Maximizing the profitability of forestry projects under the Clean Development Mechanism using a forest management optimization model

Forestry projects under the Clean Development Mechanism (CDM) may provide several benefits for developing countries. Under the current rules, these projects can participate in both timber and carbon markets. Thus, project developers need to know what the optimal forest management design would be to maximize their revenues according to timber and carbon market expectations while at the same time complying with international rules adopted for carbon sequestration projects under the CDM. We developed Carbomax, a management optimization model that simulates forest growth under different forest management regimes (intensity and frequency of thinnings and rotation lengths). A genetic algorithm was used to find the management regime that maximizes the Annual Equivalent Value (AEV) of projects under different market scenarios. We tested our model under a wide variety of possible scenarios for forestry projects. Five tropical plantation species (A In its jorullensis, Cordia alliodora, Pinus patula, Cupressus lusitanica and Eucalyptus grandis) were evaluated, at discount rates of 4, 7 and 10%, and certified emissions reduction (CER) prices of US$3, 7, 10 and 13. Temporary CERs (tCERs) and long-term CERs (lCERs) prices were considered in the evaluation and were calculated as a variable proportion of CER price. Results showed that optimal forest management is sensible to carbon and timber market conditions. Under each discount rate, as CER price increased, frequency and intensity of thinnings tended to decrease and optimal thinnings and rotation lengths tended to be reached at older ages. The largest AEV were obtained with discount rates of 10%, CER prices of US$13 and rotation lengths of 40 years for all species. For those species with higher timber prices, thinnings tended to be more frequent and at early ages of the plantation. For all species optimal thinnings were found at 35 years of plantation age. tCERs was selected by the model as the best choice to maximize the profitability of the projects. (c) 2006 Elsevier B.V. All rights reserved.