Making Money Grow on Trees: Forest Policy in Light of a Carbon Tax

This paper addresses one specific aspect of reducing global climate change. Carbon emissions, global climate change, and the need to reduce the volume of these emissions has had greater attention recently. Logically, if carbon emitters are taxed for emissions under a carbon tax framework, there should be no reason not to subsidize for sequestering carbon. Since trees naturally sequester carbon, there is the possibility for them to fall under a carbon subsidy resulting in greater carbon sequestration in US forests. This paper considers necessary factors to include when designing a subsidy to encourage additional carbon sequestration in US forests under a carbon tax framework. It does this by modeling tree growth and carbon sequestration in trees. Next, the paper models the current value of an acre of trees, including the market value of timber, non-timber recreational values, and growing costs. After calculating the rate of return for a given acre of trees at any given point in time, the paper discusses the effect the subsidy has on the amount of trees grown per acre. Finally, it considers what effect the subsidy could have nationally on carbon sequestration, critiquing various provisions of the Markey Bill. Finally, the paper considers possible considerations and consequences of implementing the designed subsidy independently of any other legislation and some other possible ways to use trees to sequester carbon and then looks at the Obama administration’s carbon reduction emissions targets to see how useful a policy of this type could be in the near future.