Optimizing forest management in Finland with carbon subsidies and taxes

The carbon balance of forestry depends on the management, assortment distribution of harvested wood, end use of products, harvesting and processing releases, and substitution effects. This study developed a simulation–optimization system in which all these elements were incorporated. The simulation model consisted of a typical tree stand growth simulator augmented with a decomposition model for calculating carbon releases from the decomposition of deadwood, cutting residues, and products. The model allows managers and policy makers to analyze the effects of carbon pricing, substitution rates and assortment distributions, among others, on the optimal stand management, and estimate the carbon balances of alternative management systems. The case study calculations showed that the long‐term carbon balance of a managed forest is negative without substitution effects. Substitution effects may convert the balance from negative to positive. The carbon balance of pine forest is clearly better than that of spruce forest, which is mainly because of the poor carbon balance of spruce pulpwood. If there are no substitution effects, forest management is a carbon source with 0.1tha^‐1 a^‐1 of carbon releases from pine forestry, and 0.5tha^‐1 a^‐1 from spruce forestry. With low substitution rates (50% of carbon in biofuel and 33% of carbon in sawn wood replace fossil carbon), spruce is carbon‐neutral and pine is a clear sink with 0.38tha^‐1 a^‐1 carbon sequestration. The same sink effect can be obtained in spruce forestry with a higher substitution rate (75% of carbon in biofuel and 67% of carbon in sawn wood replace fossil carbon).