The Economic Value of Selling Carbon Credits from Restored Forests: A Case Study from the Navajo Nation's Tribal Forests

Abstract

The goals of this study were to promote restoration of forest ecosystems through fire hazard reduction treatments and to evaluate potential economic benefits of carbon credits to the Navajo Nation. We used the historic Navajo Nation’s Continuous Forest Inventory data to calibrate the Forest Vegetation Simulator (FVS) with growth increments and used the FVS to run simulations that encompass the next 50 years. We calculated C revenues using two carbon accounting approaches: (1) reduced buffer pool under the Climate Action Reserve protocol and (2) increased C stocks based on with-and-without analysis. We investigated nine C price scenarios, including constant- and rising-price trajectories; performed discounted cash flow analyses; and calculated net present worth (NPW). When timber was the only marketable output, using a real alternative rate of return (ARR) of 4%, the NPW of target basal area (BA) 40, 70, and 100 ft 2 /ac were $144.89, $267.98, and $308.57/ac, respectively. When both timber and C were marketable outputs, with a C price of $3/ton, the NPW of target BAs of 40, 70, and 100 ft 2 /ac were increased to $119.26, $256.83, and $306.31, respectively, under the first accounting approach, and were increased to $168.62, $57.29, and $184.09, respectively, under the second accounting approach. Our results indicate that C accounting method, C price, and landowner’s ARR affect forest landowner’s profitability in participating in the C market.