Dynamic optimisation of land-use systems in the presence of carbon payments
Russell Wise and Oscar Cacho
Sustainable resource use requires that an inter-generational approach
to management be adopted. Therefore the effects of current decisions on the
future state of resource stocks must be considered. The Clean Development Mechanism
(CDM) of the Kyoto Protocol presents an interesting context in which this can
be applied and dynamic-optimisation theory provides the methodological framework.
A relatively simple numerical model that simulates carbon stocks and flows in
trees, crops and soils under a range of management regimes is developed for
a landholding in Sumatra. The model is used within a dynamic-programming (DP)
algorithm to determine optimal tree/crop areas, fertiliser regimes, tree-rotation
lengths and firewood-harvest regimes. The DP model is solved for an individual
landholder faced with deteriorating land quality and the opportunity to receive
carbon credits by participating in a CDM-carbon project. The model is run for
various combinations of fertiliser and carbon prices and land quality. It is
found that optimal management depends on initial soil quality; that carbon and
fertiliser prices only affect optimal management when land quality is poor;
and that incentives to participate in carbon-sink projects only exist when soil
quality is poor.