Economic impacts of carbon sequestration in reforestation: Examples from boreal and moist tropical conditions

Abstract

The impact of carbon sequestration on the financial profitability of four tree plantation cases in Finland and the Philippines were examined. On the basis of stem wood growth; the accumulation of carbon in forest biomass, the formation and decomposition of litter, and the carbon flows in wood-based products were assessed for each reforestation case representing boreal (Finland) and moist tropical conditions (the Philippines). Using different unit values for carbon sequestration the profitability of reforestation was estimated for a fixed 100 year period on a per hectare basis. The financial profitability of reforestation increased notably when the sequestered carbon had high positive values. For example, when the value of carbon sequestration was set to be Twenty-five United States Dollars per megagram of carbon (25 USD/Mg C), the internal rate of return (IRR) of a reforestation investment with spruce (Picea abies) in Finland increased from 3.2 % to 4.1 %. Equally, the IRR of reforestation with mahogany (Swietenia macrophylla, King) in the Philippines increased from 12.8 % to 15.5 %. The present value of carbon sequestration ranged from 39-48 % and from 77-101 % of the present value of the reforestation costs in Finland and the Philippines, respectively, when a 25 USD/Mg C shadow price and a 5 % discount rate were applied. Sequestration of one Mg of carbon in reforestation in Finland and the Philippines was estimated to cost from 10.5-20.0 and from 4.0-13.6 USD, respectively.