Wood or carbon? A production possibility frontier approach to post-Kyoto forestry decision making in New Zealand

Abstract

Human induced global warming poses major risks to world ecosystems and economy. Carbon sequestration through increased forest biomass provides an immediate and low cost means to curb greenhouse gas emissions and has been a major focus of New Zealand’s post-Kyoto climate change mitigation strategy. In this thesis, we present a forest planning optimisation model to analyse the impact New Zealand’s emissions trading scheme has on forestry decisions of wood production and carbon sequestration. Production possibility frontiers for wood and carbon are simulated for carbon prices of $0 to $100 with the optimal proportions for three management alternatives of active tending, no tending and carbon farming found using linear programming. To account for the wide range of forest growing conditions the wood supply regions Central North Island, Northland, Marlborough and Otago are considered. Frontiers for each of the wood supply regions illustrate the trade-offs between wood and carbon production and provide insight into the potential economic efficiency of increased carbon sequestration in New Zealand’s planted forest. The opportunity cost in terms of timber revenue forgone per one tonne increase in the net present value of physical carbon storage is found to depend on the optimal proportions of the management alternatives. At approximately $3 per tonne the Central North Island, the most productive forestland, allows modest increases in carbon sequestration by initial changes from an active tending regime to no tending; however, more extreme shifts in carbon sequestration by changing from wood production to carbon farming is more efficient in less productive regions. The cost of pursuing the high levels of sequestration to range from approximately $27 to $42 per tonne; the timber revenue forgone by carbon farming is lowest for Marlborough. Our analysis shows an extent of increased carbon sequestration activity occurs only if there are strong enough carbon price signals presented to forest owners. This is crucial for effective emissions trading policy.