Forest biomass energy: assessing atmospheric carbon impacts by discounting future carbon flows

Although forest biomass energy was long assumed to be carbon neutral, many studies show delays between forest biomass carbon emissions and sequestration, with biomass carbon causing climate change damage in the interim. While some models suggest that these primary biomass carbon effects may be mitigated by induced market effects, for example, from landowner decisions to increase afforestation due to higher biomass prices, the delayed carbon sequestration of biomass energy systems still creates considerable scientific debate (i.e., how to assess effects) and policy debate (i.e., how to act given these effects). Forests can be carbon sinks, but their carbon absorption capacity is finite. Filling the sink with fossil fuel carbon thus has a cost, and conversely, harvesting a forest for biomass energy – which depletes the carbon sink – creates potential benefits from carbon sequestration. These values of forest carbon sinks have not generally been considered. Using data from the 2010 Manomet Center for Conservation Sciences ‘Biomass sustainability and carbon policy study’ and a model of forest biomass carbon system dynamics, we investigate how discounting future carbon flows affects the comparison of biomass energy to fossil fuels in Massachusetts, USA. Drawing from established financial valuation metrics, we calculate internal rates of return (IRR) as explicit estimates of the temporal values of forest biomass carbon emissions. Comparing these IRR to typical private discount rates, we find forest biomass energy to be preferred to fossil fuel energy in some applications. We discuss possible rationales for zero and near‐zero social discount rates with respect to carbon emissions, showing that social discount rates depend in part on expectations about how climate change affects future economic growth. With near‐zero discount rates, forest biomass energy is preferred to fossil fuels in all applications studied. Higher IRR biomass energy uses (e.g., thermal applications) are preferred to lower IRR uses (e.g., electricity generation without heat recovery).