Effects of taxes and climate policy instruments on harvesting of managed forests and on tropical deforestation

This dissertation examines the effects of taxes and policy instruments that aim to regulate climate services from forests. It consists of a summary section and four articles. Articles (I) and (II) examine the effects of taxes on management decisions in the context of managed boreal forests distinguished by forest-owners’ amenity preferences and also their age. Articles (III) and (IV) examine the role of carbon-based policy instruments in the presence of taxes on land incomes in curbing tropical deforestation. Article (I) reveals that the intensity of forest-owners’ preferences for forest amenities affects the non-neutrality of forest taxes pertaining to forest harvesting. Therefore, the effects of taxes depend on this intensity. This highlights the importance of developing methods to measure forest-owners’ amenity preferences quantitatively. Article (II) shows that the age of forest-owners governs their propensity to consume as opposed to leave bequests. Furthermore, it shown that the effects of capital income and inheritance taxes vary across different age-groups of forest-owners. Article (III) demonstrates that taxes on forestry and cash-crop incomes, per se, may be ineffective in curbing tropical forest loss. The carbon payments may complement these taxes, and an effective policy to combat tropical deforestation should jointly target forestry and cash-crop sectors. Article (IV) demonstrates the link between carbon compensation policies and land income taxation. An optimal carbon compensation scheme may require that national governments are allowed to use different compensation rates from that applied globally when passing national level compensations on to the local level. These results suggest that existing policies such as taxation should be accounted for in the analysis and design of international carbon policy instruments that aim at enhancing forests’ role in climate change mitigation.