The optimal rotation age at stand level

This section presents the optimal rotation ages for timber only and carbon models for both Eucalyptus urophylla and Acacia mangium at a stand level. The results

are based on the assumptions of a carbon price equal to 0.051 million VND/m3 or 3 USD/m3, and a timber price of 0.37 millionVND/m3 for Eucalyptus urophylla

and 0.33 millionVND/m3 for Acacia mangium. The study uses an 8% discount

rate for households and a 6% for enterprises as discussed in section 3.4.2. The results for the optimal rotation lengths and their associated NPVs, as well as a sensitivity analysis with regard to the discount rate are presented in Table 4.6 and Table 4.7

.

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Table 4.6 Stand level rotation ages for timber only and carbon values for

Eucalyptus urophylla in forest households and enterprises*

Discount rate (%)

Households Enterprises

Timber only With Carbon Timber only With Carbon

T (years) NPV (m. VND/ha) T NPV T NPV T NPV 1 10 51.97 10 64.44 10 170.52 10 189.85 2 10 38.17 10 47.82 10 126.86 10 141.81 3 10 28.41 10 36.03 10 95.87 10 107.68 4 10 21.36 10 27.49 10 73.42 10 82.92 5 10 16.15 9 21.24 9 56.86 9 65.17 6 10 12.24 9 16.68 9 44.90 9 51.84 7 9 9.36 9 13.15 9 35.61 9 41.48 8 9 7.10 9 10.35 9 28.25 9 33.29 9 9 5.29 8 8.15 9 22.35 8 27.04 10 9 3.81 8 6.42 8 17.78 8 21.95

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According to Table 4.6

,

at the chosen discount rates, the timber rotation age for

Eucalyptus urophylla is 9 years for both households and enterprises. Adding

carbon benefits has no effect on the rotation age for Eucalyptus urophylla for both

households and enterprises. This is because both the rates of carbon uptake and of timber growth are faster in early years, however, the latter rate is much faster, making the optimal rotation age remain the same (i.e. the carbon sequestration rate is low so that it does not change the optimal rotation age). The NPV for enterprises is at least five times higher than that for households. For example, the timber only NPV is 7.1 and 44.9 million VND per ha for households and enterprises, respectively.

Table 4.7 Stand level rotation ages for timber only and carbon values for

Acacia mangium in forest households and enterprises*

Discount rate (%)

Households Enterprises

Timber only With Carbon Timber only With Carbon

T (years) NPV (m. VND/ha) T NPV T NPV T NPV 1 17 59.95 17 75.65 17 195.76 17 209.71 2 17 42.60 13 55.22 17 141.63 13 153.24 3 17 30.51 13 41.19 13 105.76 13 115.57 4 13 22.34 13 31.06 13 80.58 13 88.33 5 13 16.60 10 24.11 13 62.00 10 68.52

117 6 13 12.30 10 18.87 11 48.23 10 54.53 7 13 9.01 10 14.83 10 38.27 10 43.73 8 11 6.55 9 11.71 10 30.59 10 35.26 9 11 4.67 9 9.29 10 24.46 9 28.51 10 10 3.15 9 7.32 10 19.49 9 23.27

Note:*Carbon price: 0.051 millionVND/m3 or USD 3/m3, timber price: 0.33 millionVND/m3.

As shown in Table 4.7

, t

he timber rotation age for Acacia mangium is 11 years

for both types of ownership at the chosen discount rate. When carbon sequestration has a price of 3 USD/metric tonne, the carbon rotation age for

Acacia mangium is shorter by 2 years in the case of households, and remains the

same in the case of enterprises. This is because of the fact that higher timber productivity outweighs the effect of carbon sequestration on the optimal rotation age for enterprise planted forests. The carbon rotation age for Acacia mangium for

enterprises (i.e. 10 years) is longer than that for households (i.e. 9 years). Similar to the case of Eucalyptus urophylla, the NPV for enterprises are much higher than

that for households as a result of the higher timber productivity of the enterprises.

The optimal timber and carbon rotation ages for Eucalyptus urophylla and Acacia mangium (from 9 to 11 years) are shorter than their maximum annual increments

(from 15 to 81 years) as presented in sections 3.5.1 and 3.5.2. The maximum annual increments for timber growth and carbon sequestration for Acacia mangium (47 and 81 years, respectively) are well above those for Eucalyptus urophylla (15 and 42 years, respectively). Hence, at a given discount rate, the

optimal rotation ages for Acacia mangium are longer than those for Eucalyptus urophylla.

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The results of a sensitivity analysis of the optimal rotation age to discount rates are also shown in Table 4.6

and

Table 4.7. At positive discount rates, the optimal rotation length for Eucalyptus urophylla ranges from 8 to 10 years for both

households and enterprises with hardly any difference between the two except at discount rates 5% and higher when the optimal rotation age for carbon becomes slightly shorter than the optimal timber rotation age. For Acacia mangium, the

optimal timber rotation age varies from 9 to 17 years depending on the discount rates and with the carbon optimal rotation being shorter by several years especially at lower discount rates (1−5%). Both the timber and carbon optimal

rotation ages decrease with an increasing discount rate.

In terms of NPV, the carbon rotations all have higher NPVs as is to be expected with carbon having a value (Table 4.6

and

Table 4.7). The NPV values for enterprises are also higher than for households. This result follows from earlier discussion, which indicated that households, whose land is allocated by the Government, tend to plant trees with higher density, use less fertilizers and may apply incorrect growing techniques.

The finding that the optimal carbon rotation is shorter than the timber only rotation (more so for Acacia mangium than for Eucalyptus urophylla) is in

constrast to the result of van Kooten et al. (1995) and Gutrich and Howarth (2007). This is because of the nature of fast-growing trees in this study, where carbon uptake and timber growth are greater in early years compared to the slow- growing tree species in the analysis in the two studies mentioned. This difference can be shown by looking at the first derivatives of the timber growth functions and carbon sequestration functions used in those studies (Appendix 1).

In our analysis, the faster growth and sequestration makes it optimal to cut and replant trees sooner to maximize profit from selling timber and collect the carbon sequestration value. Our results are in line with the findings of Hartman (1976) that the incorporation of non-timber benefits associated with young forests

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induces a shorter rotation age compared to the Faustmann one. In addition, the relationship between the optimal rotation age and the discount rate agrees with the literature.

Given the results of the survey (Table 4.1

),

which show that actual harvesting age for households is 5 years and for enterprises 7 years, the optimal results obtained in this analysis all show longer rotations at all discount rates. This result indicates that policy intervention is needed to bring the actual harvesting age in line with the optimal rotation age. This will be further discussed in the section of policy analysis followed later in this chapter.

In document Optimal forest management for carbon sequestration and biodiversity maintenance : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Economics at Massey University, Turitea, New Zealand (Page 129-134)