Changing the forest sector modeling tools. optimization. Hanne K. Sjølie PhD student Norwegian University of Life Sciences/ Oregon State University

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2 Changing the forest sector modeling tools in Norway: From static to dynamic optimization Hanne K. Sjølie PhD student Norwegian University of Life Sciences/ Oregon State University

3 MODELS Norwegian Trade Model II (NTM II) Static optimization model of Norwegian forest industry Gaya Simulation model of forest management in Norway 3 NTM with dynamic optimization Norwegian forest sector model Dynamic model of forest industry and sylviculture

4 4 NORWEGIAN TRADE MODEL II (NTM II) Partial, spatial and static equilibrium model of the Norwegian forest sector (including bioenergy) (Trømborg & Solberg 1995, Bolkesjø 2004) Purpose of the model: Analyse consequences for the Norwegian forest sector of shifts in economic conditions Describes production, consumption, trade and transport Similar in structure to the Global Trade Model (GTM) developed at IIASA in the beginning of the 1980s and further developed in Finland (Kallio et al. 1987) Objective function: Maximise the welfare under the assumption of perfect competition Equilibrium price and quantity for each good is determined from the optimal solution

5 NORWEGIAN TRADE MODEL II Capacity base year Base year production and prices of roundwood Base year prices and consumption of final products Elasticities Growing stock base year 5 Roundwood prices and consumption NTM Growing stock new period Capacity Final Transport and products trade prices and consumption Period t+1, t+2,

6 6 THE STAND SIMULATOR GAYA Simulates yield for a range of management options based on the condition of the forest plot at each point of time and criteria (Hoen 1990, Hoen & Solberg 1994) For example, thinning can take place if the stand is within the range of (t, t+n) years, has minimum m x m 3 per hectare and is a Spruce stand Yields of timber and carbon and corresponding cash flows are simulated Prices and costs are exogenously fixed The results from Gaya are usually put into a optimization model, J/C, which optimize the managements in order to maximize the net present monetary value or net present carbon value

7 OF LIFE SCIENCES GAYA National forest inventory plots GAYA Criteria for management 7 For each stand: J/C Management options and corresponding yields

8 8 NTM What modeling tools do we have now? Supply function endogenous and demand function exogenous: Deciding price and quantity at the given line Static: myopic model which h only optimize for one year at the time No investments and sylviculture in forestry included, growing stockyear t = growing g stockyear t-1 +increment t-1 harvest t-1 Capacity in industry endogenous Two market levels Gaya Detailed modelling of management and effects on yield Prices and costs exogenous Breakdown into sawlogs and pulpwood exogenous Carbon accounting in forest and wood products, incl. storage in wood and substitution effects (but products exogenous) No inclusion of the industry other than the fixed prices

9 What modelling tools do we want? Partial equilibrum optimization model of the Norwegian forest sector: Dynamic: With perfect foresight Investments and management in forestry endogenous Carbon accounting Prices and quantity of wood supply / consumption endogenous Capacity in the industry endogenous 9

10 PROCESS.. NTM II Static NTM II Dynamic Gaya simulations Max. nondeclining harvest Include prices and cost: Max. npv 10 Norwegian Forest Sector Model Endogenous prices

11 1000 m3 Harvest level from model vs. actual harvest level 25,000 20, ,000 10,000 5,000 0 Year 11 Harvest acc. to model Actual harvest 2007

12 m3 180,000, ,000, ,000, ,000, ,000,000 80,000,000 Growing stock for each county over next 90 years 60,000,000 40,000,000, 20,000, county

13 NORWEGIAN UNIVERSITY OF LIFE SCIENCES 13

14 Thank you for your attention! NORWEGIAN UNIVERSITY OF LIFE SCIENCES 14