The Allowable Burn Effect: Does Carbon-fixing offer a New Escape from the Bogey of Compound Interest?

Forestry's long production period entails compound interest, often making investments unprofitable. Several plausible but dubious arguments purport to excuse forestry from bearing compound interest: the existence of externalities, the invalidity of social discounting, the ability of previous revenues to bear replanting costs. The so-called "allowable cut effect" permits comparison of improvement expenditures with immediate yield. In a somewhat similar way, planting forests to absorb carbon dioxide permits almost-immediate burning of fossil fuel, a benefit offering simple interest on the planting costs. Such carbon-fixing plantations appear to be economic even when it is uneconomic to plant for fuelwood production. In one case study, the unit cost of growing wood for burning was £356 per tonne coal equivalent, while the cost of carbon fixing was only £76 per tonne of coal burned. The economic acceptability of such planting is not, however, established: particularly, fossil fuel burning may have other malign effects.