Forest carbon tax and reward: regulating greenhouse gas emissions from industrial logging and deforestation in the US

Abstract

AbstractIndustrial logging activities associated with land development, agricultural expansion, and tree plantations generate significant greenhouse gas emissions and may undermine climate resilience by making the land more vulnerable to heat waves, water shortages, wildfires, flooding, and other stressors. This paper investigates whether a market-based mechanism—a forest carbon tax and reward program—could play a role in mitigating these climate impacts while advancing the Glasgow Leaders Declaration on Forests and Land Use, which seeks to end deforestation and forest degradation by 2030. We do this by describing key differences between the natural and industrial forest carbon cycle, identifying design features of a program that mimics existing carbon tax mechanisms, demonstrating how that program could be implemented using four US states as an example and completing a cash flow analysis to gauge potential effects on forestland investors. Across the states, we estimate the range of taxable GHG emissions to be 22–57 Mt CO2-e yr−1, emissions factors of 0.91–2.31 Mg C m−3, and potential tax revenues of $56 to $357 million USD yr−1. A model of net present value and internal rate of return for a representative forestland investor suggests that while the tax may reduce profitability somewhat (~ 30%) for a 100,000-acre (40,486 ha) acquisition, it would still generate an attractive rate of return (> 7%), especially for patient capital investors. We conclude that a forest carbon tax program is feasible with existing data available to US state agencies and could be a significant source of funding to promote climate smart forest practices without major disruptions of timber supply or forestland investments.