With the advent of the Kyoto Protocol and its recognition of the use of forestry activities and carbon sinks as acceptable tools for addressing the issue of the build-up of atmospheric carbon, the potential role of planted forests as a vehicle for carbon sequestration has taken on a new significance. Additionally, the emergence of tradable emission permits and now tradable carbon offsets provides a vehicle for financially capturing the benefits of carbon emission reductions and carbon offsetting activities. In a world where carbon sequestration has monetary value, investments in planted forests can be made with an eye to revenues to (at least two) joint outputs: timber and the carbon sequestration services.
The first section of this paper examines the Patagonia region of Argentina, as an example of an area where carbon sequestration values combined with timber values create financial incentives for creating planted forests, which could not be justified on the bases of timber values alone. The paper uses a present value approach to evaluate the costs and benefits of plantation forestry in a "representative" site in Patagonia. A basic timber harvest scenario is developed and then a number of alternative scenarios are examined. These introduce carbon as an additional product to be produced "jointly" with timber. The scenarios include alternative rotation periods, alternative prices for carbon offsets, and a brief examination of the effect of undertaking a specific silvicultural activity.
In the second section of the paper the results of this analysis are considered in the context of a discussion of the various types of institutional arrangements that might be required to provide a market for the carbon sequestration services provided by the planted forests. The paper identifies, examines and discusses a number of potential institutional arrangements that exist or are under discussion for marketing carbon sequestration services. A number of problems that may arise with offset credits and some of the innovative institutions that may be created are identified and discussed.