Net national emissions, CO2 taxation and the role of forestry

The concept of net national emissions suggests that accumulation of carbon in forestry should be taken into account when countries buy CO2 permits or pay CO2 taxes. The paper analyses the question of the correct tax/subsidy programme for giving proper incentives to forest owners and utilizers of wood. The analysis uses a dynamic general equilibrium model with productive capital and the stock of forests as state variables. It turns out that in a decentralized economy forest owners should be subsidized and CO2 emissions should be taxed independently of whether they originates from wood or fossil fuels.