Managing Forests for Carbon and Timber: A Markov Decision Model of Uneven-aged Forest Management With Risk

This paper calculates steady state management decisions that, if followed indefinitely, provide an adaptive strategy that maximizes the value from timber and carbon sequestration when risk is present. By including carbon offsets directly in the objective function of a Markov decision process (MDP) model, we find long-term trade-offs exist between economic and ecological outcomes. An economic supply schedule is provided, which shows an exponential increase in the cost of sequestration. Moderate carbon prices effectively sequester additional CO2 from the atmosphere while having a positive impact on ecological indicators such as size and species diversity. In contrast, high carbon prices promote more of a monoculture in order to maximize expected forest value in the long run from carbon sequestration. This study finds evidence that the optimal adaptive decisions are sensitive to the magnitude of carbon prices, and consequently, so too are ecological outcomes. While some governments acknowledge the influence carbon markets have on the ecological integrity of the forest, fluctuations in carbon prices within a cap-and-trade market likely influence the optimal decision making of the forest manager, and thus, the ecological landscape of the forest itself.