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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 “ Advances in Terrestrial Ecosystem Carbon Inventory, Measurements, and Monitoring ” Raleigh, NC October 3, 2000 Presented by Brian Murray.

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Research Triangle Institute P.O. Box 12194 · 3040 Cornwallis Road Research Triangle Park, NC 27709

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

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

  3. Introduction • U.S. Forests are currently a net carbon sink (200-300 MtC/yr) • Driving factors • Biophysical • Economic • Climate Policy Issues • Sinks as a GHG mitigation strategy • Sink potential and other forest functions are affected by CO2 and climate

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

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

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

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

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

  9. FASOM model detail

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

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

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

  13. Work-in-Progress • Evaluating C incentive programs of different scopes • “Broad” - Entire land base • “Narrow” - Specific lands or specific activities • Synergistic effects Changing C02, climate => Sequestration rates C $ incentives

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

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

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

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