Capital Return Rate and Carbon Storage on Forest Estates of Three Boreal Tree Species
Shaun M. Tanger
Round 1
Reviewer 1 Report
see attached file
Comments for author File: 
Comments.pdf
Author Response
lines 66-73, i need clarification here. i couldn't follow the strategy and logic of amortizing the establishment costs. Is the author(s) saying that before they used thinning revenues to offset regeneration costs? and now they are waiting to capitalize those at the end of the rotation? How does that increase rotations (see the abstract)? seems the costs are carried longer and ceteris paribus it would shorten the rotation (without some other compensation). Also, carrying those costs for longer should increase the amount of inflation in the financial analysis correct? lines 203-211 did not clarify the question to me. Please a little more explanation would be useful.
Thank you for the comments.
The text has been modified in the Introduction, on lines 44-54:
“Recent treatments, based on the normal forest principle, have been based on observations collected from never-thinned spruce-dominated forests of age 30-45 years [9,13,14]. A few such stands have been used as normal stands, describing a few normal forests. Stand development until observation has been approximated in terms of empirical models, and further development of any normal stand in terms of a growth model [16,7,8]. In other words, observations collected from wooded forest stands were used as a starting point. Stand development was approximated for the past using empirical curve-fitting, and for the future using a growth model, based on a large Norwegian dataset [16]. All expenses occurring before the time of observation were included in a computation of internal rate of return, terminating as stand capitalization at the time of observation. All events expected in the future were considered in the growth model computation.”
Now, the above should make it clear how the initial expenses were treated in earlier papers. Thinning revenues had no role in it.
The text has been modified also on lines 73-80:
“A third significant difference to the recent investigations [9,13,14] is the amortization of regeneration expenses. As the treatment was based on observations at age 30-45 years, regeneration was assumed to result as the wooded stand observed. In other words, regeneration expenses were offset by the stand growth until the time of observation. Here, on the contrary, we capitalize the regeneration expenses at the time of regeneration and deduct the expenses first at the end of any rotation. It appears intuitively appealing to assign all previous expenses to the establishment of observed harvestable stands of age 30-45 years. In reality, stand regeneration contributes to stand yield until final cutting.”
This should now make it clear how the capitalization and amortization were done: capitalization at the beginning of any rotation, and amortization at the end of any rotation.
The author is not aware of any ceteris paribus that would indicate that carrying expenses longer in the balance sheet would shorten rotations – rather the opposite. Such effects depend on the type of growth function – however, one can experiment with Eq. (6) with different kinds of growth functions. Increasing the investments carried in the balance sheet increases optimal rotation time in the case of exponential growth, as well as in the case of linear growth. A third interesting comparison is with Fig. 8: reduced regeneration expense tends to shorten optimal rotation age.
It is mentioned on lines 224-225 that all treatments are made on a real basis, and thus inflation is not considered in any way.
I found the carbon portion of the paper to not be entirely necessary to the broader story being told as constructed. I suppose the logic is to incentivize the longer rotation age, but either the author(s) need to incorporate that sooner in the paper/flesh out the section more in-depth/or scrap it altogether. Also please provide an example of how you derived the price and explain those prices impacts in more depth.
A new paragraph has been written in the Introduction, on pages 82-85:
“To summarize the general framework of this study, microeconomic financial sustainability of forestry business from the forest owner perspective is discussed. Then, the microeconomics of mitigation of global climate change through carbon sequestration in Boreal forestry is investigated. Solutions for the interplay of the two are presented.”
The above indicates that an essential aim is to integrate the business perspective to climate change mitigation. The author naturally has no incentives to either shorten or lengthen rotation times – these issues are instead discussed in terms of financial and carbon stocking arguments.
A recent carbon emission price is now given on line 457.
The procedure resulting in the vertical axis observations in Figs. 10 and 11 is explained on lines 445-451.
A carbon rent can be derived from the carbon emission price as mentioned at lines 457-459. Such carbon rent is then comparable to the observables appearing in Figs. 10 and 11, as explained on lines 456-459 and 471-473. The results of this section significantly differ from earlier findings, as mentioned on lines 11-14, 455-461, 470-474, and 595-599.
also, if the author is going to extend prior work (which is fine), there needs to be a clearer distinction made as to the additional benefit of this paper. Where is this novel? Is it in the three species examined? then those growth curves need to be justified in the absence or reduction of establishment costs as its critical from that point forward in the paper.
The niche of this paper is in the application of new boundary conditions in comparison to a set of rather recent papers [9,12,13,14]. In the mind of the author, the change in the boundary conditions is rather significant, and the results differ correspondingly.
The newly introduced boundary conditions are now described on lines 44-54, 62-81, and 197-205. The novelty of the results is now discussed on lines 547-550, 552-558, 566-573, and 602-612.
Relatedly, all the equations and lines 174-179 are direct quotes from a previous paper by the authors. Forests 2020, 11(6), 643. I would correct any other instances of this in the paper before submitting elsewhere.
Thank you. One of the reference numbers here has been corrected.
Indeed, the subchapter “2.3. Financial treatment” is very similar to the recent paper. However, the earlier papers are clearly referenced – no one should be under the impression that it would be a new development. In principle, it would be possible to merely refer to the earlier papers. However, the author thinks this section should be here for completeness. On the other hand, it appears reasonable to retain the structure of the subchapter, so that an interested reader does not need to do unnecessary detective work in the search of eventual differences.
then those growth curves need to be justified in the absence or reduction of establishment costs as its critical from that point forward in the paper. while the author mentions that reducing regeneration costs to improve the capital rate of return, the growth, and yields for the natural stands or the other silvicultural options mentioned are the same as the purely planted stands from what I can tell. This needs to be addressed. Seems like it will provide overly optimistic results, since growth is likely to be lower for these cases. I’d like to see results without the removal of regeneration costs.
Thank you very much.
Now there is a new paragraph on lines 409-415, clarifying this issue.
Smaller Stuff
Need an equation for lines 426-428
Indeed, the text is nontrivial. However, the author does not think an Equation would help – it would merely contain one multiplication and one division. In an earlier paper, this issue has been clarified in terms of a consequence of Figures. Here, the logic has been clarified by adding the unit of any quantity mentioned in square brackets.
Citation for lines 24-25
Added.
Make sure the comment in the abstract corresponds to the discussion. Lines 10-11 & line 518
Thank you.
Yes, these statements are in concert.
Line 11: “Capitalizations are greater and rotations longer than in recent studies.” True
Line 12: “The capital return rate is a weak function of initial stem count and rotation age but ...” True
Line 518: “small differences in the expected value of capital return rate in Figs. 1, 5, and 8 propose that short rotation times possibly should be used.” True, and a direct consequence of Line 12.
Line 17: “Risk aversion theory proposes short rotations and...” True, and the same as Line 518.
Reviewer 2 Report
Dear Author, the paper "Capital return rate and carbon storage on forest estates of three boreal tree species " represents an interesting contribution to the discussion on carbon related investigations.
The introduction provides sufficient bacground on the topic, however, the given references could be updated and expanded with regard to a broad landfil, in order to compare the global conclusions.
Material and methods are accurately described, however the applied approach could have been placed more accurately, to define the nische for this paper and its contribution to the field.
line #179 please discuss the applications randomly. The paper could compare the approach, as the equation is well known and only lately applied.
Computational procedures are defined clearly. It is however unclear what part of the approach is original and which are only adopted.
The diagrams are prepared accurately. It seems that control is missing, however due to the specific of the analysis, the results are based on single run, as the sample amount is reduced.
I suggest to improve the resolution of the figures and meet the editorial criteria for figure preparision. I believe the data on figure 10. are placed in the wrong range, please expand the diagram.
The discussion and conclusions are supported by the results.
Author Response
Dear Author, the paper "Capital return rate and carbon storage on forest estates of three boreal tree species " represents an interesting contribution to the discussion on carbon related investigations.
The introduction provides sufficient bacground on the topic, however, the given references could be updated and expanded with regard to a broad landfil, in order to compare the global conclusions.
Thank you.
At this time, this author does not have any comprehensive knowledge regarding carbon forestry globally. It also appears that there are not many estate-level treatments available. Stand-level treatments typically consider temporal effects in terms of discounting, which significantly differs from the integration over the age distribution of stands within an estate, applied in this paper. The niche of this paper is in the application of new boundary conditions in comparison to a set of rather recent papers [9,12,13,14]. In the mind of the author, the change in the boundary conditions is rather significant, and the results differ correspondingly.
Material and methods are accurately described, however the applied approach could have been placed more accurately, to define the nische for this paper and its contribution to the field.
The text has been edited to express the contribution of the paper more clearly.
Lines 54-56 now define the regime more accurately.
There is a new paragraph summarizing the objective on lines 77-80.
A more detailed explanation about the change in boundary conditions on lines 190-198.
line #179 please discuss the applications randomly. The paper could compare the approach, as the equation is well known and only lately applied.
Computational procedures are defined clearly. It is however unclear what part of the approach is original and which are only adopted.
Indeed, the 1967 formula, expressed without much explanation, and obviously not understood by many individuals at the time, has been applied only recently. There has, naturally, been a significant evolution in the applications lately. It is now mentioned in the text that the first generations applied a geometrical sawlog content approximation. The adoption of an empirical correction changed the outcome, as now does the adoption of another set of boundary conditions.
The diagrams are prepared accurately. It seems that control is missing, however due to the specific of the analysis, the results are based on single run, as the sample amount is reduced.
Actually, there have been very many reference configurations, since the process of searching the maximum capital return rate has been iterative, as explained on lines 213-339. It is further worth noting that parameters are varied in the subsection “3.2. Sensitivity analysis”.
I suggest to improve the resolution of the figures and meet the editorial criteria for figure preparision. I believe the data on figure 10. are placed in the wrong range, please expand the diagram.
The ranges of the co-ordinate axis in Fig. 10 are correct.
Now there is another note about the design of Fig. 10 on line 447. Only positive excess volumes are included, and the axis are scaled to exclude observations where the denominator in the observable would approach zero.
The content of the vertical axis is explained on lines 436-442.
There was a typo on Fig. 13, which has now been corrected.
All the Figures are produced as vector graphics. The resolution obviously depends on the resolution of the viewing and printing devices used.
The discussion and conclusions are supported by the results.
Thank you.
Now there is a more detailed explanation regarding the novelty of the results on lines 533-538.
Reviewer 3 Report
Major Comments
The paper utilizes a continuous forest model to evaluate the role of stand establishments costs and thinnings on capital returns and possible role of carbon on average standing volumes and rotation ages/thinning regimes.
The paper finds that higher returns are realized if establishment costs are reduced. This is intuitive and consistent with stand level analysis. Findings indicate that higher initial planting rates lead to increased standing volumes/carbon stocks and longer rotations. Again, consistent with stand level analysis.
The paper, though the approach is from an estate level perspective, does not lend itself to any new insights not already gleaned from conventional stand level analysis.
The paper could be improved with providing more clarity around the model used and some of the key data and assumptions.
L208 – what is the rationale behind declining (non-linear) planting expenses ($/stem planted)? There is no difference in costs between species?
- 435 Just state the carbon emission price. Intuitively this makes sense (thinking of the stand-level model) but without more information this is very vague and the argument is not supported.
L.414-517/580-581 General risk theory is not superficially covered yet it is part of the conclusions. Either remove or make greater effort to include connect the ‘general theory of risks’ to results.
Minor Comments
l.13 ‘Negligence’ suggest not undertaking thinning is illegal or against some moral imperative.
l.35 Is it generally true carbon prices are too low to compensate for increased carbon storage around the world or only in the region of study? Please clarify.
l.45-46. Again, please clarify geographic location.
L66-74 – objective not clear as written
l.89 unnecessary dash ( - ) in resolution
- 103-104 - confirm height units – metres?
- 148-149 Last sentence unclear, please clarify.
- 177 – what is meant by ‘devastating’?
l 187 – awkward sentence - what is ‘young stand cleaning’?
l.275 what is Stem count, 1/ha label mean?
l.294-295 and Fig 4 l.302-302. Use of expected ‘value’, a monetary term, and volume together is very confusing. Does not Fig 4 measure the expected commercial volume (m3/ha)?
l.498 ‘logs’ repeated
Author Response
Major Comments
The paper utilizes a continuous forest model to evaluate the role of stand establishments costs and thinnings on capital returns and possible role of carbon on average standing volumes and rotation ages/thinning regimes.
The paper finds that higher returns are realized if establishment costs are reduced. This is intuitive and consistent with stand level analysis. Findings indicate that higher initial planting rates lead to increased standing volumes/carbon stocks and longer rotations. Again, consistent with stand level analysis.
The paper, though the approach is from an estate level perspective, does not lend itself to any new insights not already gleaned from conventional stand level analysis.
Indeed, stand-level analyses have been or can be conducted which qualitatively would agree with the presented results.
The core content of the paper contains three elements:
- microeconomic financial sustainability from the forest owner perspective
- mitigation of global climate change through carbon sequestration in boreal forestry
- interplay of the above two elements
A paragraph has been added in the Introduction.
The results are novel concerning the above-mentioned core content.
This is discussed in the Discussion, at lines 541-546.
The novel results also are mentioned in the Abstract, at lines 10-12.
The paper could be improved with providing more clarity around the model used and some of the key data and assumptions.
Thank you, the description of the assumptions and procedures has been refined in the section “Computational procedures”, particularly concerning differences in comparison to earlier treatments.
L208 – what is the rationale behind declining (non-linear) planting expenses ($/stem planted)? There is no difference in costs between species?
Thank you.
It is now explained why the regeneration expenses are not proportional to the seedling count.
Differences between tree species are also clarified.
435 Just state the carbon emission price. Intuitively this makes sense (thinking of the stand-level model) but without more information this is very vague and the argument is not supported.
Thank you.
The recent carbon emission market prices are now mentioned, as well as the approximation of presently relevant market-based carbon rents that sustainably could be applied.
L.414-517/580-581 General risk theory is not superficially covered yet it is part of the conclusions. Either remove or make greater effort to include connect the ‘general theory of risks’ to results.
The elements of the general theory of risk applied here are very common-sense, and they can be readily investigated in Wikipedia:
https://en.wikipedia.org/wiki/Bond_duration#Risk_%E2%80%93_duration_as_interest_rate_sensitivity
https://www.blackrock.com/us/individual/education/understanding-duration
https://en.wikipedia.org/wiki/Concentration_risk
https://se.mathworks.com/discovery/concentration-risk.html
Internet references (like the Wikipedia pages) could be included, but the author thinks it is more of scientific style to refer to textbooks.
However, the descriptions of duration risk on the one hand and concentration risk on the other are now expanded.
Almost needless to say, the duration risk, as well as the concentration risk, are essential elements in the microeconomic financial sustainability.
Minor Comments
l.13 ‘Negligence’ suggest not undertaking thinning is illegal or against some moral imperative.
Thank you. Now the paper refers to “omission” of thinnings.
l.35 Is it generally true carbon prices are too low to compensate for increased carbon storage around the world or only in the region of study? Please clarify.
It should be clear from line 35 that the statement is directly based on references [9,13,14].
l.45-46. Again, please clarify geographic location.
It is now made clear that a growth model calibrated in Norway is used, however, expenses and prices valid in the Southern half of Finland are used. Correspondingly, the application is within the Nordic region, however with reservation to varying expenses and prices. This text is not on line 45 but on lines 51-56.
L66-74 – objective not clear as written
A new paragraph has been added on lines 77-80.
l.89 unnecessary dash ( - ) in resolution
Ok.
103-104 - confirm height units – metres?
Ok.
148-149 Last sentence unclear, please clarify.
Text expanded.
177 – what is meant by ‘devastating’?
This is a direct reference to Ref. [30].
According to Internet sources, the meaning of “devastating” is
“highly destructive or damaging”.
l 187 – awkward sentence - what is ‘young stand cleaning’?
“Cleaning” has now been replaced by “tending” throughout the paper, except for pre-harvest cleaning.
l.275 what is Stem count, 1/ha label mean?
1/ha is the dimension of the area density of count.
l.294-295 and Fig 4 l.302-302. Use of expected ‘value’, a monetary term, and volume together is very confusing. Does not Fig 4 measure the expected commercial volume (m3/ha)?
“Expected value of a measurable quantity” is a concept of probability theory.
It does not necessarily refer to any monetary or financial concept.
The “expected value of an observable” first appears on line 158, where it is given a mathematical definition. On line 168, the concept is given as an integral over the age distribution within an estate. On line 171, Eq. (5) gives the expected value of capital return rate within an estate.
On line 208 it is explained how an expected value of growth rate is estimated.
On line 307 stands “Figure 4 shows the expected (average) value of commercial stand volume as a function of rotation age,…”
The author thinks this is how the content of Figure 4 should be described, not to confuse the content with “expected stand volume as a function of stand age” which would be a completely different thing.
l.498 ‘logs’ repeated
OK.
Round 2
Reviewer 1 Report
no further comments
Reviewer 3 Report
The author has adequately addressed previous comments.
