Capitalization and Capital Return in Boreal Carbon Forestry

Abstract

In this paper, an attempt is made to determine an intangible capitalization premium based on an expected further value increment of forest stands. Such premium cannot be determined through exponential interpolation. Firstly, any discount rate depending on maturity proposes clearcuttings soon after thinning as a computational artifact. Secondly, exponential interpolation with a constant discount rate violates an internal consistency criterion as the rotation age increases. Omitting the intangible capitalization premium, the carbon stock of boreal forest can be increased in a variety of ways (albeit at the expense of a capital return rate deficiency). A small excess volume can be economically gained by increasing sapling density. Greater excess volume is best achieved by restricting thinnings. A large excess volume is best achieved by omitting thinnings. Regardless of the technique used, enhanced carbon storage requires financial compensation in terms of a carbon rent. With the present European emission prices, there is no financial difficulty in establishing such a carbon rent arrangement.

Two Manifestations of Market Premium in the Capitalization of Carbon-Forest Estates

“…Moderate increases in timber stock can be gained by restricting thinnings to large trees, while large increases are best achieved by omitting thinnings (Figures 12-17). Interestingly, these results align with those reported previously without inflated capitalization [32,33].…”

“…A large excess volume is best achieved by omitting thinnings. These results are qualitatively the same as in recent studies omitting any goodwill [32,33]. The reason is that the proportional goodwill merely induces a linear scaling in the capital return rate according to Eqs.…”

“…A large excess volume is best achieved by omitting thinnings. These results are qualitatively the same as in recent studies omitting any goodwill [32,33]. The qualitative similarity appears even if the inflated bare land value does not induce any linear scaling in the capital return rate, and it does affect management practices as indicated in Figs.…”

“…We apply a procedure first mentioned in the literature in 1967, but applied only recently [36,37,38,39,40,41,42,32,33]. Instead of discounting revenues, the capital return rate achieved as relative value increment at different stages of forest stand development is weighed by current capitalization, and integrated.…”

“…For climate change mitigation purposes, some institutions include carbon sequestration in their business strategies [27,28]. However, enhanced carbon sequestration generally induces a deficiency in the gained financial benefit [29,30,31,32,33].…”