The economics of using forests to increase carbon storage

Changes in forest-management practices have the potential to increase forest land carbon storage, which would help to reduce CO2 concentrations in the atmosphere linked to climate change and contribute to Kyoto Protocol targets for signatory countries. However, successfully increasing carbon storage while maintaining economic profitability is challenging because of the long planning horizons required for many forest activities and slow carbon sequestration rates in northern forests. The literature on the economics of forest management for carbon storage is unfortunately sparse and, in many instances, confused and misleading. Three carbon valuation equations are widely used that give contradictory results, with two of them (flow summation and average storage) ignoring the time-value carbon benefits and other essential data. Only the discounted carbon equation gives reasonably interpretable economic results. As well, many studies have omitted essential economic gradients that result in structurally questionable results. I review the literature, highlighting deficiencies in equations and how analyses are structured with the intent to produce a reasonable method of interpreting previous work and advice for future studies.