Jussi Lintunen and Jussi Uusivuori show in their winning article that an increase in the use of wood, despite it not being emission free, is optimal. However, this is so only if the biomass stock first increases. A subsidy on forest growth and tax on harvest leads to forest owners postponing their harvest, which increases biomass stock and carbon sequestration. As the rotation approaches its maximum level of sustainability, the harvest yield will increase and price on roundwood will fall, so that it can become optimal to use roundwood in energy generation.
Lintunen, J. and Uusivuori, J. (2016) On the economics of forests and climate change: Deriving optimal policies. Journal of Forest Economics 24, 130-156
(Click on headline to read the motivation)
Read the Motivation of the Award CommitteeWhile the importance of forests in combatting climate change has long been acknowledged, it has come under serious debate due to concerns regarding the use of forests for energy production. In fact, 6 of the 71 articles published in the 2016 and 2017 issues of the Journal focused on the question of carbon storage and the impact that it can have on policy outcomes. At the stand level, the question of carbon storage has been analyzed through the Hartmann model for internalizing externalities into optimal decisions, but at the broader societal and policy level, the literature is only beginning to deal with the many theoretical and applied questions that forests and climate change pose. Jussi Lintunen and Jussi Uusivuori make a serious contribution to the growing literature by developing a first-best optimal forest sector carbon policy analysis. In this manner, they explicitly evaluate the trade-offs between carbon storage in the forest and the carbon that is released through utilization. This derivation of policy outcomes is an important contribution to the literature and led to its recognition for this year’s Soren Wibe prize.
In their paper, Lintunen and Uusivuori use a forest and energy sector model with a carbon cycle module to show that renewability and carbon neutrality arguments do not necessarily warrant an emission-free status for wood use. They specify a model economy and couple it with a carbon cycle module including forest biomass in its multiple forms. They then solve for the competitive equilibrium with carbon externalities by optimizing the use of forest biomass when the costs and benefits of carbon flows are determined by the social cost of carbon. Their results show that an optimal policy subsidizes the production of wood products for their carbon sequestration. Correspondingly, carbon removals by biomass growth are subsidized and the harvest residue generation taxed. They provide a numerical solution of the model shows that, although the use of wood is not emission free, it is optimal to increase the use of wood, possibly also in the energy sector. However, before wood use can be increased, forest biomass must first be increased. The development of this carbon sink decreases net emissions until the forest resources reach a new equilibrium.
Jette Bredahl Jacobsen
About the prizeThe Sören Wibe Prize is awarded biannually to an article that presents considerable development in empirical knowledge or methodology in the field of forest economics and is published in the Journal of Forest Economics during the two preceding years. The article has been selected by an independent international committee consisting of three experts in the field of forest and environmental economics. Besides a diploma, the prize also contains a monetary award of 2000 Euro. We are grateful to the family of Sören Wibe and Elsevier, whose contributions made this award possible.
The authors will be invited to visit Centre for Environmental and Resource Economics (CERE) to attend a prize ceremony and give a lecture presenting the winning contribution. The exact date for this event will be announced later.