Investment Uncertainty Analysis in Eucalyptus Bole Biomass Production in Brazil

Abstract

Forestry investment projects for the biomass production of the eucalyptus bole can be characterized by uncertain environments, which result in economic risk to the forest producer, however that can be measured by applying probabilistic techniques. This was our motivation and justification for analyzing the economic-financial viability of different silvicultural practices for eucalyptus bole biomass production under conditions of uncertainties, running Monte Carlo method for risk management. The experiment was carried out in the state of São Paulo, Brazil, using 5 treatments with spacings of 3 m × 2 m; 3 m × 1 m; 1.5 m × 2 m; 3 m × 0.5 m; and 1.5 m × 1.0 m, i.e., different spacings between planting lines and plants. These treatments were characterized as investment projects. To develop stochastic models, we relied on technical-economic deterministic variables. We evaluated the investment projects based on the cash flows under conditions of uncertainty, discounted at the attractiveness rate calculated by capital asset pricing model. With the results of these economic flows, the net present value, the modified internal rate of return and the profitability index values were estimated, commonly used in the analysis of investments in projects. The results showed that based on economic metrics, the three-year rotation cycle for forest stands for biomass production of the main bole of eucalyptus, with a spacing of three meters between rows and two meters between plants, had an 83% probability of economic success. The sensitivity analysis showed that the bole biomass of eucalyptus is the most important variable for determining the economic-financial feasibility of the investment project.

Empowering landowners to combat climate change: the economic case for forest carbon supply at the stand level

“…argue that extending the harvest age has a lower opportunity cost in low-productivity environments, and therefore the cost of conserving the stand as well as the amount of carbon stored are lower, discouraging landowners to enter the voluntary carbon market when faced with a xed payment for forest carbon.For landowners who have mature forests and seek a contract paying for marginal carbon sequestration over the next few years, only those who established eucalyptus will be able to bene t and, again, those who cultivate PIRA will not bene t if there are no government incentives.When analysing stochastic valuation, the decision to opt for carbon payment is more sensitive to the price of carbon captured, roundwood and the discount rate. Similar results were found by Fischer et al(2017),Simões et al (2018) andMei and Clutter (2022) in investigations analogous to ours using Monte Carlo simulation. Similar to them, it was found that the optimum rotation age does not deviate much from that de ned by the Faustmann model when roundwood prices are above the price of the hypothetical carbon contracts.In conclusion, considering that planted forests are a nature-based solution to contain the climate change we are experiencing, additional forest carbon from eucalyptus-planted forests becomes an effective option if we extend their harvest age.…”

Forest plantations with Toona ciliata: impacts of managerial flexibility on economic viability

“…As advised by O' Hagan et al (2006), Leal et al (2007), Briggs et al (2012), and Simões et al (2018), based on the opinion of forestry experts, a volatility of 30.0% and a drift of 10.0%, both related to the behavior of the price of T. ciliata wood, were assumed. Consequently, the Monte Carlo method simulation was performed with 100,000 iterations, with the use of the @Risk Copyright © 2020 software (Palisade Corporation, 2021).…”

Green, Yellow, and Woody Biomass Supply-Chain Management: A Review

“…Eucalyptus is included in the woody biomass SCM category and is considered one of the most commercial woody crops cultivated for bioenergy production. In [43], the economic viability of various operational practices regarding whole eucalyptus tree trunk production was analyzed under varying production and economical parameters. To analyze risk management a Monte Carlo analysis was run.…”