Forest ecosystems remove carbon dioxide from the atmosphere and convert it to organic carbon stored in terrestrial pools of biomass, soil, and residues. This process lowers atmospheric carbon dioxide concentrations, thereby mitigating a contributor to future climate-change threats. This article in the journal Encyclopedia of Energy, Natural Resource and Environmental Economics explores the economics of incentive-based approaches to managing forests and changing land use to store more carbon, such as those that are part of ongoing policy efforts throughout the world. It shows how incentives for carbon sequestration change the optimal time to harvest a timber stand, thereby working the intensive supply margin, increasing the amount of carbon stored in forests over time. It also shows how carbon compensation can attract land into forests from less carbon-sequestering land uses such as crop agriculture, thereby increasing carbon storage on the extensive margin. It provides examples from empirical studies of carbon sequestration from afforestation, forest management, and reduced emissions from deforestation.
Nicholas Institute for Environmental Policy Solutions