The impact of a short-term carbon payment scheme on forest management

We examine the feasibility and impacts of a short-term carbon payment mechanism on forest management in boreal forests. Unlike under long-term carbon sequestration commitments over a rotation period, landowners are allowed in this scheme to sell temporal carbon credits based on stored carbon for one year and reissue them annually. Using numeric optimization we show that the short-term carbon payment mechanism has a profound effect on the timing and intensity of thinning, and the optimal rotation length showing up in higher timber yield and improved profitability. A comparison of the case where all carbon or only additional carbon above that in timber management benchmark is accounted for by the short-term payment scheme shows that the optimal forest management remains roughly the same. However, the increase in the profitability of forestry introduced by carbon credits is relatively small, if only additional carbon is credited. Hence the short-term mechanism may be feasible only under high carbon prices and it would most likely increase rotation length of mature stands with additionality requirement in boreal forests.