The Effect of Forest Management Strategy on Carbon Storage and Revenue in Western Washington: A Probabilistic Simulation of Tradeoffs

Abstract

The objectives of this study are to understand tradeoffs between forest carbon and timber values, and evaluate the impact of uncertainty in improved forest management (IFM) carbon offset projects to improve forest management decisions. The study uses probabilistic simulation of uncertainty in financial risk for three management scenarios (clearcutting in 45- and 65-year rotations and no harvest) under three carbon price schemes (historic voluntary market prices, cap and trade, and carbon prices set to equal net present value (NPV) from timber-oriented management). Uncertainty is modeled for value and amount of carbon credits and wood products, the accuracy of forest growth model forecasts, and four other variables relevant to American Carbon Registry methodology. Calculations use forest inventory data from a 1,740 ha forest in western Washington State, using the Forest Vegetation Simulator (FVS) growth model. Sensitivity analysis shows that FVS model uncertainty contributes more than 70% to overall NPV variance, followed in importance by variability in inventory sample (3-14%), and short-term prices for timber products (8%), while variability in carbon credit price has little influence (1.1%). At regional average land-holding costs, a no-harvest management scenario would become revenue-positive at a carbon credit break-point price of $14.17/Mg carbon dioxide equivalent (CO e). IFM carbon projects are associated with a greater chance of both large payouts and large losses to landowners. These results inform policymakers and forest owners of the carbon credit price necessary for IFM approaches to equal or better the business-as-usual strategy, while highlighting the magnitude of financial risk and reward through probabilistic simulation.

Integrated Risk Assessment for the Blue Economy

“…This integrated approach is a core tenet of management in the era of the blue economy (Klinger et al, 2018), yet multi-faceted approaches have yet to be developed and adopted (Link et al, 2018). Some have argued that monetizing ecological benefits, e.g., by expressing them in the consistent unit of dollars, makes it possible to quantify trade-offs between economic and ecological considerations (Chan et al, 2012;Fischer et al, 2016). Broader use of combined approaches include ecosystem services (Chan et al, 2012), using ecological and economic objectives in decision frameworks (Cullen et al, 2007;Fischer et al, 2016) and factoring human behavior into scenario analyses (Wilen et al, 2002;van Putten et al, 2012).…”

“…Some have argued that monetizing ecological benefits, e.g., by expressing them in the consistent unit of dollars, makes it possible to quantify trade-offs between economic and ecological considerations (Chan et al, 2012;Fischer et al, 2016). Broader use of combined approaches include ecosystem services (Chan et al, 2012), using ecological and economic objectives in decision frameworks (Cullen et al, 2007;Fischer et al, 2016) and factoring human behavior into scenario analyses (Wilen et al, 2002;van Putten et al, 2012). However, some economists have argued that economic considerations are frequently relegated to the cost-benefit factors used in decision-making, post hoc and separate from risk assessment (Williams and Thompson, 2004;Hoffmann, 2011).…”

Tradeoffs in Timber, Carbon, and Cash Flow under Alternative Management Systems for Douglas-Fir in the Pacific Northwest

“…A variety of long-term field trials and simulation studies have demonstrated an opportunity for long-term timber supply to be increased by the extension of rotation ages closer to the culmination of Mean Annual Increment (MAI) of timber volume growth, and that the integration of commercial thinning may extend the culmination of MAI further into substantially older ages than current common practice [11][12][13][14][15][16]. The extension of rotation ages is also well-established as a means to increase average carbon storage in the forest system and is a common component in forest carbon policies and research [6,[17][18][19][20][21][22]. Previous work investigating the potential for carbon sequestration incentives to support the extension of rotation ages have specifically identified the coastal forests of the Pacific Northwest possessing unrivaled sequestration potential under a variety of carbon accounting approaches [17].…”

“…Studies intended to be policy-or management-relevant using FVS without describing how they calibrated or validated the model may be vulnerable to large errors, a vulnerability that may be particularly concerning if climate change factors are integrated into FVS projections where little to no independent validation data may be available. For example, although forest carbon offset programs often impose substantial costs to minimize the potential variability or error in field measurement, they tend to ignore much larger sources of variability associated with the use of growth-and-yield models over a century-scale timeframe, whether or not climate change is acknowledged [21].…”

“…For example, the market price of carbon required to close the financial gap between FSC scenarios and the BAU scenario would need to reflect the high startup and transaction costs for carbon market participation that present a substantial financial barrier to broader carbon market participation, particularly for smaller landholders [71][72][73][74]. For example, an analysis of the break-even carbon price for a 65-year rotation to match the NPV of a 45-year rotation in similar forest conditions that also included a more thorough accounting of carbon project development costs was $49.87 per tCO 2 e [21]. These carbon prices are several times higher than those observed in prevailing markets [26], and highlight what van Kooten observed more than twenty years ago: "In general, inclusion of the external benefits from carbon uptake results in rotation ages only a bit longer than the financial (Faustmann) rotation age" [6].…”