Determination of optimal rotation period under stochastic wood and carbon prices

Chladna Z (2006). Determination of optimal rotation period under stochastic wood and carbon prices. Forest Policy and Economics 99 (1): 67-71. DOI:10.1016/j.forpol.2006.09.005.

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Abstract

The valuation of forest stands is traditionally based on a profit calculus involving revenue from wood sales and associated costs. Currently, the role of carbon management in forests is actively discussed. In a stochastic setting we extend the analysis of the optimal rotation period by considering uncertain revenue streams from carbon trading. We develop a real options model given uncertainties in future wood and CO2 price behaviour. A detailed sensitivity analysis of the numerical results for both cases - with and without carbon sequestration - is provided. We find that optimal rotation periods vary considerably with (i) the type of price process, (ii) the way how carbon income is defined, and (iii) the selection of discount rates.

Item Type: Article
Uncontrolled Keywords: Optimal rotation; Carbon sequestration; Real options
Research Programs: Forestry (FOR)
Bibliographic Reference: Forest Policy and Economics; 99(1):67-71 [2006] [2006]
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 02:19
Last Modified: 23 Feb 2016 11:51
URI: http://pure.iiasa.ac.at/7889

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