Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 26/2012: Faustmann and the Climate
Michael Hoel (), Bjart Holtsmark () and Katinka Holtsmark ()
Additional contact information
Michael Hoel: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Bjart Holtsmark: Statistics Norway, Postal: Statistics Norway, P.O Box 8131 Dep, N-0033 Oslo, Norway
Katinka Holtsmark: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Abstract: This paper presents an adjusted Faustmann Rule for optimal harvest of a forest in the presence of a social cost of carbon emissions. A contribution of the paper is to do this within theoretical and numerical frameworks that take account of the dynamics and interactions of the forest’s multiple carbon pools within an in…nite time horizon model. With our less restrictive assumptions we …nd that a social cost of carbon has a signi…cantly stronger e¤ect on the optimal harvest age than found in earlier studies. Considered is also how increased use of harvest residues for energy purposes and storage of carbon in building materials and furniture should in‡uence the length of the rotation period. The theoretical results are quanti…ed within a numerical framework.
Keywords: climate; forestry; biofuels; Faustmann; carbon
30 pages, September 26, 2012
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