Diverging incentives for afforestation from carbon sequestration: An economic analysis of the EU afforestation program in the south of Italy

This study analyses the change in faustmannian age considering the social benefits due to carbon sequestration under the Regulation 2080/92, the subsidies provided by the afforestation program and investigates, from the social point of view, the profitability of afforesting agricultural land. The analysis refers to Calabria, a region situated in the south of Italy. Representative species are chosen for this study. The optimal harvesting age excluding social benefits varies between 32 and 40 years according to the species considered. When including social benefits, optimal harvesting age increases for a carbon price of 20 €/t to 34-44 years and is close to the one excluding them. The inclusion of subsidies to encourage afforestation shortens the optimal harvesting age to 17-20 years from the forest owner's point of view. Interestingly the provision of subsidies contributes to a substantial increase in social loss due to the differences in optimal harvesting ages: starting from zero C price the loss vary between 65 and 165 €/ha according to the species used and increases with rising carbon prices up to 200-400 €/ha for carbon price of 100 €/t. Furthermore, results suggest that from the social point of view the profitability of afforesting agricultural land in the study region very much depends on the price of carbon, on the type of agricultural land afforested and on the species used.