Spatial and Temporal Impacts of Incentive Payments for Forest-Based Carbon Sequestration

This thesis consists of two essays on impacts of incentive payments for forest-based carbon sequestration, focusing particularly on spatial and temporal aspects in the first and second essays, respectively. The purpose of the first essay is to determine if a county-level tax-based subsidy approach is a valid alternative to existing subsidy approaches for forest carbon sequestration. A land use change model is used to test the hypothesis based on a case study of Bureau of Economic Analysis Area 88 (BEAA 88). The empirical results show that the increased net return from waiving the property tax increases the share of forestland in BEAA 88, which in turn increases accumulation of carbon in the forest ecosystem. Also, the annualized county-level cost of supplying forest-based carbon sequestration was estimated to range between $16.47 and $573.31 per carbon ton across the 18 counties in BEAA 88. The estimates from the analysis can be used to anticipate reduced property tax collections required to reach forest-based carbon sequestration goals and considered as a reference bar to target selective counties for better cost efficiency in adoption of the county-level tax-based subsidy approach.

The second essay was to determine the different payments to forestland owners needed to achieve a target level of carbon sequestration under three different market conditions, namely the 2001-2006 real estate upturn, the 2006-2011 period that includes real estate downturn, and the 2001-2011 period that combines the two periods (referred to as “pooled period” or “average market conditions”). The empirical results for the BEAA 88 case study show that (i) a payment system may be more effective during a upturn than during pooled period or during downturn, (ii) higher payments are required for any given target level of carbon supplied during pooled period or during downturn than during upturn and the gap between required payment increases as target levels of carbon supplied increase, and (iii) a higher maximum amount of carbon supplied can be achieved during a market upturn than during pooled period or during a downturn. This results will help policymakers anticipate optimal budget allocations and contract prices under different market conditions.