Analysing the economic potential of forestry for carbon sequestration under alternative carbon price paths

Analysing the economic potential of forestry for carbon sequestration under alternative carbon price paths

Overview
The introduction of a carbon price under the proposed Carbon Pollution Reduction Scheme (CPRS) may be effective in promoting afforestation in Australia and contribute to Australia's emissions target through carbon sequestration. Rates of sequestration will depend on the stringency of the emissions reduction target, and hence the level of the carbon price. However, the rate of afforestation arising because of the carbon price may potentially affect the attractiveness of agricultural land use activities in Australia. In general, higher carbon prices are expected to decrease the profitability and attractiveness of other land use activities, such as agriculture, in favour of timber plantations and environmental plantings which generate carbon credits under the CPRS.

ABARE has been commissioned by the Commonwealth Treasury to estimate the potential increase in afforestation activity on agricultural land under four hypothetical scenarios and a reference case. The key assumptions underlying ABARE estimates are described in some detail in this report. Assumptions relating to the cost of investment of afforestation and the area of land available for switching are important determinants of the land use conversion. Afforestation activity is assumed to include the establishment of commercial plantations and environmental plantings between 2007 and 2100.