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Abstract
Several approaches have been proposed for accounting for temporary carbon
sequestration in land-use change and forestry projects that are implemented to offset
permanent emissions of carbon dioxide from the energy sector. In a previous paper,
we evaluated the incentives provided by some of these approaches. In this paper, we
investigate further what we call the “ideal” accounting system, where the forest owner
would be paid for carbon sequestration as the service is provided and redeem
payments when the forest is harvested and carbon is released back into the
atmosphere. We demonstrate how discounting affects the net present value of the
forest when carbon sequestration is taken into account under this ideal system. Not all
carbon is released back into the atmosphere at harvest, however, since a large
proportion may remain fixed in forest products for many years. Here, we compare the
profitability of the forest under full redemption of credits at harvest, with partial
redemption of credits at harvest followed by annual redemption post-harvest as the
carbon decays in a durable forest product. The analysis is based on simulation of
farm-forestry systems in south-eastern Australia.