CERE WP#2016-06, Eriksson, M., Brännlund, R. & Lundgren, T. Pricing Forest Carbon: Implications of Asymmetry in Climate Policy

In the current state of climate policy, levying taxes on fossil energy have been favored, while taxation of other emissions, such as those from bioenergy production, have to a large extent been disregarded. The CERE WP shows how this asymmetry in carbon policy will give too high levels of bioenergy production and too low levels of afforestation and avoided deforestation. The relative importance of not recognizing forest emissions in relation to not recognizing carbon sequestration from forests is also studied and the authors find that the largest welfare losses can be avoided, by just accounting for forest emissions. The paper uses a version of FOR-DICE, an integrated assessment model that includes the global forest biomass with forest controls. The authors conclude that the forest resource will be allocated inefficiently if forest carbon is not correctly priced, implying both taxing forest emissions as well as subsidizing carbon sequestration. A sequestration subsidy can be fully financed in the context of a broader climate policy where revenue is derived from both taxing fossil fuels and forest emissions.

Read the working paper