LAUSR

Abstract This study adapts the Faustmann model (1849) to include the effects of carbon-based payments for environmental services on the optimal rotation length of forest plantations. We assume payments occur at the end of the harvesting cycle and are based on the additional average carbon stock over the rotation length relative to an optimal management scenario without carbon incentives. We present numerical applications of our model based on the four most planted tree species in the world: Eucalyptus sp., Acacia sp., Pinus sp. and Tectona sp. Simulations were performed to quantify the impact of different payment levels (USD Mg CO2−1) on optimal rotation lengths and carbon stocks. We find diminishing sequestration returns to increasing carbon payments. Overall, our results suggest that targeting plantations with longer rotations, associated with slow-growing species, is a more cost-effective strategy to retain additional forest carbon stored (USD Mg CO2−1). However, such a strategy results in lower proportional increases in carbon stocks (Mg CO2 ha−1) compared to faster-growing species, which benefit the most from the carbon incentives. As a result, increasing payments for additional carbon stored could change the choice of which tree species to produce and ironically promote plantations with lower total carbon stocks.