Scandinavian Working Papers in Economics

Working Paper Series,
Swedish University of Agricultural Sciences, Department Economics

No 2013:8: Should forests be used as uncertain carbon sinks or uncertain fossil fuel substitutes in the EU Roadmap to 2050?

Katarina Elofsson () and Ing-Marie Gren ()
Additional contact information
Katarina Elofsson: Department of Economics, Swedish University of Agricultural Sciences, Postal: Department of Economics, Box 7013, Swedish University of Agricultural Sciences, SE-750 07 Uppsala, Sweden
Ing-Marie Gren: Department of Economics, Swedish University of Agricultural Sciences, Postal: Department of Economics, Box 7013, Swedish University of Agricultural Sciences, SE-750 07 Uppsala, Sweden

Abstract: This study investigates the contribution of forest carbon sequestration to a cost-efficient EU climate policy from 2010 to 2050 under conditions of uncertainty. We note that there is a trade-off between sequestration and alternative uses of forests such as bioenergy and timber production. A dynamic and probabilistic cost-minimization model is developed, which includes fossil fuel use within the EU Emissions Trading System and forest management in the EU-27 countries. The results suggest that if policy makers wish to meet emissions targets with 80% certainty, this goal will be eight times more expensive than when they were unconcerned with uncertainty. Policy makers’ risk attitudes affect forest management strategy primarily through the inclusion of wood products, where potential carbon emissions reductions are high but also highly uncertain. Excluding wood products from a climate strategy can be expensive if policy maker are insensitive to uncertainty.

Keywords: uncertainty; carbon sequestration; bioenergy; wood products; climate policy; cost-efficiency; EU.

JEL-codes: Q23; Q28; Q48; Q54

36 pages, September 12, 2013

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