Farm forestry, carbon-sequestration credits and discount rates

Abstract

Large-scale transformation of agricultural land to forests will reduce atmospheric carbon levels and may help mitigate dryland-salinity emergence. Carbon sequestration is an ancillary benefit of farm forestry, for which payments may provide landholders with an incentive to plant trees. Several approaches have been proposed for accounting for temporary carbon sequestration. In this paper, we investigate the 'ideal' accounting system, where the forest owner would be paid for carbon sequestration as the service is provided and redeem payments when the forest is harvested and carbon is released back into the atmosphere. We demonstrate how discounting affects the net present value of the forest when carbon sequestration is taken into account under this ideal system. Not all carbon is released back into the atmosphere at harvest, however, since a large proportion may remain fixed in forest products for many years. Here, we compare the profitability of the forest under full redemption of credits at harvest, with the profitability under partial redemption of credits at harvest followed by annual redemption post-harvest as the carbon in durable forest products decays. The analysis is based on simulation of farm-forestry systems in southeastern Australia.