An optimal management strategy of carbon forestry with a stochastic price

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Abstract

An analysis for the value of carbon forestry needs to be provided for the successful establishment of the carbon offset market in Korea. We present an optimal management strategy for a forest owner who participates in the offset market. Given a stochastic process of the timber price following a geometric Brownian motion, the profit maximization problem of the forest owner is solved. The model finds an optimal harvest time in the presence of the carbon and timber revenues with opposing time effects. Sensitivity analysis is performed with respect to the volatility rate of the timber price and the discount rate. The presented model is applied to the study of the Korean larch case to identify the threshold timber price above which it is optimal to harvest trees.

Original languageEnglish
Article number3290
JournalSustainability (Switzerland)
Volume10
Issue number9
DOIs
Publication statusPublished - 2018 Sep 14

Keywords

  • Carbon forestry
  • Forest valuation
  • Optimal harvesting time
  • Stochastic price

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Renewable Energy, Sustainability and the Environment
  • Management, Monitoring, Policy and Law

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