Faustmann and the Climate

This paper presents an adjusted Faustmann Rule for optimal harvest of a forest in the presence of a social cost of carbon emissions. A contribution of the paper is to do this within theoretical and numerical frameworks that take account of the dynamics and interactions of the forest’s multiple carbon pools within an in…nite time horizon model. With our less restrictive assumptions we …nd that a social cost of carbon has a signi…cantly stronger e¤ect on the optimal harvest age than found in earlier studies. Considered is also how increased use of harvest residues for energy purposes and storage of carbon in building materials and furniture should in‡uence the length of the rotation period. The theoretical results are quanti…ed within a numerical framework.