Permanence of Carbon Sequestered in Forests under Uncertainty

In this paper we examine the issue of permanence in the context of sequestering carbon through afforestation. We develop a dynamic nested optimal control model of carbon sequestration associated with the decision to afforest a tract of land given there are uncertainties associated with fire and insect/disease hazards. Conceptually, these potential hazards are similar in that their occurrence at any time t is uncertain and landowners can take specific actions – although generally different actions - in any time period t to reduce the probability of sustaining losses related to them. The hazards differ, however, in that fire represents a large loss in carbon at a moment in time, while insect/disease infestations are more likely to be reflected in a period of significant slowing of the rate of carbon accumulation than was anticipated followed by a sustained period of slowly decreasing carbon losses. The nature of these losses will influence the design of incentives under GHG mitigation frameworks that require carbon losses to be replaced as well as the strategies farmers adopt to deal with the uncertainties associated with these events occurring.