Forest Valuation under Carbon Pricing

Emissions trading schemes are increasingly being adopted to combat climate change. New Zealand created the worlds first "all sectors all gases" such scheme in 2008, awarding tradable credits for carbon sequestration and imposing liabilities for emissions (i.e. harvest or deforestation) from forestry. Adding carbon pricing as a decision variable complicates forest and forest land valuation, highlighting the real options available to foresters (i.e. to defer harvest or to change land use). Standard forest valuation methodologies do not properly capture the value impacts of carbon pricing on forestry. This book was commissioned by the New Zealand Ministry of Agriculture and Forestry, and develops a new approach - bootstrapping real options analysis (BROA) - to address this shortcoming. The BROA approach is rich enough to capture the complexities of forest valuation under carbon pricing, while remaining tractable enough to find practical application. It should be useful to academics interested in valuing complex real options, as well as to academics, practitioners and policymakers interested in evaluating the impact of carbon pricing on forestry and forest land use.