Capitalization and Capital Return in Boreal Carbon Forestry

Abstract

In this paper, an attempt is made to determine an intangible capitalization premium based on an expected further value increment of forest stands. Such premium cannot be determined through exponential interpolation. Firstly, any discount rate depending on maturity proposes clearcuttings soon after thinning as a computational artifact. Secondly, exponential interpolation with a constant discount rate violates an internal consistency criterion as the rotation age increases. Omitting the intangible capitalization premium, the carbon stock of boreal forest can be increased in a variety of ways (albeit at the expense of a capital return rate deficiency). A small excess volume can be economically gained by increasing sapling density. Greater excess volume is best achieved by restricting thinnings. A large excess volume is best achieved by omitting thinnings. Regardless of the technique used, enhanced carbon storage requires financial compensation in terms of a carbon rent. With the present European emission prices, there is no financial difficulty in establishing such a carbon rent arrangement.