A Danish example of optimal thinning strategies in mixed-species forest under changing growth conditions caused by climate change

In this study, we analyse the economic and managerial aspects of option values related to having a mixed-species stand. As an example, we look at a mixed Norway spruce and Sitka spruce stand in Denmark when timing and intensity of future climate, and its effect on tree growth, are uncertain. Assuming that tree growth follows a discrete non-stationary stochastic process, we use dynamic programming to optimise the harvest distribution between the two species.

The results show that facing growth uncertainty caused by potential climate change implies an option value. Such uncertainty can be a potential advantage as long as we are able to maintain flexibility, keep decisions open, and there is a chance that climatic change will benefit some species. We analyse the model under different uncertainty assumptions and show that the larger changes we expect, the higher is the option value at any time during the stand’s life and, hence, we keep, on average, both tree species in the stand for a longer period of time. Moreover, we find that the adjustments may take place rather late in the rotation, a result brought about by the significance of the option value, which makes it optimal to maintain a reasonable stocking of both species.