Carbon and Timber Management in Western Oregon under Tax-Financed Investments in Wildfire Risk Mitigation

We examine how forest taxation should be designed when tax revenues are used to finance expenditures on wildfire risk mitigation and when forest carbon storage has value. A model is solved sequentially in two stages by a forest tax planner and a representative private landowner. The planner considers two forest tax instruments currently used by state agencies in Oregon: 1) a per acre land tax, and 2) a unit tax on timber harvest. A numerical representation of the model shows that the optimal tax rates depend on whether private landowners are compensated for stored carbon. Our results show that neither the acre-based fee or a harvest tax is able to incentivize the same levels of sequestration as a carbon price. However, a neutral tax like the acre-based fee is preferred when the external benefits of carbon sequestration are captured by the private landowner.