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Forest valuation under the New Zealand Emissions Trading Scheme : a real options binomial tree with stochastic carbon and timber prices.

Tee, J. and Scarpa, R. and Marsh, D. and Guthrie, G. (2014) 'Forest valuation under the New Zealand Emissions Trading Scheme : a real options binomial tree with stochastic carbon and timber prices.', Land economics., 90 (1). pp. 44-60.

Abstract

Under the New Zealand Emissions Trading Scheme, forests planted on or after January 1, 1990, earn carbon credits. These credits have to be repaid when the forest is harvested. This paper analyses the effects of this scheme on the value of bareland on which radiata pine is to be planted. A real options method is developed and applied, assuming stochastic carbon and timber prices. We find that land value increases by about 73%, with the optimal rotation age substantially lengthened. The derived optimal harvest price thresholds are useful in deciding whether to harvest or to wait. (JEL Q23, Q28)

Item Type:Article
Full text:Publisher-imposed embargo
(AM) Accepted Manuscript
File format - PDF (Copyright agreement prohibits open access to the full-text)
(924Kb)
Status:Peer-reviewed
Publisher Web site:http://dx.doi.org/10.3368/le.90.1.44
Record Created:04 Feb 2016 10:35
Last Modified:04 Feb 2016 11:43

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