Forest rotation lengths under carbon sequestration payments

★ This paper represents work completed at the Australian National University. I am now working at the Productivity Commission. The views expressed in this paper do not necessarily reflect those of the Productivity Commission. Carbon dioxide emissions resulting from direct human activities, primarily fossil fuel use and land clearing, have altered the global carbon cycle. Carbon is absorbed (sequestered) by plant matter during photosynthesis, so that approximately 50% of the dry weight of a forest's biomass is carbon. This paper examines how payments to foresters for the carbon sequestered in their trees would affect harvesting decisions. It uses a theoretical multi-crop model adapted from the original Faustmann formula to consider different scenarios of the degree of carbon liability incurred at the time of harvest, and their impact on the length of the optimal crop rotation. These results are then contrasted with the equivalent output from a numerical model based on a simulated New South Wales Pinus radiata plantation. The finding of the paper provides an insight into which carbon sequestration payment policy would be the best at aligning public and private incentives.