Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2016:6: Pricing Forest Carbon: Implications of Asymmetry in Climate Policy

Mathilda Eriksson (), Runar Brännlund () and Tommy Lundgren ()
Additional contact information
Mathilda Eriksson: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden
Runar Brännlund: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden
Tommy Lundgren: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden

Abstract: In this paper, we use an integrated assessment model to examine the implications of not recognizing, and partially recognizing forest carbon in climate policy. Specifically, we investigate the impact of an asymmetric carbon policy that recognizes emissions from fossil fuels while ignoring emissions from forests. We additionally investigate the relative importance of not recognizing positive emissions from a reduction in the stock of forest biomass, or of not recognizing negative emissions from the growth of forest biomass. We show that asymmetric carbon policies lead to lower levels of welfare, as well as higher emissions and carbon prices. This occurs because the forest resource will be allocated inefficiently under these carbon policies. Broadly, we find that when the social planner does not account for neither positive or negative forest emissions, the planner will set bioenergy levels that are too high and afforestation and avoided deforestation levels that are too low. Our results further reveal that not recognizing forest emissions leads to larger welfare losses than not recognizing sequestration.

Keywords: Climate change; Integrated assessment; Forest Carbon; Carbon Taxes and Subsidies

JEL-codes: C61; H23; Q23; Q54; Q56

23 pages, April 6, 2016

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