Two Manifestations of Market Premium in the Capitalization of Carbon Forest Estates

Abstract

In this study, the effect of capitalization premium in forest estate markets on forest management and climate change mitigation economics is investigated. It is shown that proportional goodwill in capitalization induces linear scaling of the financial return, without any contribution to sound management practices. However, there is a financial discontinuity, as harvesting deteriorates goodwill. Such deterioration might be partially avoided by entering the real estate market. Conversely, a capitalization premium set on bare land as a tangible asset would increase timber storage and carbon sequestration. Observations indicate that the proportional goodwill is closer to reality within the Nordic Region, resulting in continuity problems.