Carbon monitoring costs and their effect on incentives to sequester carbon through forestry

Technically, forestry projects have the potential to contribute significantly to the mitigation of global warming, but many such projects may not be economically attractive at current estimates of carbon (C) prices. Forest C is, in a sense, a new commodity that must be measured to acceptable standards for the commodity to exist. This will require that credible C measuring and monitoring procedures be in place. The amount of sequestered C that can be claimed by a project is normally estimated based on sampling a number of small plots, and the precision of this estimate depends on the number of plots sampled and on the spatial variability of the site. Measuring C can be expensive and hence it is important to select an efficient C-monitoring strategy to make projects competitive in the C market. This paper presents a method to determine whether a forestry project will benefit from C trading, and to find the optimal management strategy in terms of forest cycle length and C-monitoring strategy A model of an Acacia mangium plantation in southern Sumatra, Indonesia is used to show that forestry projects can be economically attractive under a range of conditions, provided that the project is large enough to absorb fixed costs. Modeling results indicate that between 15 and 38 Mg of Certified Emission Reductions (CERs) per hectare can be captured by the simulated plantation under optimal management, with optimality defined as maximizing the present value of profits obtained from timber and C. The optimal cycle length ranged from 12 to 16 years and the optimal number of sample plots ranged from 0 to 30. Costs of C monitoring (in present-value terms) were estimated to be between 0.45 (Mg C) -1 to 2.11 (Mg C) -1 depending on the spatial variability of biomass, the variable costs of C monitoring and the discount rate.