The Australian government is currently assessing the viability of using forestry carbon sinks as a means of meeting its CO2 emission target under the Kyoto Protocol. As a direct consequence, the economic value of forests is undergoing significant change. Timber is no longer the only product to be taken into consideration when managers determine the profit maximising time to harvest. The effectiveness of policy in this area depends crucially on how the commercial forestry sector responds to such changes in value. Theoretical results conclude that a plantation for which carbon sequestration is taken into account will have a longer rotation than a forest which is grown for timber only. The particular institutional arrangements for recognising carbon sequestration will determine the extent to which the theoretical results will be played out. The Kyoto Protocol imposes some unique international institutional constraints.
This paper draws on the well known Faustmann theory to simulate the optimal forest rotation using Australian data. The results have implications for the commercial forestry sector and therefore for the effectiveness of Australian and international greenhouse policy.
