As France works out its plan to tackle climate change issues, questions are arising in the forest sector as to how sectoral mitigation programs such as those designed to enhance fuel wood consumption or to stimulate in-forest carbon sequestration may coincide with an inter-sectoral program such as an economy-wide carbon tax.
This paper provides insights into this question by exploring the impacts of (1) a combination of a carbon tax and a fuel wood policy, and (2) a combination of a carbon tax and a sequestration policy on (i) the economy of the forest sector, and (ii) the dynamics of the forest resource. To do this, a modified version of the French Forest Sector Model (FFSM) is used and simulations are carried out on a 2020 time horizon.
Basing the analysis on the fuel wood sector, the paper shows that wood producers always benefit from the combination of a carbon tax with either a fuel wood policy or a sequestration policy at the national level. Conversely, and although it favors wood products instead of non-wood substitutes, a carbon tax always decreases consumer surpluses by increasing wood product prices. As a consequence, the combination of a carbon tax with sectoral policies is likely to raise questions about the political economy of the mitigation program. This is particularly true in the case of a combination of a carbon tax with a sequestration policy, which already decreases consumer surpluses. The paper shows that by increasing transport costs between domestic regions, the carbon tax reallocates production patterns over French territory which could lead to the necessity of a regional breakdown of policy-mixes in the forest sector.