Treating irregularities in carbon price and discount schedule: resolving a nightmare for forest economics?
Price
C.
Willis
R.
2014
Classical forest economics posits an optimal sequence of constant rotations. Projected variation
of discount rate changes optimal rotation through time, as does projected relative price change
for multiple products. These factors greatly increase the difficulty of calculating NPV of multirotation
forestry projects, for traditional timber production or for multiple purposes. If, however,
a given schedule of time-dated carbon prices is used, combined with set discount rates, a
spreadsheet solution is practical and feasible. A given sequence of rotation lengths can be
evaluated and compared with alternative sequences. Beyond when both discount rate and carbon
prices are projected to stabilise, classical formulas can be used for perpetual series of constant
rotations. Among the consequences of using government-mandated values are: very high value
for most commercial forest crops; very long optimal rotation; favour for no-thinning regimes.
Bizarre consequences include a negative carbon account for regimes which are carbon-neutral; a
positive or negative value of a regime, depending on start date; a cropâ€™s being more valuable if
infected with a serious disease.
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