Carbon Sequestration and the Optimal Economic Harvest Decision

This thesis is a collection of four papers that explore the economics of forest carbon sequestration and optimal harvest decision, considering carbon storage in three major carbon pools: biomass, dead organic matter and wood product. The first three papers use a dynamic programming approach to determine the optimal harvest decision for a forest stand in the boreal forest of western Canada that provides both timber harvest volume and carbon sequestration services. The last paper uses an analytical model to confirm the findings in the first three papers that show that the optimal rotation age is dependent on the carbon stocks in the dead organic matter and wood product pools.;In the second paper, the system is described by three state variables: stand age and the amount of carbon in the dead organic matter and wood product pools. The results of the study suggest that optimal behaviour of a landowner does not change much between cases where the market considers and ignores carbon storage in the wood product pool or between cases where the market considers and ignores fossil fuel carbon emissions. The results also indicate that the optimal decision to harvest is sensitive to current stocks of carbon in the wood product pool, especially when carbon prices are high and the wood product stocks are also high.;The third paper demonstrates that alternative baselines have little or no effect on the optimal decision, but can have a large effect on financial return to landowner. In the third paper, the forest stand is described by four state variables: the age of the stand, the initial stand age, carbon stocks in the DOM pool and the initial carbon stocks in the DOM pool.;In the last paper, an analytical model is used to demonstrate that the optimal harvest decision is dependent on the initial DOM and wood product stocks. This finding is consistent with the results in the previous papers.;In the first paper, the state of the forest at any point in time is described by stand age and the amount of carbon in the dead organic matter pool. Stand age is used as the independent variable in merchantable timber volume and biomass functions. The results of the study indicate that while optimal harvest age is relatively insensitive to carbon stocks in dead organic matter, initial carbon stock levels significantly affect economic returns to carbon management.