1. Research Triangle Institute P.O. Box 12194 · 3040 Cornwallis Road Research Triangle Park, NC 27709 Evaluating Forest Carbon Sequestration Potential in the U.S. with an Economic Model of the Forest and Agricultural Sectors Presented at Raleigh, NC Presented at“ Advances in Terrestrial Ecosystem Carbon Inventory, Measurements, and Monitoring ” Raleigh, NC October 3, 2000 Presented by Brian Murray

2. 2 Acknowledgements äModelers 3Bruce McCarl, Texas A&M 3Darius Adams, Oregon State University 3Ralph Alig, US Forest Service äFunding 3US EPA Climate Programs Division (through Stratus Consulting) (through Stratus Consulting)

3. 3 Introduction ä äU.S. Forests are currently a net carbon sink (200-300 MtC/yr) ä äDriving factors 3 3Biophysical 3 3Economic ä äClimate Policy Issues 3 3Sinks as a GHG mitigation strategy 3 3Sink potential and other forest functions are affected by CO 2 and climate

4. 4 Economic Research Questions äHow do current/projected economic forces define the landscape and its C content? äHow can policy changes modify economic incentives to sequester C ? äWhat is the cost of forest C sequestration relative to other mitigation options ? äWhat are the economic welfare implications of changes in the Policy environmentPolicy environment Natural environmentNatural environment

5. 5 What if carbon had a price? äLand use 3Land moves from less to to more C- intensive use => net forestation äForest Sector 3Increased forest management intensity 3Longer timber rotations (perhaps infinite) 3Favors products with longer shelf lives 3Bio-fuel potential

6. 6 What if carbon had a price? (cont’d) äAgriculture 3Incentive for soil/grassland management practices 3Afforestation/Deforrestation 3Modification of product mix 3Bio-fuel potential 3Shift in fertilization (N2O), rice(CH4), ruminant livestock(CH4), Manure mgt(CH4,N2O), Energy Use(CO2)

7. 7 What if carbon had a price? (cont’d) äWelfare Effects in Commodity Markets: 3High sequestration products (Wood?) ProducersProducers Direct: C Payments (+)Direct: C Payments (+) Indirect: Prices fall (-)Indirect: Prices fall (-) ConsumersConsumers Prices fall (+)Prices fall (+) 3Low Sequestration products (Ag?) Opposite effectsOpposite effects 3Net market welfare effect (-) => social cost

8. 8 FASOM Model: Adams et al 1996 äEconomic Model of US Forest and Agricultural Sectors äOptimization: MP algorithm allocates land and output in a way that maximizes market surplus 3across economic activities 3across time (100-year period) äCarbon accounting 3Ecosystem pools 3Products

9. 9 FASOM model detail

10. 10 FASOM Model Structure Forest sector model (TAMM based) Public timberland FI timberland NIPF timberland FORONLY land Convertible land Region Soft & Hard Prod. Class Mgt. Class Agricultural sector model Agricultural land Ag-only land Convertible cropland Convertible pastureland FORCROP CROPFOR FORPAST PASTFOR Urban, developed and special uses

11. 11 Applications and Key Findings äBaseline: US private forest base projected to sequester 100-120 MM t/year to 2040 3Declines after 2020 äIncremental C from targeted national programs (Land Economics 1999) 3Quantity: 15-70 MM t/year 3Cost (ave): $20-50 / ton 3Short-term: management intensity 3Long-term: afforestation 3N-Central hardwoods have more prominent role than previously believed

12. 12 Applications and Key Findings äTargeted Afforestation Programs 3Empirical evidence of “leakage” problem: offsetting land transfers out of forest 3Restricting land transfers addresses leakage, but raises costs Fewer acres enrollFewer acres enroll Reduced management intensity on enrolled acres and on traditional forest landsReduced management intensity on enrolled acres and on traditional forest lands

13. 13 Work-in-Progress äEvaluating C incentive programs of different scopes 3“Broad” - Entire land base 3“Narrow” - Specific lands or specific activities äSynergistic effects Changing C0 2, climate Changing C0 2, climate => Sequestration rates => Sequestration rates C $ incentives C $ incentives

14. 14 Conclusions äEconomic models can inform policymaking by showing how policies affect choices and outcomes 3Magnitude and relative cost of sequestration options 3Indirect effects of targeted policies Unintended consequencesUnintended consequences Perverse incentivesPerverse incentives 3Sensitivity of outcomes to policy design

15. 15 Conclusions (Cont’d) äThe broader the scope of the economic model, the better 3Earlier economic models of C sequestratiion ignored market feedback LandLand CommodityCommodity 3FASOM captures these feedbacks in the forest and agriculture sector 3Need for more general equilibrium model that captures other sectors ?

16. 16 Conclusions (Cont’d) äIs Forest Carbon Sequestration a Viable C Strategy? 3 Yes, but Timing is criticalTiming is critical Leakage & Permanence are issuesLeakage & Permanence are issues Non-carbon synergies and tradeoffs existNon-carbon synergies and tradeoffs exist It cannot entirely offset fossil fuel emissionsIt cannot entirely offset fossil fuel emissions

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