excessive fossil fuels in combustion en-gines, and the depletion of natural forests are causing the volume ofCO2 in the atmosphere to rise, Karjalainen et al. (2002). Many scien-tists now emphasise the importance of carbon sequestration in deal-ing with the problem of global warming, Green et al. (2006); Johnsonand Heinen (2004) and Peng (2000). One important issue in this mat-ter is the future population based land use change in which the loss ofcarbon storage in the terrestrial ecosystem is likely to become anaggravating parameter, Levy et al. (2004a,b). This enhances theimportance of afforestation projects in efforts to protect the globalclimate.
Environmental scientists have been developing integrated carbonaccounting systems designed to support and provide confidence inthe carbon footprint in economic activities and sequestration attrib-uted to man-made as well as natural forests. However, such estimatesare sometimes debated in the literature. For example, Johnson (2009)argues that footprint estimates are less than perfect even when
Table 2Optimum cutting ages for both yield classes, Y16 and Y22, as the discount rate changes.
r (%) Yield class 16 (Site 2) Yield class 22 (Site 1)
tW tW+E tW tW+E
2.0 52 55 53 553.0 44 47 41 463.5 41 44 38 414.0 – 41 35 385.0 – – – 34
Note: Rows that do not contain numbers yield negative NPVs and thus irrelevant.
calculated by well-established organisations such as the WorldBank. Cannell and Milne (1995) and Nelson (2005), on the otherhand, contend that the positive contribution of man-made forests inmoderating the climate change is important but this is, sometimes,over emphasised because the natural forests store carbon more effi-ciently. Efforts are continuing to improve the carbon sequestrationfigures of natural as well as man-made forests in the United Kingdomas well as elsewhere, Cannell et al. (1995).
The Kyoto Protocol allows credits for the removal of CO2 from theatmosphere by way of afforestation projects which can be used to off-set emissions elsewhere. Many nations who signed the Kyoto Treatyhave now a policy objective that sufficient lands be made availablefor afforestation to counterbalance significant shares of annual CO2
emissions. This is a relatively inexpensive method for mitigatingchanging climate.
It has been estimated by Dewar and Cannell (1992) that in Irelandmore than half of carbon sequestration came from the trees plantedsince 1952. At a meeting in Marrakech in 2001 signatory nations toKyoto agreed to place limits on the amount of credits that can beobtained by way of afforestation. Amounts that stay within the limitscan be used by business firms to increase their emission of green-house gasses or could be sold in a future carbon trading scheme.
Carbon sequestration figures for the two stands are estimated onthe basis of research done by the Forestry Commission (2003) andGreen et al. (2006) and these estimated are provided in Table 1, col-umn 4 (yield class 16) and column 9 (yield class 22). These areincremental benefits taken into account as they occur during the rota-tion lengths. Next we need prices for these benefits. The average car-bon trading value is the one from 2007, the base year for our analysis.JC Consulting (2006) estimated that 1 t of carbon was traded onaverage for £14.00 in the European Futures Market during that year.Figures in columns 4 and 9 are multiplied by the sequestrated carbonvalue of £14.00 and then added onto timber benefits. The net presentvalues including timber and carbon sequestration benefits, with 3.5%Treasury discount rate, for the two stands are shown in columns 6(Site 2) and column 11 (Site 1).
By using Eq. (5), which contains amalgamated benefits of timberand carbon sequestration, the optimum felling age for both locationscan be worked out. They are; 44 years for yield class 16 and 41 yearsfor yield class 22 which are longer than previous estimates. Thismeans that trees in both stands should stay on the ground longer inorder to remove more CO2 from the atmosphere. Such an increasein the rotation length is likely to assist many of the European coun-tries in achieving their Kyoto objectives, Kaipainen et al. (2004).
How sensitive are the rotation lengths to a change in the rate ofdiscount? These are worked out in Table 2. As we mentioned beforethe higher the discount rate the lower the gestation period. For exam-ple, the felling age for the stand that contains Yield Class 22 treeswould fall from 41 to 34 when the discount rate increases from 3.5%to 5% which is substantial. Missing figures in Table 2 indicate thatnet present values were negative at higher discount rates.
Carbon value is also an important factor in identifying theoptimum felling age. Above we used o14.00, the treading pricein the European Futures Exchange which may underestimate theactual social value. There is a considerable debate about the socialworth of carbon ranging from a notional figure of o5.00 to o70.00.The latter is preferred by some environmental economists such asPearce (2003). Others assume that the social value of carbon islikely to increase as the climate change becomes morepronounced, Brainard et al. (2009). We performed a sensitivityanalysis by assuming a higher social value of o70.00/t of carbonsequestrated. After this change the optimum felling age for YieldClass 22 changed from 41 years to 51 years, Yield Class 16 from44 years to 53 years with 3.5% discount rate.
Various aspects of extending the optimum forestry rotationbeyond the commercially desirable point have been examined by
22 E. Kula, Y. Gunalay / Environmental Impact Assessment Review 37 (2012) 18–22
a number of environmental scientists, Adams et al. (1999);Sohngen and Brown (2004); Sohngen and Mendelson (2003); VanKooten et al. (1995). Results indicate that prolonging the felling ageis sensitive to location, species as well as the value of carbon captured.Other methods such as arresting CO2 from the power plants, as anaddedmeasure to combat globalwarming are also important, Koornneget al. (2008). Efforts are being made to transform the fundamental sci-ence of carbon storage into practical, affordable and safe technologiesthat CO2 emitting industries can use to reduce their discharge but thisis likely to take time. In the meantime expanding afforestation projects,encouraged by the Kyoto carbon credits, can save us precious time atthis critical juncture.
Unfortunately, the forestry sector has so far received a ratherscant attention from the scientific community to combat globalwarming when compared with other sectors. There are, of course,exceptions to this where a number of natural and social scientistsemphasise the importance of the forestry sector in this endeavour,Bateman and Lovett (2000); Cannell and Dewar (1995); Johnson(2009); Karjalainen et al. (1994); Matthews (1993) and Milneet al. (1998). The tendency to overlook forest sequestration oppor-tunities can lead to much less effective policy.
5. Conclusion
In efforts to combat global warming forests represent an impor-tant carbon sink and thus the Kyoto Protocol has established provi-sions so that signatory countries can meet their targets by investingin forestry projects. In fact, afforestation projects are an effectiveand relatively inexpensive method of dealing with this problem. For-estry carbon credits, which are now tradable assets similar to that ofwood output, should be accounted for in working out the rate ofreturn as well as the optimum felling age. This paper by using a plan-tation data on Sitka spruce in the British Isles took up the latter caseand concluded that trees should stay noticeably longer on the groundto absorb more CO2.
Acknowledgements
Authors are grateful to the editor of this journal as well as the twoanonymous referees who made valuable comments on earliermanuscripts.
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Erhun Kula is professor of economics at Bahcesehir Uni-versity in Istanbul and tutor at the Department for Financialand Management Studies at the University of London. Heobtained his first degree in economics at Marmara Universityin Istanbul, M.Sc. at the University of Wales and Ph.D. atLeicester University in England. He authored 8 books byleading international publishing houses some of which havebeen translated into a number of foreign languages includingChinese. In addition he published numerous scientific articlesin the learned journals of economics and environmentalsciences. Also advised the British Social Science ResearchCouncil on the allocation of public funds to multi millionpounds genomics research centres in England.
Yavuz Gunalay is associate professor at the Business StudiesDepartment, Bahcesehir University of Istanbul. He obtainedhis first degree in electrical and electronic engineering fromthe Middle East Technical University, Ankara. His master isin industrial engineering from Bilkent University, Ankaraand Ph.D. in business studies from McMaster University,Canada. He taught at Eastern Mediterranean University ofCyprus, Bilkent University of Ankara and the Ministry ofHealth in Ankara. His research interest is mainly in the areaof management science.