Forest Valuation under Carbon Pricing

Emissions trading schemes are increasingly beingadopted to combat climate change. New Zealand createdthe world's first all sectors all gases such schemein 2008 awarding tradable credits for carbonsequestration and imposing liabilities for emissions(i.e. harvest or deforestation) from forestry. Addingcarbon pricing as a decision variable complicatesforest and forest land valuation highlighting thereal options available to foresters (i.e. to deferharvest or to change land use). Standard forestvaluation methodologies do not properly capture thevalue impacts of carbon pricing on forestry. Thisbook was commissioned by the New Zealand Ministry ofAgriculture and Forestry and develops a new approach- bootstrapping real options analysis (BROA) - toaddress this shortcoming. The BROA approach is richenough to capture the complexities of forestvaluation under carbon pricing while remainingtractable enough to find practical application. Itshould be useful to academics interested in valuingcomplex real options as well as to academicspractitioners and policymakers interested inevaluating the impact of carbon pricing on forestryand forest land use.