Abstract

This paper examines the potential and the cost of promoting forest carbon sequestration through a tax/subsidy to land owners for reducing/increasing carbon storage in their forests. We use a partial equilibrium model based on intertemporal optimization to estimate the impacts of carbon price (the tax/subsidy rate) on timber harvest volume and price in different time periods and on the change of forest carbon stock over time. The results show that a higher carbon price would lead to higher forest carbon stocks. The tax/subsidy induced annual net carbon sequestration is declining over time. The net carbon sequestration during 2015–2050 would increase by 30.2 to 218.3 million tonnes of CO₂, when carbon price increases from 170SEK to 1428SEK per tonne of CO₂. The associated cost, in terms of reduced total benefits of timber and other non-timber goods, ranges from 80SEK to 105.8SEK per tonne of CO₂. The change in carbon sequestration (as compared with the baseline case) beyond 2050 is small when carbon price is 680SEK per tonne of CO₂ or lower. With a carbon price of 1428SEK per tonne of CO₂, carbon sequestration will increase by 70 million tonnes of CO₂ from the baseline level during 2050-2070, and by 64 million tonnes during 2070–2170.