CO2-Taxing, Timber Rotations, and Market Implications

WithHans Fredrik Hoen, Birger Solberg

The build-up of greenhouse-gases (GHG’s) in the atmosphere can be seen as a depletion of a non-renewable resource, namely the absorptive capacity of the atmosphere. A tax scheme on fossil fuels could provide incentives so that the substitution from fossil fuels to a non-GHG backstop energy technology is optimally timed. We argue that a consistent tax scheme should include subsidies and taxes as biomass is produced and decayed in order to let the economy utilize the possibility to, at least temporarily, increase the amount of carbon stored in forest biomass and thus delay the time at which a higher cost backstop energy technology must be introduced. A study of how such a subsidy/tax scheme would impact forest rotation ages is provided. The consequences of a carbon tax on the markets for wood based products and the total build-up of CO2 in the atmosphere are discussed, and, finally, some opinions are presented on what types of quantitative models would be preferable to analyse these consequences.