Internalizing carbon value for forest landowners has the potential to increase carbon supply in forest and mitigate CO2 in the atmosphere. In this study, we developed a modified Hartman model to investigate how payments of carbon offsets impact the optimal management of hardwood forests in Kentucky under condition of catastrophic events. Different carbon markets were modeled and several sensitivity analyses were performed to examine varied management strategies to achieve maximized financial return or highest environmental benefits. Furthermore, another model was developed to incorporate the impact of risk aversion to price uncertainty using E-V model. We were able to identify the most favorable scenarios for landowners and society in the face of price variability and catastrophic risk.

Sequestering carbon in standing biomass, using woody bioenergy, and using woody products are the three potential ways to utilize forests in reducing greenhouse gases (GHGs) and mitigating climate change. These forestry related strategies are, however, greatly influenced by the existing markets and market based policies. This study focuses on the first two forest strategies. It investigates the combined impact of carbon and woody bioenergy markets on two different types of forests in the US – oak dominated mixed hardwood forests in the Central Hardwood Forests Region and loblolly pine forests in the southeastern US. A modification of the Harman model was used for the economic analysis of carbon sequestration and harvesting woody biomass for bioenergy. A forest carbon life-cycle assessment was used to determine the carbon emissions associated with management of forests and harvesting of wood products. Results from this study indicate that carbon payments and woody bioenergy production increase the land expectation value (LEV) for both forest types.