Subsidizing carbon sequestration via forestry in Maryland: A cost-benefit assessment

Rachel C Hettich, Purdue University

Abstract

Carbon sequestration by forestry is one way to mitigate climate change, and policy incentives are in place to encourage private investment in forestry. State and federal forestry cost-share programs subsidize the establishment of trees and the improvement of existing forested land. The objective of this research was to determine the effectiveness of such programs in Maryland and to compare the monetized benefits from permanently sequestered carbon with the current subsidies. To meet this objective, private and social cost-benefit analyses were conducted for three forestry investment scenarios in Maryland that coincide with the main cost-share programs available there. Sensitivity analysis considered a range of values for the social cost of carbon, the discount rate, and program implementation costs. The first program considered was the state funded Woodland Incentive Program (WIP), which provides cost-share assistance for improving timber management. According to the cost-benefit analysis results, the program provides sufficient incentives to induce participation. For a discount rate of 5%, the investment in pre-commercial thinning with participation in WIP increases discounted returns by $60.62 per acre. However, the total program enrollment over the past eight years was only 24,443 acres, compared to GIS analysis results that show approximately 737,000 acres across Maryland are eligible for the program. The total cost share assistance provided by WIP for a timber management improvement practice of pre-commercial thinning was $81.34 per acre, while from society’s view, the discounted carbon sequestration benefits provided by the improved timber stand were $146.82 per acre. By basing the cost-share assistance on the carbon benefits, and so increasing the subsidies, potential and actual program participation may converge. Two land conversion programs were considered: the federally funded Environmental Quality Incentives Program (EQIP) and the state funded Lawn to Woodland (L2W) Initiative. The cost-benefit analysis results show that the conversion from cropland to forest through EQIP does not provide enough incentive to induce program participation. Cropland rents generate income far greater than the benefits from forestry conversion, even when carbon benefits are included. In this case, the program is already providing subsidies larger than the carbon sequestration benefits, and the actual participation of only 344 acres between 2009 and 2013 is still very low. However, when using the pastureland rent, which is about half of the cropland rent, the conversion to forest is much more likely. There are around 750,000 acres of pastureland in Maryland that could be converted to forest to increase carbon sequestration across the state. The conversion from lawn to forest through L2W provided contrasting results. Since timber harvest is unlikely following the conversion from lawn to forest, the carbon benefits are much higher. The cost-share assistance was $335.91 per acre, and the discounted carbon benefits from the conversion were $1,245.87 per acre. Cost-share assistance based on the benefits from permanently sequestered carbon could justify increasing the incentive to participate by almost four times. Since neither land use in this scenario provides financial returns to the owner, the investment decision depends largely on the aesthetic values of lawn versus forest that the landowner possesses, which are difficult to estimate. GIS analysis estimated that approximately 230,000 acres are eligible for this new program across Maryland. Maryland is at the forefront when compared to other states, supplementing federal cost-share programs with its own resources to combat climate change. This analysis suggests the state financed initiatives may exhibit the potential to enhance carbon sequestration more than the federal programs, and for each state program there was scope to increase subsidies given the value of carbon benefits realized.

Degree

M.S.

Advisors

Abbott, Purdue University.

Subject Area

Forestry|Agricultural economics

COinS